Under Section 16(b) of federal securities law, what is the remedy for short-swing profits earned by corporate insiders?

Enhance your Bar Exam preparation with Themis Bar Exam Quiz. Use hints and multiple choice questions to sharpen your understanding. Excel in your Bar Exam!

Multiple Choice

Under Section 16(b) of federal securities law, what is the remedy for short-swing profits earned by corporate insiders?

Disgorgement of profits is the remedy under Section 16(b). When an insider—such as an officer, director, or a person owning a substantial stake—buys and sells the issuer’s securities within six months, the net profits from that pair of transactions must be turned over to the corporation. The rule operates on strict liability: no need to prove fraud or intent—the focus is on undoing the insider’s quick gain from confidential information. This is why the automatic remedy is disgorgement of the short-swing profits. Imprisonment, state fines, or tax penalties aren’t the remedies provided by this provision.

Disgorgement of profits is the remedy under Section 16(b). When an insider—such as an officer, director, or a person owning a substantial stake—buys and sells the issuer’s securities within six months, the net profits from that pair of transactions must be turned over to the corporation. The rule operates on strict liability: no need to prove fraud or intent—the focus is on undoing the insider’s quick gain from confidential information. This is why the automatic remedy is disgorgement of the short-swing profits. Imprisonment, state fines, or tax penalties aren’t the remedies provided by this provision.

More practice questions