Court Opinion

ID: 2682642
Source: CourtListenerOpinion
Date Created: 2014-07-11 15:00:21.059608+00
Date Added: 2024-06-11T13:12:53.397010
License: Public Domain

12-1769-cv
     Chechele v. Sperling

 1                          UNITED STATES COURT OF APPEALS

 2                              FOR THE SECOND CIRCUIT

 3                                 August Term 2012

 4            (Argued: March 12, 2013           Decided: July 11, 2014)

 5                          Docket No. 12-1769-cv
 6   -----------------------------------------------------x

 7   DONNA ANN GABRIELE CHECHELE,
 8
 9         Plaintiff-Appellant,
10
11                               -- v. –-
12
13   JOHN G. SPERLING, PETER V. SPERLING,
14
15         Defendants-Appellees,
16
17   APOLLO GROUP, INC.,
18
19         Nominal Defendant-Appellee.
20
21   -----------------------------------------------------x

22   B e f o r e :    WALKER, WESLEY, and HALL, Circuit Judges.

23         Plaintiff-Appellant Donna Ann Gabriele Chechele appeals from

24   the judgment of the United States District Court for the Southern

25   District of New York (Paul A. Crotty, Judge) granting Defendants-

26   Appellees’ motion to dismiss.      Specifically, the district court

27   found that the requirements of a claim under section 16(b) of the

28   Securities Exchange Act of 1934, mandating disgorgement of short-

29   swing profits by statutory insiders, had not been satisfied.

30   AFFIRMED.

31

                                            1
     12-1769-cv
     Chechele v. Sperling

 1                                   JAMES A. HUNTER, Hunter & Kmiec, New
 2                                   York, NY, for Plaintiff-Appellant.
 3
 4                                   DENNIS H. TRACEY, III (Nathaniel E.
 5                                   Marmon, on the brief), Hogan Lovells
 6                                   US LLP, New York, NY, for
 7                                   Defendants-Appellees.
 8
 9
10   JOHN M. WALKER, JR., Circuit Judge:

11         Plaintiff-Appellant Donna Ann Gabriele Chechele appeals from

12   the judgment of the United States District Court for the Southern

13   District of New York (Paul A. Crotty, Judge) granting insider

14   Defendants-Appellees’ motion to dismiss her short-swing trading

15   complaint. Specifically, the district court found that the

16   requirements of a claim under section 16(b) of the Securities

17   Exchange Act of 1934 (“Exchange Act”), mandating disgorgement of

18   short-swing profits by statutory insiders, had not been satisfied.

19   We agree and affirm the district court’s judgment.

20                                BACKGROUND

21         Appellant Chechele is a shareholder of Apollo Group, Inc.

22   (“Apollo”). Appellees John and Peter Sperling, father and son, are

23   the Executive Chairman and Vice Chairman of Apollo’s Board of

24   Directors, respectively. Chechele sued the Sperlings under section

25   16(b) of the Exchange Act, 15 U.S.C. § 78p(b), seeking disgorgement

26   of alleged short-swing profits. Short-swing profits are realized

27   under section 16(b) when an insider buys and sells stock of his

28   company within a six-month period. It is undisputed that the

29   Sperlings are insiders for the purposes of section 16(b).

                                       2
     12-1769-cv
     Chechele v. Sperling

 1         As insiders, John and Peter Sperling had considerable holdings

 2   of Apollo stock. In order to convert some of their shares of Apollo

 3   Class A common stock into cash, in 2006 and 2007, John Sperling

 4   entered into two prepaid variable forward contracts (“PVFCs”) and

 5   Peter Sperling entered into three PVFCs. The terms of each PVFC

 6   were contained in three documents: (1) a Master Agreement, (2) a

 7   Pledge Agreement, and (3) a Transaction Confirmation.

 8         The Master Agreements provided the general framework for the

 9   PVFC transactions.1 On the “Payment Date,” the banks would pay John

10   and Peter an agreed-upon amount of cash. In exchange, the Sperlings

11   promised to deliver to the banks, on a pre-determined “Settlement

12   Date,” some number of Apollo shares, or their cash equivalent. The

13   number of shares to be delivered varied with the market closing

14   price of Apollo stock three days prior to the Settlement Date

15   according to a formula provided in each agreement.

