FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ALPHA VENTURE CAPITAL PARTNERS 

LP; CARACCIOLO FAMILY TRUST;

GREGORY A. GOULD; LAW OFFICES 

OF KENNETH E. CHYTEN 401(K)

PROFIT SHARING PLAN; GAVIN 

MYERS; MARTIN PETERSON, 

derivatively on behalf of CytoDyn 

Inc,

Plaintiffs-Appellants,

v.

NADER Z. POURHASSAN; CYTODYN,

INC., Nominal; a Delaware 

corporation,

Defendants-Appellees.

No. 21-35274

D.C. No.

3:20-cv-05909-

JLR

OPINION

Appeal from the United States District Court

for the Western District of Washington

James L. Robart, District Judge, Presiding

Submitted February 11, 2022*

Seattle, Washington

Filed April 8, 2022

* The panel unanimously concludes this case is suitable for decision 

without oral argument. See Fed. R. App. P. 34(a)(2).
2 ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN

Before: Jay S. Bybee, Carlos T. Bea, and

Morgan Christen, Circuit Judges.

Opinion by Judge Bea

SUMMARY**

Securities

The panel affirmed the district court’s dismissal of an 

action brought by shareholders of CytoDyn, Inc., alleging 

that a corporate insider violated § 16(b) of the Securities 

Exchange Act of 1934 by failing to disgorge to the 

corporation all profits made from a short-swing transaction 

in which he bought and then sold company securities within 

a six-month period.

The panel held that defendant Nader Pourhassan was not 

required to disgorge to CytoDyn his short-swing profits from 

exercising options and warrants granted by CytoDyn, 

entitling him to purchase and later sell CytoDyn shares. The 

panel held that the short-swing transaction fell within an 

exemption, set forth in SEC Rule 16b-3(d)(1), because the 

option and warrant award was “approved by the board of 

directors” of CytoDyn. The panel concluded that the 

affirmative votes of three of CytoDyn’s five board members, 

at a meeting where only four board members were present, 

was sufficient, and a unanimous decision was not required 

** This summary constitutes no part of the opinion of the court. It 

has been prepared by court staff for the convenience of the reader.
ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN 3

under either the plain text of Rule 16-3(d)(1), Delaware 

corporate law, or CytoDyn’s bylaws.

COUNSEL

Rylan Weythman and Kelly A. Mennemeier, Foster Garvey 

PC, Seattle, Washington; Mark Richardson, Labaton 

Sucharow LLP, Wilmington, Delaware; Michael J. 

Maimone, Barnes & Thornburg LLP, Wilmington, 

Delaware; Steven J. Purcell, Purcell Julie & Lefkowitz LLP, 

New York, New York; for Plaintiffs-Appellants.

Thomas R. Johnson, Perkins Coie LLP, Portland, Oregon, 

for Defendant-Appellee Nader Z. Purhassan.

Ian Christy, Miller Nash LLP, Portland, Oregon, for 

Nominal Defendant-Appellee CytoDyn, Inc.

OPINION

BEA, Circuit Judge:

CytoDyn, Inc. is a publicly traded corporation 

incorporated in the state of Delaware. Appellee Nader 

Pourhassan is (and was, at all relevant times) CytoDyn’s 

Chief Executive Officer (CEO) and a member of its board of 

directors. In late 2019, CytoDyn granted Pourhassan options 

and warrants entitling him to purchase several million 

CytoDyn shares at certain, specified prices. In mid-2020, 

about five months after that option and warrant award, 

Pourhassan exercised those options and warrants and then 

sold the resulting CytoDyn stock at a profit. Appellants 
4 ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN

here—several shareholders of CytoDyn (the 

“Shareholders”)—sued Pourhassan, alleging that he violated 

Section 16(b) of the Securities Exchange Act of 1934. 

Section 16(b) requires corporate insiders like CEO 

Pourhassan to disgorge to the corporation all profits the 

insiders make from buying and then selling (or selling and 

then buying) company securities within any six-month 

period (a so-called “short-swing” transaction).

