CORPORATIONS-SECURITIES EXCHANGE ACT OF 1934--MEASURE OF SHORTSWING PROFITS UNDER SECTION 16(b)

Plaintiff stockholder brought a derivative action against the defendant officer for profits made in violation of section 16(b) of the Securities Exchange Act of 1934 on the purchase and sale, within six months, of securities issued by the corporation under an incentive option agreement. The contract provided that on or after the first accrual date, until a fixed termination date, a stated number of shares could be purchased at a set price; the same privilege accrued with the identical termination date in each of the next two years. There was no dispute of fact; the question thus centered on the computation of short-swing profits. The defendant argued that the proper cost-base should be the market price at the date of acquisition. This was the date of the highest priced sales by the defendant, and its use would have resulted in no profit as to the stock then acquired. The argument was based on a decision of the same court made eleven months earlier holding the cost-base to be the date of acquisition of warrants issued yearly during an employment contract. On motion for summary judgment, held, the proper cost-base was the market price on the date that the option accrued. The first case in which the acquisition date was fixed by the contract is distinguishable on its facts from the case at bar in that the officer here had the choice of exercise dates. Steinberg v. Sharpe, (D.C. N.Y. 1950) 95 F. Supp. 32