16         Additionally, on the Payment Date, the Sperlings pledged as

17   collateral the maximum number of shares that could be delivered

18   under the agreement to secure the banks’ interest in the shares.

19   In the meantime, however, the Sperlings retained ownership of the

20   shares until delivery on the Settlement Date; they continued to

     1
       John and Peter Sperling each signed a “master stock purchase
     agreement” with Bank of America. Peter also signed an equivalent
     agreement with Deutsche Bank, labelled the “forward purchase
     contract,” which along with the master stock purchase agreements
     are collectively referred to as the “Master Agreements.”
                                       3
     12-1769-cv
     Chechele v. Sperling

 1   have the right to exercise the shares’ voting rights and receive

 2   cash dividends.

 3           The particulars of each PVFC transaction, including the

 4   Payment Date, upfront cash payment amount, number of pledged

 5   shares, Settlement Date, and settlement formula, were all set forth

 6   in the Transaction Confirmation. For example, John Sperling’s July

 7   11, 2007 Transaction Confirmation called for him to pledge one

 8   million shares on July 16, 2007 (the Payment Date) in return for

 9   approximately $52.4 million from Bank of America. The Settlement

10   Date occurred approximately eighteen months later, on January 12,

11   2009.

12           Under the settlement formula in this transaction, if the share

13   price three trading days prior to settlement (the “Maturity Date”)

14   fell below $60.2235 (the “floor price”), John was required to

15   deliver all of the pledged shares or a cash equivalent. The floor

16   price protected John from a decline in the stock price because he

17   was required to deliver one million shares (or the cash equivalent)

18   regardless of how much below the floor price the share price fell.

19           But if the share price at the Maturity Date was between the

20   floor price and $78.2906 (the “ceiling price”), the number of

21   shares to be delivered would decline as the share price rose above

22   the floor price according to a formula that maintained a constant

23   cash equivalent value. John would keep any undelivered shares.

                                         4
     12-1769-cv
     Chechele v. Sperling

 1         If the share price at the Maturity Date was above the ceiling

 2   price, however, the number of shares to be delivered would increase

 3   according to a formula under which John had to deliver more shares

 4   as the stock price rose. But, no matter how high the stock price

 5   climbed, John never had to deliver more than the one million

 6   originally pledged shares.2

 7         The transaction could be viewed as a bet on whether the share

 8   price would be above the ceiling price (bank’s bet) or below the

 9   floor price (John’s bet) on the Maturity Date. John would “win the

10   bet” if the settlement price was below the floor, because he would

11   be satisfying his obligation to the bank with relatively

12   inexpensive shares. The bank would “win the bet” if the settlement

13   price was above the ceiling, because it would receive an increasing

14   number of shares of increasing value. For settlement prices in

15   between the floor and ceiling, the transaction resembled a loan;

16   John borrowed $52.4 million from the bank on the Payment Date and

17   was obligated to pay the bank back approximately $62 million (the

18   $52.4 million he borrowed plus the implied financing cost of the

19   loan).

     2
       We have represented this PVFC’s formula graphically at the end of
     this opinion. As one can see, the value John delivered to the bank
     rises steadily as the share price rises, until it reaches the floor
     price. The value then remains constant, until the share price
     reaches ceiling price, at which point the value delivered rises
     again.

                                       5
     12-1769-cv
     Chechele v. Sperling

 1         On January 9, 2009, the share price was $85.3300—above the

 2   ceiling—so the bank “won” the bet and John had to deliver some, but

 3   not all, of the pledged shares on January 12.

 4         All five PVFC transactions were settled by delivery of shares

 5   rather than the cash equivalent. The following charts summarize

 6   their terms.