The district court dismissed the Shareholders’ complaint, 

finding that Pourhassan need not disgorge his short-swing 

profits to CytoDyn because his short-swing transaction fell 

within an exemption to the federal rule because the option 

and warrant award was “approved” by CytoDyn’s board of 

directors. We affirm.

I. BACKGROUND

A. Statutory Background

Section 16(b) of the Securities Exchange Act of 1934 is 

meant to prevent corporate insiders (i.e., corporate 

executives, officers, and directors) from “exploit[ing] 

information not generally available to others to secure quick 

profits.” Kern Cnty. Land Co. v. Occidental Petroleum 

Corp., 411 U.S. 582, 592 (1973). In Congress’s view, shortswing transactions by corporate insiders pose an “intolerably 

great” risk of this type of exploitation. Dreiling v. Am. 

Express Co., 458 F.3d 942, 947 (9th Cir. 2006) (quoting 

Kern, 411 U.S. at 592). So, to prevent potential abuse by 

corporate insiders, Section 16(b) requires such insiders to 

return to the corporation any profits they realize from shortswing transactions. See 15 U.S.C. § 78p(b). Section 16(b) 

“imposes strict liability regardless of motive,” requiring all 

corporate insiders to disgorge their profits from all short-
ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN 5

swing transactions, even those transactions “not actually 

based on inside information.” Dreiling, 458 F.3d at 947.

Recognizing Section 16(b)’s broad reach, Congress 

authorized the Securities and Exchange Commission to issue 

rules exempting from Section 16(b) certain transactions that 

the SEC deemed unlikely to involve inside information. See

15 U.S.C. § 78p(b). Under that rulemaking authority, the 

SEC issued rules creating several exemptions from Section 

16(b). As relevant here, SEC Rule 16b-3(d) exempts from 

Section 16(b) any “transaction . . . involving an acquisition 

from the issuer” (i.e., an acquisition from the insider’s

corporation itself) so long as the transaction was either: 

1) “approved by the board of directors of the issuer” (here, 

the issuer is CytoDyn); 2) approved by “a committee of the 

board of directors that is composed solely of two or more 

Non-Employee Directors”; or 3) approved by a shareholder 

vote. 17 C.F.R. § 240.16b-3(d)(1), (2). In the SEC’s view, 

an insider’s acquisition of securities from the issuer does not 

“present the same opportunities for insider profit on the basis 

of non-public information as do” other types of transactions. 

Dreiling, 458 F.3d at 948 (quoting Ownership Reports and 

Trading by Officers, Directors and Principal Security 

Holders, 61 Fed. Reg. 30,376, 30,377 (June 14, 1996)). 

“[W]here the issuer, rather than trading markets, is on the 

other side of an officer or director’s transaction in the 

issuer’s equity securities, any profit obtained is not at the 

expense of uninformed shareholders and other market 

participants of the type contemplated by [Section 16(b)].” 

Id. (quoting Ownership Reports and Trading, 61 Fed. Reg. 

at 30,377).

The first of these exemptions—the board approval 

exemption—is the exemption at issue here. Under that 

exemption, an insider’s acquisition of securities from the 
6 ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN

issuer are exempt from Section 16(b) if the acquisition was 

“approved by the board of directors of the issuer.” 17 C.F.R. 

§ 240.16b-3(d)(1). So, under this exemption, a corporate 

insider can obtain corporate securities from the issuer with 

board approval and then re-sell those securities within six 

months without triggering Section 16(b)’s profit-remission 

requirements.1

B. Factual Background

In December 2019, CytoDyn granted Pourhassan stock 

options giving him the right to purchase 2,000,000 shares of 

CytoDyn stock and warrants giving him the right to purchase 

an additional 2,000,000 CytoDyn shares.2 The same day, 

CytoDyn’s board of directors met. Of the five board 

members, four were present at the meeting; one was absent. 

