Court Opinion

ID: 814833
Source: CourtListenerOpinion
Date Created: 2013-01-07 15:34:38+00
Date Added: 2024-06-11T18:00:53.358690
License: Public Domain

11-3620-cv
Gibbons v. Malone

                           UNITED STATES COURT OF APPEALS
                              FOR THE SECOND CIRCUIT

                                          August Term, 2012

(Argued: September 21, 2012                                             Decided: January 7, 2013)

                                        Docket No. 11-3620-cv

                _______________________________________________________________

                                        MICHAEL D. GIBBONS,

                                           Plaintiff-Appellant,

                                                   v.

                                          JOHN C. MALONE,

                                           Defendant-Appellee,

                                                  and

                                DISCOVERY COMMUNICATIONS, INC.,

                                      Nominal Defendant-Appellee.

                _______________________________________________________________

Before: LEVAL, CABRANES, and KATZMANN, Circuit Judges.

         Section 16(b) of the Securities Exchange Act of 1934 provides for the disgorgement of

profits that corporate insiders realize “from any purchase and sale, or any sale and purchase, of any

equity security of [the corporate] issuer . . . within any period of less than six months.” 15 U.S.C.

§ 78p(b). In this appeal, which follows the dismissal of the complaint under Rule 12(b)(6) in the

                                                    1
 
United States District Court for the Southern District of New York (Barbara S. Jones, Judge), the

question presented is whether this so-called “short-swing profit rule” applies when a corporate

insider sells shares of one type of stock issued by the insider’s company and purchases shares of a

different type of stock in that same company. We hold, absent any guidance from the SEC, that

§ 16(b) does not apply to transactions of this sort involving separately traded, nonconvertible stocks

with different voting rights.

              Affirmed.

                                                               DANIEL E. DOHERTY (Charles J. Hyland, on the brief), Law
                                                                     Offices of Daniel E. Doherty, Overland Park, KS, for
                                                                     Plaintiff-Appellant Michael D. Gibbons.

                                                               ALEXANDRA M. WALSH (Seth T. Taube and Melissa
                                                                    Armstrong, on the brief), Baker Botts L.L.P.,
                                                                    Washington, DC, and New York, NY, for Defendant-
                                                                    Appellee John C. Malone.

                                                               JOHN F. BATTER III (Nolan J. Mitchell, on the brief), Wilmer
                                                                     Cutler Pickering Hale and Dorr, Boston, MA, for
                                                                     Nominal Defendant-Appellee Discovery Communications, Inc.

JOSÉ A. CABRANES, Circuit Judge:

              Section 16(b) of the Securities Exchange Act of 1934 (the “1934 Act”) provides for the

disgorgement of profits that corporate insiders1 realize “from any purchase and sale, or any sale and

purchase, of any equity security of [the corporate] issuer . . . within any period of less than six

months.” 15 U.S.C. § 78p(b). The question presented is whether this so-called “short-swing profit

rule” applies when a corporate insider sells shares of one type of stock issued by the insider’s

company and purchases shares of a different type of stock in that same company. We hold, absent

                                                            
          1 The term “insider” is frequently used in this context as a short-hand way of referring to any person “who is

directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security (other than an
exempted security) which is registered pursuant to section 78l of this title, or who is a director or an officer of the issuer
of such security.” 15 U.S.C. § 78p(a)(1) (“Section 16(a) of the 1934 Act”).

                                                                          2
 
any guidance from the Securities and Exchange Commission (“SEC”), that § 16(b) does not apply to

transactions of this sort involving separately traded, nonconvertible stocks with different voting

rights.

                                                               BACKGROUND

              The facts in this case are straightforward and uncontested. Between December 4, 2008 and

December 17, 2008, defendant-appellee John Malone—a director and large shareholder of

Discovery Communications, Inc. (“Discovery”)—engaged in nine sales of Discovery’s “Series C”

stock totaling 953,506 shares, and ten purchases of Discovery’s “Series A” stock totaling 632,700

shares. Just under two years later, plaintiff-appellant Michael Gibbons brought this shareholder

suit,2 seeking disgorgement of “profits” that Malone realized from these transactions. Gibbons

alleges that Malone obtained “illicit profits in the amount of at least $313,573” from these trades.