 7                                           John Sperling

           Trade     Maturity     Pledged     Floor    Ceiling   Settlement   Delivered   Undelivered
            Date       Date       Shares      Price     Price      Price       Shares       Shares
           7/11/07    1/9/09     1,000,000   60.2235   78.2906    85.3300      788,300     211,700
           4/24/06    4/24/09     500,000    53.3780   80.0670     61.1450     436,500       63,500
 8

 9                                           Peter Sperling

           Trade     Maturity     Pledged     Floor    Ceiling   Settlement   Delivered   Undelivered
            Date       Date       Shares      Price     Price       Price      Shares       Shares
           7/11/07    1/9/09     1,000,000   60.2235   78.2906    85.3300      788,300     211,700
           4/24/06   4/24/09     500,000     53.3780   80.0670    61.1450     436,500       63,500
           1/19/06   1/20/09     315,000     55.3064   71.8983    86.5400     254,606       60,394
10

11                              THE CLAIM IN THE DISTRICT COURT

12         Within six months of the settlement of the PVFC transactions

13   at issue, the Sperlings sold some of their Apollo stock on the open

14   market. Chechele alleges that those sales, in light of the PVFC

15   settlement, violated section 16(b). According to her theory of the

16   case, the Sperlings sold the shares they pledged to the banks on

17   the Payment Dates of the PVFCs, but then “repurchased” the

18   undelivered shares on the Settlement Dates. She claims that their

19   subsequent sales of company stock on the open market – less than

                                                       6
     12-1769-cv
     Chechele v. Sperling

 1   six months after the PVFC’s settled - can be matched to the

 2   “purchase” that occurred at settlement. If she is correct, any

 3   profits made from the later sales must be disgorged as short-swing

 4   profits under section 16(b).

 5         The district court concluded that because the “Sperlings’

 6   rights ‘became fixed and irrevocable’ at the time they entered into

 7   the [PVFCs] . . . the repurchases of the [Sperlings’] retained

 8   shares on the settlement date did not constitute a ‘purchase’ under

 9   Section 16(b).” Chechele v. Sperling, No. 11 Civ. 0146, 2012 WL
10   1038653, at *5 (S.D.N.Y. Mar. 29, 2012).

11                                  DISCUSSION

12         Chechele raises only one issue on appeal: whether the

13   Sperlings’ retention of a portion of the shares that were pledged

14   but not delivered to the banks constituted a “purchase” of company

15   stock within the meaning of section 16(b) of the Securities

16   Exchange Act. We review de novo the district court’s grant of a

17   motion to dismiss under Federal Rule of Procedure 12(b)(6),

18   Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 107 (2d Cir.

19   2012), and conclude that the Sperlings’ ultimate retention of

20   shares pledged to the banks in the various PVFC transactions did

21   not constitute “purchases” under section 16(b).

22         In relevant part, section 16(b) states:

23               [A]ny profit realized by [a corporate insider]
24               from any purchase and sale, or any sale and
25               purchase, of any equity security. . . within
26               any period of less than six months . . . shall
                                        7
     12-1769-cv
     Chechele v. Sperling

 1               inure to and be recoverable by the issuer,
 2               irrespective of any intention on the part of
 3               [the insider].
 4
 5   15 U.S.C. § 78p(b). We have explained that “liability under Section

 6   16(b) does not attach unless the plaintiff proves that there was

 7   (1) a purchase and (2) a sale of securities (3) by an [insider]