Of the four members present, three voted to approve the 

award of options and warrants to Pourhassan; Pourhassan 

himself was present but did not cast a vote. Under 

CytoDyn’s bylaws, the four board members present at the 

December 2019 meeting constituted a “quorum for the 

1 The parties do not contest that the board of directors need only 

approve the insider’s acquisition of securities from the issuer and need 

not also approve the insider’s subsequent sale of those securities. So we 

assume without deciding that the parties are correct. See also Gryl ex 

rel. Shire Pharms. Grp. PLC v. Shire Pharms. Grp., 298 F.3d 136, 140–

46 (2d Cir. 2002) (affirming a lower court ruling that the 16b-3(d)(1) 

exemption applied because the board approved a compensation plan that 

“precisely delimited the securities grants that the individual defendants 

would ultimately receive” without inquiring whether the plan also 

specified how the defendants were to sell the securities).

2 Warrants are similar to stock options in that they entitle the 

warrant-holder to purchase shares of stock of a specified company at a 

specific exercise price, usually within a specified time period. See

Warrant, Black’s Law Dictionary (11th ed. 2019).
ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN 7

transaction of business” and the affirmative vote of three 

directors—a majority of the directors present—

“constitute[d] action by the Board of Directors.”

In late April and early May 2020, less than six months 

after the December 2019 option and warrant award and 

board meeting, Pourhassan exercised the options that he held 

to buy 2,000,000 shares of CytoDyn stock and sold nearly 

5,000,000 shares of CytoDyn stock, making a significant 

profit. Soon thereafter, some CytoDyn shareholders 

demanded that Pourhassan disgorge to CytoDyn the profits 

that he made from selling the shares of CytoDyn stock that 

he obtained through the 2019 option and warrant award. The 

Shareholders argued that because the 2019 award and the 

subsequent sales were within six months of one another, they 

were a short-swing transaction under Section 16(b) of the 

Exchange Act.3 CytoDyn responded that the option and 

warrant award was exempt under SEC Rule 16b-3(d)(1), 

relieving Pourhassan of his obligation to disgorge his profits 

to CytoDyn. After several fruitless back-and-forths between 

the Shareholders and CytoDyn, the Shareholders sued.

In the district court, Pourhassan moved to dismiss the 

Shareholders’ complaint on the grounds that Rule 16b3(d)(1)’s board approval exemption applied to the 2019 

option and warrant award. The Shareholders argued that the 

16b-3(d)(1) exemption did not apply because, in their view, 

the relevant insider-issuer transaction must be approved by 

“the company’s ‘full board’ of directors—all directors, not 

3 The parties do not contest that Pourhassan’s acquisition of the 

options and warrants was a “purchase” of securities under Section 16(b), 

so we assume without deciding that the parties are correct on this matter. 

See also Gryl, 298 F.3d at 141 (“[F]or purposes of the rules promulgated 

under Section 16(b) the acquisition of a securities option is deemed to be 

equivalent to the acquisition of the security underlying that option.”).
8 ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN

merely a majority.” And here, the parties agree that, of 

CytoDyn’s five board members, only four attended the 

meeting to approve the option and warrant award and only 

three voted to approve that award. The district court 

dismissed the Shareholders’ complaint, finding no support 

for the Shareholders’ argument in the applicable caselaw or 

the text of Rule 16b-3(d). The Shareholders timely 

appealed.

II. STANDARD OF REVIEW

We review de novo a district court’s decision to dismiss 

a complaint under Fed. R. Civ. P. 12(b)(6). See Dreiling, 

458 F.3d at 946 n.2. We may consider documents referred 

to in the complaint or any matter subject to judicial notice, 

including SEC filings. See id.

III. DISCUSSION

The parties dispute only whether the Rule 16b-3(d)(1) 

board approval exemption applies to Pourhassan’s 2019 

option and warrant award.4 Specifically, the parties dispute 

the meaning of the phrase “approved by the board of 

directors” as used in that rule. The Shareholders argue that 

16b-3(d)(1) requires approval by the “full board” of 

directors. On that theory, the affirmative votes of three of 

CytoDyn’s five board members, at a meeting where only 

four board members were present, does not constitute 

“approv[al] by the board of directors” of CytoDyn under 

Rule 16b-3(d)(1). Pourhassan disagrees. In his view, 

because the CytoDyn board approved the 2019 option and 

warrant award by a majority vote “in compliance with 

4 The parties do not dispute that Pourhassan, as CytoDyn’s CEO, is 

a corporate executive subject to Section 16(b).
ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN 9

Delaware law and CytoDyn’s bylaws,” the board 

“approved” the award under 16b-3(d)(1). The district court 

agreed with Pourhassan. With jurisdiction under 28 U.S.C. 

