Opinion ID: 3038415
Heading Depth: 4
Heading Rank: 1

Heading: The transaction is approved by the

Text: board of directors of the issuer, or a com- mittee of the board of directors that is com- posed solely of two or more Non-Employee Directors; . . . 17 C.F.R. § 240.16b-3. [4] The SEC adopted the 1996 version of Rule 16b-3(d) as part of a number of amendments to Rule 16b-3 to present a “simplified, flexible approach” to insider transactions. Ownership Reports and Trading by Officers, Directors and Principal Security Holders, 61 Fed. Reg. 30,376, 30,377 (June 14, 1996). The SEC exempted non-compensatory issuer-insider trades because they “do not appear to present the same oppor9574 DREILING v. AMERICAN EXPRESS CO. tunities for insider profit on the basis of non-public information as do market transactions by officers and directors,” id., and “where 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 the statute.” Id. The SEC based these observations “on its experience with the Section 16 rules,” and concluded that short-swing transactions between an insider and an issuer that “satisfy . . . objective gate-keeping conditions[ ] are not vehicles for the speculative abuse that section 16(b) was designed to prevent.” Id. Thus, the SEC enacted Rule 16b-3(d) because board or shareholder-approved insider-issuer transactions were “not contemplated within the purpose” of § 16(b). The SEC’s decision to revise Rule 16b-3(d) in 1996 was founded not just on its years of experience making rules under § 16 rules, 61 Fed. Reg. at 30,377, but also, according to the SEC’s amicus brief, “careful study, notice and public comment.” The SEC received 38 letters in its solicitation for comments on early versions of Rule 16b-3(d), mostly positive. Id. at 30,377 & 30,380. Rule 16b-3(d) also reconciles competing policies.4 Finally, Rule 16b-3(d) implements certain of the “objective gate-keeping conditions,” such as approval by the issuer’s board of directors or ratification by a majority of shareholders. 17 C.F.R. § 240.16b-3(d)(1) & (2). In identifying these “gate-keeping” conditions, the SEC noted that “[a]lthough the new rule would not prohibit Non-Employee Directors or the full board from awarding themselves grants of issuer equity 4 The SEC noted in its amicus brief that before the 1996 version amendment to Rule 16b-3, the old exemption immunized only “approved written employee benefit plan[s]” which “did not work and actually discouraged some insiders from acquiring issuer securities through employee benefit plans.” DREILING v. AMERICAN EXPRESS CO. 9575 securities, such grants would be subject to state laws governing corporate self-dealing.” 61 Fed. Reg. at 30,381.