Complaint ¶ 54.

              Discovery’s Series A stock and Series C stock are different equity securities, are separately

registered, and are traded separately on the NASDAQ stock exchange under the ticker symbols

DISCA and DISCK, respectively. The principal difference between the two securities is that

Series A stock comes with voting rights—one vote per share—whereas Series C stock does not

confer any voting rights. Series A stock and Series C stock are not convertible into each other. On

the open market in late 2008 and early 2009, Series A stock generally traded at slightly higher prices

than Series C stock, though occasionally not. On the nine relevant dates in question, the closing

prices of Series A stock varied from about four-percent to eight-percent higher than the respective

closing prices of Series C stock.

                                                            
           2 As relevant here, 15 U.S.C. § 78p(b) allows “the owner of any security of the issuer” to sue for disgorgement

“if the issuer shall fail or refuse to bring such suit.” See generally Donoghue v. Bulldog Investors Gen. P’ship, 696 F.3d 170, 173–
180 (2d Cir. 2012) (describing the framework of shareholder suits under § 78p(b), and holding that such suits are
consistent with Article III standing principles). Here, Discovery informed Gibbons that it would not bring suit against
Malone because it did not believe that his transactions fell within the scope of § 16(b).

                                                                   3
 
        Following a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure,

the United States District Court for the Southern District of New York (Barbara S. Jones, Judge)

dismissed Gibbons’s complaint for failure to state a viable § 16(b) disgorgement claim. The Court

explained that the statute’s use of the term “any equity security”—written in the singular—

“undermines [Gibbons’s] argument, as his theory requires the purchase and sale of any equity

securities, rather than of one equity security.” Gibbons v. Malone, 801 F. Supp. 2d 243, 247 (S.D.N.Y.

2011) (emphasis in original). The Court further pointed out that, unlike other financial instruments

that are treated as functionally equivalent under § 16(b), Discovery’s Series A stock and Series C

stock are not convertible and do not have a fixed value relative to each other. See id. at 247–49.

Finally, the Court noted:

        [T]he Court is unpersuaded by Plaintiff’s policy arguments regarding the likelihood
        that “[p]ermitting short-swing trading between voting and non-voting common stock
        would make evasion of Section 16 trivially easy.” (Pl. Br. at 11.) Even if this were
        true, the Supreme Court has “recognized the arbitrary nature of section 16(b), which
        is widely recognized as a ‘crude rule of thumb’” to curb insider trading. Schaffer v.
        Dickstein & Co., L.P., 1996 WL 148335[,] at *5 (S.D.N.Y. Apr. 2, 1996) (citing Reliance
        Electric Co. v. Emerson Electric Co., 404 U.S. 418, 422 . . . (1972) & Blau v. Lamb, 363
        F.2d 507, 515 (2d Cir. 1966)). The Supreme Court has also noted that “serving the
        congressional purpose [of Section 16(b)] does not require resolving every ambiguity
        in favor of liability . . . [.]” Foremost-McKesson, Inc. v. Provident Securities Co., 423 U.S.
        232, 252 . . . (1976). Further, Plaintiff’s desired result would lead to a blurring of the
        bright-line rule established by Section 16(b), which was specifically “designed [by
        Congress] for easy application” . . . . Cummings v. C.I.R., 506 F.2d 449, 453 (2d Cir.
        1974).

Id. at 249. This appeal followed, raising the same question—namely, whether § 16(b) applies when

an insider buys and sells shares of different types of stock in the same company, where those securities

are separately traded, nonconvertible, and come with different voting rights.

                                              DISCUSSION

        We review de novo a district court’s dismissal under Rule 12(b)(6), “construing the complaint

liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable

inferences in the plaintiff’s favor.” Chase Grp. Alliance LLC v. City of N.Y. Dep’t of Fin., 620 F.3d 146,

                                                      4
 
150 (2d Cir. 2010) (internal quotation marks omitted). “To survive a motion to dismiss, a complaint

must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on

its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). “A claim has

facial plausibility when the plaintiff pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.” Id.