§ 1291, we affirm.

Recall that Rule 16b-3(d)(1) exempts from Section 16(b) 

any transactions that involve a corporate insider’s 

acquisition of securities from the issuer if the acquisition was 

“approved by the board of directors” of the issuer (here, 

CytoDyn). 17 C.F.R. § 240.16b-3(d)(1). In plain English, if 

a corporation’s board “approve[s]” the corporation’s 

decision to give securities to an insider, the insider can resell those securities within six months without having to 

disgorge his profits to the corporation under Section 16(b). 

The operative text from the rule is “approved by the board 

of directors”; the two component phrases are “approved” and 

“board of directors.” Neither phrase supports the 

Shareholders’ proposed unanimity requirement.

First is the word “approved.” “Approved” is the past 

tense of the verb “approve,” which means to “give formal 

sanction to” or to “confirm authoritatively.” Approve, 

Black’s Law Dictionary (11th ed. 2019). “Approved” by 

itself does not prescribe any particular form of approval or 

process for obtaining approval. Approval does not 

inherently require unanimity, a supermajority, a particular 

quorum, or any other specific steps. A complete but nonunanimous body can give approval, as can a body missing 

some of its members. Cf., e.g., Crawford v. Bd. of Educ., 

458 U.S. 527, 532 n.5 (1982) (noting that “[t]he State Senate 

[of California] approved the Proposition by a vote of 28 to 6” 

though the California Senate had (and has) 40 seats); 

Trunk v. City of San Diego, 629 F.3d 1099, 1104 (9th Cir. 

2011) (noting that the U.S. House of Representatives 
10 ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN

“approved the bill by a vote of 349 to 74” though the House 

has 435 members).

Next is the phrase “board of directors.” That phrase 

means the “governing body of a corporation, partnership, 

association, or other organization, elected by the 

shareholders or members to establish policy, elect or appoint 

officers and committees, and make other governing 

decisions.”5 Board of Directors, Black’s Law Dictionary

(11th ed. 2019). Nothing in this definition supports the 

unanimity requirement either. A board of directors certainly 

differs from a “committee of the board of directors” and 

from an individual director. But a board of directors does 

not cease to be a board of directors if a member is absent or 

non-voting any more than the United States Senate ceases to 

be the United States Senate if a Senator is absent or nonvoting. Cf. Viet. Ass’n for Victims of Agent Orange v. Dow 

Chem. Co., 517 F.3d 104, 110 (2d Cir. 2008) (“The full 

Senate rejected this measure by a vote of 62–22.”); 

Rosado v. Civiletti, 621 F.2d 1179, 1187 (2d Cir. 1980) 

(“Following extensive hearings in the Senate Foreign 

Relations and Judiciary Committees, the full Senate 

unanimously approved the treaty by a vote of 90 to 0 on July 

21, 1977.”). So by its plain terms, Rule 16b-3(d)(1)’s text—

“approved by the board of directors”—places no limits on 

how a board of directors must “approve[]” insider-issuer 

transactions like Pourhassan’s 2019 option and warrant 

5 The law of Delaware, the state where CytoDyn is incorporated, has 

an analogous understanding. Boards of directors are groups of “1 or 

more members, each of whom shall be a natural person,” and “[t]he 

business and affairs of every corporation [incorporated in Delaware] 

shall be managed by or under the direction of” that corporation’s board. 

8 Del. Code. § 141(a), (b).
ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN 11

award. Rule 16b-3(d)(1) has no embedded requirements of 

unanimity, a supermajority, or a particular quorum.

So, if Rule 16b-3(d)(1) sets out no specific procedure for 

how a board must approve an insider-issuer securities 

acquisition, where do we find any procedural requirements? 

The specific context here—corporate boards of directors—

provides the answer. In situations like this, the Supreme 

Court has recognized that the “gaps” in the federal laws 

“bearing on the allocation of governing power within [a] 

corporation” should generally be “filled with state law.” 

Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 99 (1991). 

