CORPORATIONS-MEASURE OF SHORT SWING PROFITS UNDER SECTION 16(b) OF THE SECURITIES EXCHANGE ACT OF 1934

Plaintiff, a stockholder in X corporation, sued in the name of and on behalf of the corporation to recover short swing profits made by defendants in the sale of stock purchase warrants of the corporation, in violation of the Securities Exchange Act. Defendants were officers of the corporation and as part of the consideration for entering into their contracts of employment they received each year a number of these warrants. Within six months of the receipt of their 1945 warrants defendants had made certain sales of warrants then held by them. The court, in a previous ruling, had granted a motion by plaintiff for a summary judgment holding that the warrant transactions violated section 16(b) of the Securities Exchange Act of 1934, but the question as to the amount of profits realized from the transactions was set over for trial. The trial developed no serious issues of fact but presented a question of law as to the measure of profits to be employed in this case. Plaintiff argued that inasmuch as the warrants had a cost of zero to defendants the profits realized amounted to the entire sale price. Defendants, on the other hand, contended that the cost of the warrants was to be found in the execution of the original employment contracts. On argument to the court, held, for defendants. The measure of profits is the difference between the market value of the warrants at the time of acquisition and the market value at the time of sale. Truncale v. Blumberg, (D.C. N.Y. 1950) 88 F. Supp. 677