 8   (4) within a six-month period.” Gwozdzinsky v. Zell/Chilmark Fund,

 9   L.P., 156 F.3d 305, 308 (2d Cir. 1998).3 The only element at issue

10   here is element one: whether a “purchase” occurred when the PVFCs

11   settled and the Sperlings retained some of their pledged shares.4

12

13       A. PVFCs are a form of complex derivatives

14         The PVFCs at issue here are complex derivatives.5 On the day

15   the contracts were written, the Sperlings obtained the equivalent

16   of a right to sell a maximum number of shares to the banks, which

17   they would exercise if the share price fell below a floor. Because

18   the value of the Sperlings’ right to sell shares would increase as

     3
       For the purposes of section 16(b) an insider is “an officer or
     director of the issuer or . . . a shareholder who owns more than
     ten percent of any one class of the issuer’s securities[.]”
     Gwozdzinsky, 156 F.3d at 308.
     4
       We and the parties refer to the transactions here as “PVFCs.” This
     label is useful as far as this transaction goes. We must be
     cautious, however, not to rely too heavily on labels because the
     creativity of Wall Street lawyers and bankers is boundless. A
     future instrument that resembles today’s PVFC may contain a
     heretofore unthought-of contractual term that fundamentally changes
     the analysis.
     5
       Derivatives include, among other things, options to buy or sell
     securities at particular prices in the future. 17 C.F.R. § 240.16a–
     1(c).
                                        8
     12-1769-cv
     Chechele v. Sperling

 1   the price of the stock decreased, the right is a “put equivalent

 2   position.” 17 C.F.R. § 240.16a-1(h).6 In exchange for this put

 3   equivalent position, the Sperlings granted the banks a right to

 4   receive additional shares as the Apollo stock price rose above the

 5   PVFC ceiling price.    Because the value of the banks’ right to

 6   receive the pledged shares would increase as the stock price

 7   increased, the right is a “call equivalent position.” 17 C.F.R. §

 8   240.16a-1(b).7

 9         For purposes of our analysis, the initial pledge of shares as

10   collateral is irrelevant; the pledge agreement merely protected the

11   bank against the sale or encumbrance of the shares at risk in the

12   PVFC until the settlement date. And the fact that the transaction
     6
       A “put option” is a contract giving one party the right to sell,
     and obligating one party to buy, a stock or commodity at a given
     price, known as a “strike price,” on a particular date. If the
     market price on that date is below the strike price, then the
     option becomes valuable because one could purchase the stock in the
     market and immediately resell it for a profit. See Michael S.
     Knoll, Put-Call Parity and the Law, 24 Cardozo L. Rev. 61, 70
     (2002). We are further convinced that this transaction was a put
     equivalent by the fact that the potential loss to the bank here if
     the transaction settled below the floor, and the potential loss to
     the writer of a traditional put option are nearly identical.
     Intrigued readers are encouraged to compare our graph of this
     transaction with Knoll’s profit/loss graph of a put option. Id.
     7
       A “call option” is a standardized contract giving one party the
     right to buy, and obligating one party to sell, a stock or
     commodity at a given price, again a “strike price,” on a particular
     date. If the market price of the stock rises above the strike
     price, the option becomes valuable because one could exercise the
     option and immediately sell the purchased shares on the open market
     at a profit. See Knoll, supra, at 70. Again, comparing our graph of
     the profit to the bank if this transaction settled above the
     ceiling with a graph of the profit to the holder of a traditional
     call option reveals just how much like a call option this
     transaction was. See id.
                                        9
     12-1769-cv
     Chechele v. Sperling