Here, state law fills the gap well. State corporate codes, 

supplemented by the articles of incorporation and corporate 

bylaws of individual corporations, typically specify the 

procedures that a corporate board must follow to “approve” 

corporate decisions. For instance, the corporate law of 

Delaware, CytoDyn’s state of incorporation and the home of 

most American corporations, explains that the “vote of the 

majority of the directors present at a meeting at which a 

quorum is present shall be the act of the board of directors.” 

8 Del. Code § 141(b). In turn, Delaware defines a quorum 

as a “majority of the total number of directors.” Id. Note 

the precise language in the statute: a board decision made by 

majority of a quorum of a board constitutes an “act of the 

board of directors,” not an act of just part of the board. Id. 

So, for Delaware corporations like CytoDyn, a quorum of 

the board can take action by a majority vote.6 Here, 

6 Delaware law does permit corporations to specify, through their 

bylaws or articles of incorporation, different procedures that their boards 

can use. Corporations may, for instance, require a larger or smaller 

number of directors than a simple majority for a quorum, or may require 

an affirmative vote by more than a simple majority of directors for the 

vote to be an “act of the board of directors.” See 8 Del. Code § 141(b). 

CytoDyn elected to retain Delaware’s default rules, such that a 
12 ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN

Delaware law thus fills the gap left by Rule 16b-3(d)(1). 

Delaware state law controls the specific procedures that 

CytoDyn’s board must follow to “approve[]” insider-issuer 

security transactions under Rule 16b-3(d)(1).

The appellant Shareholders disagree. They argue that 

under Rule 16b-3(d)(1), “the board of directors” means the 

“full board” such that each and every board member must 

vote to approve an insider-issuer transaction for that 

transaction to be “approved by the board of directors.” But 

the word “full” appears nowhere in Rule 16b-3(d)(1). And 

as just explained, the rule’s actual text—“approved by the 

board of directors”—does not support the Shareholders’ 

unanimity requirement.

Recognizing that Rule 16b-3(d)(1)’s text cuts against 

them, the Shareholders cite several sources that do use the 

phrase “full board” when discussing Rule 16b-3(d)(1)’s 

board approval exemption. First are a few SEC writings that 

discuss Rule 16b-3(d)(1). E.g. Ownership Reports and 

Trading, 61 Fed. Reg. at 30,381 (“When the rule requires 

‘Non-Employee Director,’ full board or shareholder 

approval, the Commission intends that the approval relate 

to specific transactions rather than the plan in its 

entirety.” (footnote omitted)); Exchange Act Section 16 and 

Related Rules and Forms, U.S. SEC (Aug. 11, 2010), 

https://www.sec.gov/divisions/corpfin/guidance/sec16interp.htm

(“[A]n amendment to a material term of a security acquired 

pursuant to the full board, Non-Employee Director or 

“majority” of CytoDyn’s board of directors “constitute[s] a quorum” and 

“the vote of a majority of the directors present . . . constitute[s] action by 

[CytoDyn’s] Board of Directors.”
ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN 13

shareholder approval conditions of Rule 16b-3(d) would 

require further approval . . . .”).

The SEC writings cited by the Shareholder do not 

persuade. At the outset, the Ownership Reports and Trading 

source is the SEC release containing the text of the final Rule 

16b-3(d)(1). But the Shareholders quote from the Rule’s 

preamble, not from the text of the Rule itself. As noted 

above, Rule 16b-3(d)(1) itself omits the word “full,” and 

when a rule conflicts with its own preamble, the rule 

controls. See El Comite Para El Bienestar de Earlimart v. 

Warmerdam, 539 F.3d 1062, 1070 (9th Cir. 2008). More 

pointedly, we have already rejected an argument nearly 

identical to the Shareholders’ here. In WildEarth Guardians 

v. Provencio, we refused to modify an agency rule’s 

meaning with the word “sparingly” because “the word 

‘sparingly’ d[id] not appear in the Rule, but instead in its 

preamble.” 923 F.3d 655, 667 (9th Cir. 2019). Here, as in 

WildEarth, “the preamble does not ‘impose a duty above and

beyond the actual terms of the regulation.’” Id.