                                                     A.

        The issue presented in this appeal is one of statutory interpretation, so we begin by

examining the statutory text. See Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885,

1891 (2011). Section 16(b) of the 1934 Act provides, in relevant part:

        For the purpose of preventing the unfair use of information which may have been
        obtained by such beneficial owner, director, or officer by reason of his relationship
        to the issuer, any profit realized by him from any purchase and sale, or any sale and
        purchase, of any equity security of such issuer . . . within any period of less than six
        months . . . shall inure to and be recoverable by the issuer, irrespective of any
        intention on the part of such beneficial owner, director, or officer in entering into
        such transaction . . . . This subsection shall not be construed to cover . . . any
        transaction or transactions which the [SEC] by rules and regulations may exempt as
        not comprehended within the purpose of this subsection.

15 U.S.C. § 78p(b). Notably, although § 16(b) is designed to curb the use of nonpublic knowledge

by corporate “insiders,” see note 1, ante, the provision offers merely the “prophylactic” remedy of

disgorgement, Blau v. Lehman, 368 U.S. 403, 414 (1962), and “operates mechanically, with no

required showing of intent” to profit from the use of inside information, At Home Corp. v. Cox

Commc’ns, Inc., 446 F.3d 403, 407 (2d Cir. 2006). The statute, in other words, “imposes a form of

strict liability.” Credit Suisse Sec. (USA) LLC v. Simmonds, 132 S. Ct. 1414, 1417 (2012) (internal

quotation marks omitted).

        As we have previously explained, “if the conversion can be paired with another ‘sale’ or

‘purchase,’ and the paired transactions occur within a six month period, the paired transactions are

. . . the type of insider activity that Section 16(b) was designed to prevent,” Blau v. Lamb, 363 F.2d

                                                      5
 
507, 517 (2d Cir. 1966), but transactions of securities that cannot be “paired” are not within the

scope of § 16(b). Cf. Foremost-McKesson, Inc. v. Provident Sec. Co., 423 U.S. 232, 243–44 (1976) (short-

swing profit rule applies to profits realized from “a pair” of securities transactions). The question

presented is whether a sale of one security and a purchase of a different security issued by the same

company can be “paired” under § 16(b).

              Congress’s use of the singular term “any equity security” supports an inference that

transactions involving different equity securities cannot be paired under § 16(b). See At Home Corp.,

446 F.3d at 408–09. As the District Court explained, correctly in our view:

              The text limits liability to profits realized from “the purchase and sale, or sale and
              purchase, of any equity security of the issuer.” The drafters specifically chose to
              group “purchase and sale” and “sale and purchase” into single compounded units.
              This indicates that, to incur Section 16(b) liability, an insider’s “purchase and sale” or
              “sale and purchase” must both be directed at the same prepositional object—i.e. the
              same equity security.

Gibbons, 801 F. Supp. 2d at 247; cf. Am. Standard, Inc. v. Crane Co., 510 F.2d 1043, 1058 (2d Cir. 1974)

(“The statute speaks of ‘such issuer’ in the singular. There is no room for a grammatical

construction that would convert the singular into a plural.”). The regulations promulgated by the

SEC implicitly support this understanding of § 16(b) by noting that that the statute covers the

purchase and sale, or sale and purchase, of “a security,” and by providing for an exception when the

purchase and sale of “such security” meets certain conditions. 17 C.F.R. § 240.16b-1.

              Gibbons focuses on the statute’s use of the word “any,” but that word is unhelpful to his

argument. No one doubts that Discovery’s Series A stock and Series C stock are equity securities.3

As we have just explained, however, the reason that the purchase and sale of different equity securities

                                                            
              3   15 U.S.C. § 78c(11) defines the term “equity security” as:
              any stock or similar security; or any security future on any such security; or any security convertible,
              with or without consideration, into such a security, or carrying any warrant or right to subscribe to or
              purchase such a security; or any such warrant or right; or any other security which the Commission
              shall deem to be of similar nature and consider necessary or appropriate, by such rules and regulations
              as it may prescribe in the public interest or for the protection of investors, to treat as an equity
              security. 