 1   resembled a loan at settlement prices between the floor and the

 2   ceiling is also irrelevant. Even though no shares changed hands on

 3   the Payment Date, rights to an equity security were still bought

 4   and sold at the time of the contract.8

 5         Were we to confine our focus to the loan aspects of the PVFC,

 6   to the exclusion of its option-equivalent elements, we would not

 7   only contravene the SEC rules, but also create a new vehicle for

 8   insider trading. Suppose an insider anticipated a temporary dip in

 9   his company’s stock price. The insider could enter into a PVFC with

10   a settlement date during the expected price dip. The insider could

11   then settle in cash, paying the price of the now devalued shares,

12   but retaining the shares themselves for the anticipated upswing in

13   the stock price. When the stock price returned to normal, the

14   insider would have kept his shares and profited by the difference

15   between the up-front payment (based on the normal stock value) and

16   the settlement price (based on the stock value during the market

     8
       Furthermore, the view that PVFCs are derivatives – not loans –
     is consistent with every authority revealed by research. First,
     the SEC treats PVFCs as derivatives. See Exchange Act Release
     No. 47809, 68 Fed. Reg. 25,788, 25,789 (May 13, 2003) (“In
     particular, section 16(a) requires insiders to report all security-
     based swap agreements and transactions involving derivative
     securities, including . . . forwards . . . .”). Second, two
     separate district courts have now analyzed PVFCs as derivatives.
     See Chechele, 2012 WL 1038653; Donoghue v. Centillium Commc’ns
     Inc., No. 05 Civ. 4082, 2006 WL 775122 (S.D.N.Y. Mar. 28, 2006).
     Moreover, leading treatises treat PVFCs as derivatives with
     potential insider-trading implications. See Peter J. Romeo & Alan
     L. Dye, Section 16 Treatise and Reporting Guide §§ 3.03[2][h],
     10.05[3] (4th ed. 2012). Finally, both parties to this litigation
     go to great lengths to analyze the contracts as transactions in
     derivative securities.
                                      10
     12-1769-cv
     Chechele v. Sperling

 1   dip).

 2           In this hypothetical, if the PVFC is treated as a loan,

 3   section 16(b) was not violated. No shares changed hands, and there

 4   was no “purchase” or “sale” to trigger section 16(b). Viewing the

 5   PVFC as a derivative, however, the potential for abuse becomes

 6   clear: the insider offered the PVFC “call option” as consideration

 7   for the “put option,” knowing that the call option would never be

 8   exercised. In other words, he used his informational advantage to

 9   sell something he knew to be worthless.

10           Precisely to prevent what would happen in our hypothetical, we

11   have held that “for purposes of Section 16(b), the expiration of a

12   call option within six months of its writing is to be deemed a

13   ‘purchase’ by the option writer to be matched against the ‘sale’

14   deemed to occur when that option was written.” Roth v. Goldman

15   Sachs Grp., Inc., 740 F.3d 865, 872 (2d Cir. 2014); see also 17

16   C.F.R. § 240.16b-6(d). This rule prevents an insider from profiting

17   by selling call options with expiration dates within six months,

18   while knowing, by virtue of his inside information, that the stock

19   price would not rise above the strike price and the option would

20   never be exercised. We think this rule should apply here as well.

21   We therefore hold that a PVFC is akin to the “sale” of a call

22   option (and purchase of a put) by the insider, and this sale should

23   be matched to a “purchase” at the settlement date, should the call

24   option expire. Thus for purposes of section 16 liability, the

                                        11
     12-1769-cv
     Chechele v. Sperling

 1   Sperlings “sold” call options to the banks on the day they signed

 2   the contract, and any matching “purchases” would occur – if at all

 3   – on the settlement date if these options went unexercised.

 4         Viewing the instant transactions in this manner, it becomes

 5   clear why the Sperlings did not violate section 16(b). First, for

 6   the transactions that settled above the ceiling, nothing of

 7   significance occurred on the settlement date. The bank merely

 8   exercised its call options, which is neither a purchase nor a sale

 9   under section 16(b). The exercise of a traditional derivative

10   security (as opposed to its expiration) is a “non-event” for

11   section 16(b) purposes. Magma Power Co. v. Dow Chem. Co., 136 F.3d
12   316, 322 (2d Cir. 1998). Second, even if the banks’ call options

13   had expired - as they did in several cases – the expiration of an

14   option can only be matched to its own writing for section 16

15   purposes, not to another unrelated sale of stock. Allaire Corp. v.

16   Okumus, 433 F.3d 248, 254 (2d Cir. 2006). Since the Sperlings’

17   subsequent stock purchases were not part of the PFVC derivative

18   transaction, the two could never have been matched.

19         B. PVFCs are not “hybrid deriviatives”

20         Although Chechele would agree with our conclusion that the

21   PVFCs at issue here are a species of derivative, she attempts to

22   analyze these contracts under our emerging “hybrid derivatives”

23   case law governing options without a fixed exercise price. This is

24   the incorrect mode of analysis.