More broadly, the SEC writings cited by the 

Shareholders are better interpreted as consistent with Rule 

16b-3(d)(1), not in conflict with it. The writings each use 

the phrase “full board” in the same sentence as descriptions 

of other forms of approval that can exempt an insider-issuer 

securities acquisition from Section 16(b) disgorgement. For 

instance, the Rule preamble notes that Rule 16b-3(d) 

requires the “approval of either the full board, the committee 

of Non-Employee Directors or shareholders,” Ownership 

Reports and Trading, 61 Fed. Reg. at 30,382, referring to the 

three exemptions set out in 17 C.F.R. § 240.16b-3(d). 

Further, the writings nowhere define the board approval 

exemption as, or limit that exemption to, approval by a 

unanimous corporate board.
14 ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN

With these facts in mind, the SEC writings do not appear 

to use the phrase “full board” to imply that the board 

approval exemption requires the assent of each and every 

board member. Rather, the writings are better understood as 

using “full board” to distinguish between the different Rule 

16b-3(d) approval exemptions, one of which requires 

approval from the “board of directors” as a whole and 

another of which requires approval from a constituent part

of the board of directors: a “committee of the board.” 

17 C.F.R. § 240.16b-3(d)(1). So the SEC writings neither 

contradict Rule 16b-3(d)(1)’s plain text nor support the 

Shareholders’ unanimity requirement. A “full” board of 

directors (as opposed to a “committee of the board”) is still 

the “full” board (again, as opposed to a “committee” thereof) 

even if some members are absent or not voting. Cf. Dow 

Chem. Co., 517 F.3d at 110 (“The full Senate rejected this 

measure by a vote of 62–22.” (emphasis added)); Rosado, 

621 F.2d at 1187 (“Following extensive hearings in the 

Senate Foreign Relations and Judiciary Committees, the full 

Senate unanimously approved the treaty by a vote of 90 to 0 

on July 21, 1977.” (emphasis added)).

Next, the Shareholders cite a few federal court opinions 

that also use the “full board” language, but these also provide 

the Shareholders no support. Dreiling did not address the 

question on appeal here—what form of “approv[al]” is 

necessary to trigger Rule 16b-3’s board approval 

exemption—and it uses the phrase “full board” only in 

passing and only as part of two direct quotations of the SEC 

writings just described.7 458 F.3d at 949, 954 (twice quoting 

Ownership Reports and Trading, 61 Fed. Reg. at 30,381). 

Similarly, Gryl ex rel. Shire Pharmaceuticals Group PLC v. 

7 So too with Atl. Tele-Network v. Prosser, 151 F. Supp. 2d 633 

(D.V.I. 2000). See id. at 638, 639.
ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN 15

Shire Pharmaceuticals Group PLC uses the phrase “full 

board” just once and does so whilst citing those same SEC 

writings. 298 F.3d at 141 n.2 (citing Ownership Reports and 

Trading, 61 Fed. Reg. at 30,381). If the SEC writings’ use 

of the phrase “full board” does not support the Shareholders’ 

position, then neither do cases that cite those writings 

without adding any additional exposition or interpretation. 

Further impugning the Shareholders’ argument, Gryl

affirmed that the Rule 16b-3(d)(1) exemption applied 

without bothering to analyze whether the relevant board vote 

was unanimous or whether the board meeting in question 

was attended by every board member. See Gryl, 298 F.3d 

at 144.

Third, the Shareholders point to a variety of sources, 

including Delaware state law, decisions of Delaware state 

courts, and CytoDyn’s own corporate bylaws, that 

distinguish between the “whole board” or “full board” on 

one hand and a “majority” of the board of directors on 

another. See, e.g., In re Oracle Corp. Derivative Litig., 

No. 2017-0337, 2018 WL 1381331, at *22 n.287 (Del. Ch. 

Mar. 19, 2018); 8 Del. Code § 312(h). But like the SEC 

writings and the federal case law cited by the Shareholders, 

these sources are unpersuasive. A mere “majority” of a 

corporate board and the “whole board” (defined in 

CytoDyn’s bylaws as “the total number of authorized 

Directors”) are plainly different concepts. But this 

distinction is unhelpful here because Rule 16b-3(d) does not 

contain the words “whole,” “full,” or “majority.” Rather, 

16b-3(d)(1) simply says that for insider-issuer security 

transactions to be exempt from Section 16(b), the 

transactions must be “approved by the board of directors.” 

