Opinion ID: 272506
Heading Depth: 2
Heading Rank: 3

Heading: Other Transactions.

Text: 41 On September 15, 1955 Lamb sold 300 shares of Air-Way Common on the American Stock Exchange. The district court matched that sale against the 'purchase' by Enterprises of 300 shares on June 6, 1955 as part of the 68,000 shares acquired from Industries on that date. According to the lower court this resulted in a recoverable profit of $2,702.52. Lamb does not challenge the matching of transactions by him against transactions by Enterprises, which corporation was 100 per cent controlled by Lamb and his family. However, because we have held that the June 6, 1955 transaction was not a Section 16(b) 'purchase' of Air-Way Common by Enterprises, this portion of the lower court's decision must also be reversed. Nevertheless, it would seem proper to match Lamb's September 15, 1955 sale of 300 shares of Air-Way Common (sold at a price totaling $5,757.12) against the Lamb purchases of 300 shares of Air-Way Common on the American Stock Exchange between March 18, 1955 and March 22, 1955 (at a cost of $4,091.10), which results in a profit recoverable from Lamb by Air-Way amounting to $1,666.02. /28/ We affirmed to this extent. 42 In two instances the court below computed 'realized profits' by comparing the market price of Air-Way Common prior to the 100 per cent stock dividend, in the nature of a stock split, with the market price of an equal number of shares after the stock split. In the first instance, the court matched 100 of the 10,500 shares 'sold' 29 by Enterprises on October 6, 1955 against a 'purchase' by Enterprises of 100 shares of new Air-Way Common on October 16, 1955. The 'sale' on October 6 was at a price of $19 per share, resulting in total proceeds of $1,900. The October 19 'purchase' of new Air-Way Common, which reflected the 2-for-1 split, was at a considerably lower price, $1,017. Thus, the 'profit realized' according to the district court was $883.00. In the second instance the lower court, without any recognition of the intervening stock split, matched 100 of the shares of Air-Way Common that Lamb had sold over the American Stock Exchange on September 15, 1955 against a purchase by Lamb on October 6, 1966 of 100 shares of new Air-Way Common. 30 43 We agree with the Securities and Exchange Commission that when a purchase or sale that precedes a stock dividend (or stock split) is to be matched against a sale or a purchase made after the record date for the dividend distribution (or the split) there should be a proportionate adjustment in the price per share of the stock obtained or disposed of in the earlier transaction in order to determine the true measure of profit realized, if any, in the later transaction. Cf. Kornfeld v. Easton, 217 F.Supp. 671 (SDNY 1963), aff'd, 327 F.2d 263 (2 Cir. 1964). 44 Adopting this approach we must reverse both of the lower court's computations of 'profit realized' here under consideration because of failure to take account of the 100 per cent stock dividend in the nature of a stock split. In the first instance the sales price of one old share of Air-Way Common was $19; the purchase price plus commissions of one new share was $10.17. Two new shares were the equivalent of one old share. Therefore, the cost of one new share should have been matched against one-half of the price of an old share, that is, $9.50. It is apparent that once this adjustment is made there is no profit, and no recovery, because the cost of one new share exceeded the adjusted sales price. Similarly in the second instance, although the unadjusted sales price exceeded the purchase price, thus leading the court to conclude that a recoverable profit had been realized, once the sales price is adjusted to reflect the split, all profit disappears. 45