                                       12
     12-1769-cv
     Chechele v. Sperling

 1         In Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d
2   36, 49-50 (2d Cir. 2012), we held that a hybrid derivative — a

 3   derivative without a fixed exercise price — is not “purchased”

 4   until the price becomes fixed because only then is “the extent of

 5   the profit opportunity defined[.]”9 Our hybrid derivative cases,

 6   however, have all dealt with contracts where one of the parties

 7   controlled the timing, and thus the price, at which the option

 8   would be exercised. See Analytical Surveys, 684 F.3d at 41; At Home

 9   Corp. v. Cox Commc’ns Inc., 446 F.3d 403, 405 (2d Cir. 2006); Magma

10   Power, 136 F.3d at 319. This is critical.

11         Because one of the parties controls the timing of the

12   exercise, hybrids present two opportunities to use inside

13   information, once at the writing of the contract and again at their

14   exercise. In Analytical Surveys, we emphasized that the “insider’s

15   additional opportunity to rely on inside information to time the

16   date of exercise” presented an additional danger. 684 F.3d at 50.

17   This is why we held that the “purchase” for section 16(b) purposes

18   occurs when the price is fixed. The time the price is fixed is when

19   the last opportunity to use inside information occurs, and when the

20   six-month clock for a matching sale should start. See id. at 49-50.

21         The PVFCs at issue here, however, do not present the same risk

22   of manipulation at the time of their settlement that hybrids do at

     9
       This is in keeping with SEC regulations, which exclude from the
     definition of a traditional derivative “[r]ights with an exercise
     or conversion privilege at a price that is not fixed[.]” 17 C.F.R.
     § 240.16a-1(c)(6).
                                      13
     12-1769-cv
     Chechele v. Sperling

 1   the time of their exercise. It is true that with these PVFCs, as

 2   with the securities in our hybrid cases, the number of shares that

 3   may be called and the price of those shares is not known at the

 4   time the contract is written. Nonetheless, with these PVFCs the

 5   price was set by a predetermined formula. There is thus no

 6   opportunity for additional manipulation after the contract is

 7   signed.10 Because the parties are bound to the formula and dates

 8   from the time of contracting, the prices of these PVFC options were

 9   fixed at the time they entered the contract even if they are not

10   known.

11         Viewing these PVFCs as traditional rather than hybrid

12   derivatives also comports with SEC regulations. A related SEC rule

13   provides:

14         [I]f [an insider’s] increase or decrease [in a derivative
15         position] occurs as a result of the fixing of the
16         exercise price of a right initially issued without a
17         fixed price, where the date the price is fixed is not
18         known in advance and is outside the control of the
19         recipient, the increase or decrease shall be exempt from
20         section 16(b)[.]
21
22   17 C.F.R. § 240.16b-6(a). The purpose of this regulation is to

23   avoid “the unfairness of subjecting insiders to liability under

     10
       As one district court put it, insiders writing PVFCs are
          powerless to manipulate the settlement [to their]
          advantage. [They are] obligated to settle [on the
          contractual date], regardless of whether the stock price
          [is] favorable . . . . While the ultimate number of
          shares to be transferred [is] not [known], that number
          [is] dictated by financial formulae and criteria set
          forth in the [PVFC] and, . . . [can]not be modified[.]
     Donoghue, 2006 WL 775122, at *5 (internal quotation marks omitted).
                                      14
     12-1769-cv
     Chechele v. Sperling

 1   Section 16(b) who engage in a purchase or sale and then have an

 2   offsetting sale or purchase thrust upon them thereafter by events

 3   ‘not known in advance’ and ‘outside the[ir] control.’” Magma Power,

 4 136 F.3d at 322.

 5         Still, because there is some risk of manipulation, as we

 6   discussed above, PVFCs do not — and should not — get the benefit of

 7   a total section 16(b) exemption. Nonetheless, treating PVFCs as

 8   hybrid derivatives could produce the same “unfairness” that

 9   prompted the issuance of 17 C.F.R. § 240.16b-6(a). If the

10   “purchase” or “sale” of the derivative does not occur until the

11   price is “fixed” in the sense of being determined, every PVFC could

12   subject the insider to section 16(b) liability. This is because

13   under a hybrid derivative analysis a “sale” will always occur

14   shortly before settlement, when the value to be delivered is

15   determined. Because, under Roth, an expiration of the bank’s call

16   option is a “purchase” (by the insider) to be matched with this

17   “sale,” section 16 liability would result whenever a PVFC settles

18   below the floor and the bank’s call option expires. This does not

19   make sense.