And for the reasons given above, this language imposes no 

specific procedural requirements on how the board must give 

that approval.
16 ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN

Last, the Shareholders object that Pourhassan’s 

interpretation of Rule 16b-3(d)(1) creates an “illogical” 

“loophole.” If Rule 16b-3(d)(1) permits corporate boards to 

approve insider-issuer security transactions in any way that 

complies with corporate bylaws and Delaware state law, the 

Shareholders complain that the level of board support 

necessary to approve such a transaction turns on the “form 

of the approval in question.” What the Shareholders mean 

is that had CytoDyn’s board approved Pourhassan’s 2019 

option and warrant award without a board meeting but by the 

written approval of the directors, the board would have 

needed to act unanimously. But because the board acted 

during an actual meeting, the board needed only a majority 

vote under Delaware law. Compare 8 Del. Code § 141(b) 

(“The vote of the majority of the directors present at a 

meeting at which a quorum is present shall be the act of the 

board of directors . . . .”), with id. § 141(f) (providing that a 

board of directors can take action “without a meeting if all 

members of the board . . . consent thereto in writing”).8 But 

this is not a “loophole.” This is how corporate law works. 

Delaware state law deliberately imposes stricter-than-usual 

requirements on corporate boards when they act by written 

consent, a process that lacks the deliberation and procedural 

formalities inherent in a board meeting. The distinction that 

Delaware draws between board approval at a meeting and 

board approval by written consent is, as they say, not a bug 

but a feature.

With the above in mind, we agree with the district court 

that Rule 16b-3(d)(1) exempts Pourhassan’s 2019 option and 

warrant award from Section 16(b). Taking as true the

allegations in paragraphs 31 and 32 of the Shareholders’ 

complaint, a quorum of CytoDyn’s board met and approved 

8 CytoDyn’s corporate bylaws draw the same distinction.
ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN 17

that award by a majority vote, in compliance with both 

Delaware corporate law and CytoDyn’s bylaws. See 8 Del. 

Code § 141(b). This is sufficient under Rule 16b-3(d)(1). 

Pourhassan thus was not required to disgorge to CytoDyn his 

profits when he sold stock less than six months after 

receiving the 2019 option and warrant award. See 15 U.S.C. 

§ 78p(b); 17 C.F.R. § 240.16b-3(d)(1). The Shareholders’ 

complaint was properly dismissed.

* * *

While this case turns on discrete questions of regulatory 

and statutory interpretation, it is just a part of a larger 

balancing act between federal securities law and state 

corporate law. As the Supreme Court observed decades ago, 

corporations are “creatures of state law.” Santa Fe Indus. v. 

Green, 430 U.S. 462, 479 (1977) (quoting Cort v. Ash, 

422 U.S. 66, 84 (1975)). Investors thus “commit their funds 

to corporate directors on the understanding that, except

where federal law expressly requires certain responsibilities 

of directors with respect to stockholders, state law will 

govern the internal affairs of the corporation.” Id. (quoting 

Cort, 422 U.S. at 84).

Here, no federal law expressly requires us to federalize 

the state rules governing corporate boards’ internal affairs. 

SEC Rule 16b-3(d)(1) exempts insider-issuer acquisitions 

from Section 16(b) of the Securities Exchange Act if a 

corporate board of directors “approve[s]” those acquisitions, 

but the rule’s text does not require the board to follow any 

particular procedure or process when giving that approval. 

17 C.F.R. § 240.16b-3(d). Mindful of the careful balance 

between federal securities law and state corporate law, we 

leave the determination of what a corporate board must do 

to approve insider-issuer acquisitions to the laws of the state 

where the corporation is incorporated. See Kamen, 500 U.S. 
18 ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN

at 99. When it comes to the precise procedure that a 

corporate board of directors must follow to satisfy Rule 16b3(d)(1), federal securities law defers to—and does not 

displace—the state laws governing corporate boards.

IV. CONCLUSION

The district court’s ruling is AFFIRMED.