20         Viewing the PVFCs as traditional derivatives, however, avoids

21   this odd result. The transactions to be matched are not the

22   “fixing” of the price shortly before settlement and the settlement

23   itself, but the writing of the contract and the settlement. As long

                                      15
     12-1769-cv
     Chechele v. Sperling

 1   as the settlement date is set at least six months out from the

 2   contract date, there is no risk of any short-swing profit.

 3

 4   ***

 5         In short, the Sperlings did not violate section 16(b). First,

 6   nothing of significance occurred on the Settlement Dates. The banks

 7   simply exercised their call options, which is neither a purchase

 8   nor a sale under section 16(b). The exercise of a traditional

 9   derivative security is a “non-event” for section 16(b) purposes.

10   Magma Power, 136 F.3d at 322. Therefore the Sperlings’ subsequent

11   sale of stock after settlement did not trigger liability. Second,

12   even if the banks’ call options had expired, under SEC Rule 16b—

13   6(a) “the expiration of an option, when matched against any

14   transaction other than its own writing, is not [a transaction].”

15   Allaire Corp., 433 F.3d at 254. Furthermore, as mentioned earlier,

16   the expiration of the banks’ call options is “deemed a ‘purchase’

17   by the option writer to be matched against the ‘sale’ deemed to

18   occur when that option was written.” Roth, 740 F.3d at 872. And

19   third, the PVFC transaction was a sale of stock; both the rights

20   the Sperlings granted and received are “put equivalent positions”

21   deemed to be “sale[s] of the underlying securities for purposes of

22   section 16(b)[.]” 17 C.F.R. § 240.16b-6(a). To trigger section

23   16(b) liability there must be both a purchase and a sale, not two

24   sales. See Roth, 740 F.3d at 870.

                                      16
    12-1769-cv
    Chechele v. Sperling

1                                To sum up, the PVFCs in this case are properly analyzed under

2   traditional, and not hybrid, derivatives analysis. When that is

3   done, it becomes evident that no “purchase” occurred against which

4   a “sale” could be matched for section 16(b) purposes.

5                                                       CONCLUSION

6                                For the foregoing reasons, the district court’s judgment is

7   AFFIRMED.

8

                                         Number of Shares Delivered
    1200000

    1000000
    Number of Shares Delivered

                    800000

                    600000

                    400000

                    200000

                                 0
                                     $35.00
                                     $37.00
                                     $39.00
                                     $41.00
                                     $43.00
                                     $45.00
                                     $47.00
                                     $49.00
                                     $51.00
                                     $53.00
                                     $55.00
                                     $57.00
                                     $59.00
                                     $61.00
                                     $63.00
                                     $65.00
                                     $67.00
                                     $69.00
                                     $71.00
                                     $73.00
                                     $75.00
                                     $77.00
                                     $79.00
                                     $81.00
                                     $83.00
                                     $85.00
                                     $87.00
                                     $89.00
                                     $91.00
                                     $93.00
                                     $95.00
                                     $97.00
                                     $99.00

                                                           Share Price
9

                                                            17
     1
                             Value of Shares Delivered in Millions

                        40
                               45
                                    50
                                         55
                                              60
                                                   65
                                                        70
                                                             75
                                                                  80
               $35.00                                                  85
               $37.00
                                                                                                        12-1769-cv

               $39.00
               $41.00
               $43.00
               $45.00
               $47.00
                                                                                                        Chechele v. Sperling

               $49.00
               $51.00
               $53.00
               $55.00
               $57.00
               $59.00
               $61.00
               $63.00
               $65.00

18
               $67.00
               $69.00
               $71.00

     Share Price
               $73.00
               $75.00
               $77.00
               $79.00
               $81.00
               $83.00
               $85.00
                                                                            Value of Shares Delivered

               $87.00
               $89.00
               $91.00
               $93.00
               $95.00
               $97.00
               $99.00