                                                                    6
 
falls outside of the scope of the statute is because the term “equity security” is singular—not because

the securities at issue, viewed alone, would not fall within the meaning of the term “any equity

security.”

              Accordingly, as we recently observed in passing, § 16(b) applies to the purchase and sale, or

sale of purchase, of “the same security.” Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36, 43

(2d Cir. 2012). Indeed, it has been our longstanding view that although § 16(b) “might be read

literally to permit a recovery where stock of one class is purchased and stock of another class sold,”

the likelihood “that Congress intended such a result is beyond the realm of judicial fantasy.” Smolowe

v. Delendo Corp., 136 F.2d 231, 237 n.13 (2d Cir. 1943) (emphasis supplied).

                                                               B.

              Gibbons argues that Discovery’s Series A stock and Series C stock are “the same security”

for purposes of the short-swing profit rule because those types of stock are “economically

equivalent.”4 Though we do not decide the issue here, we note that § 16(b) could apply to

transactions where the securities at issue are not meaningfully distinguishable. As a textual matter, it

is settled that § 16(b) is not limited to “the purchase and sale of the same certificates of stock . . . .”

Smolowe, 136 F.2d at 237 n.13 (emphasis supplied). Indeed, being able to match “the particular

shares bought or sold” is “wholly irrelevant” under § 16(b) because of the “the fungible nature of

shares of stock.” Gratz v. Claughton, 187 F.2d 46, 51 (2d Cir. 1951). And in the related context of

interpreting § 16(a) of the 1934 Act, see note 1, ante, we have explained that “corporate labels are not

necessarily binding on the court,” and that we would refuse to distinguish two ostensibly different

securities based on a “sham characterization.” Ellerin v. Mass. Mut. Life Ins. Co., 270 F.2d 259, 265

(2d Cir. 1959).
                                                            
          4 We refer to the “types of stock” not to introduce a new term of art into the securities-law lexicon, but rather,

to avoid using existing terms of art such as “class” or “series,” which have varied uses and meanings in securities law,
particularly among the several states. Section 16(b) applies to the purchase and sale (or sale and purchase) of “any equity
security”—not “any equity security within a class,” or “any equity security within a series.”

                                                               7
 
              Recognizing the equivalence of essentially indistinguishable securities would also comport

with the purpose of the short-swing profit rule. Although individual applications of § 16(b) do not

depend at all on an insider’s intent, At Home Corp., 446 F.3d at 407, we generally interpret ambiguous

terms of § 16(b) in a way “that best serves the congressional purpose of curbing short-swing

speculation by corporate insiders,” Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418, 424 (1972).

When two types of stock are not meaningfully different, the risk of short-swing speculation is likely

to be much higher than when those stocks are distinguishable, because shareholders would typically

have little reason to convert holdings of one type of stock into holdings of another type that is

effectively the same.

              Discovery’s Series A stock and Series C stock, however, are readily distinguishable. Most

importantly, Series A shares confer voting rights, whereas Series C shares do not.5 The two

securities, therefore, are distinct not merely in name but also in substance. An insider could easily

prefer one security over the other for reasons not related to short-swing profits.

              Nor are Discovery’s Series A stock and Series C stock the same security because of the so-

called “economic equivalence” principle to which we have occasionally referred in earlier cases.

                                                            
          5 Though not raised by the parties, we are aware of our comment in Lamb, 363 F.2d 507, that “the increase in

voting power” caused by the conversion of the convertible securities at issue in that case was “irrelevant to the central
question whether the conversion facilitated short-swing trading.” Id. at 522. Understood in context, that statement does
not contradict our reasoning here. In Lamb, the securities at issue were convertible at a fixed ratio, and therefore we
took for granted that the purchased convertible security (preferred stock) could be paired with the sold converted security
(common stock) for purposes of § 16(b). The question presented in Lamb was whether the conversion of the preferred
stock into common stock at the fixed ratio constituted a “sale” under § 16(b). We explained that the voting rights and
dividend attributes distinguishing common stock from preferred stock in Lamb were “irrelevant for present purposes”
because those differences did not present the insider with “the possibility of reaping a trading advantage” by exercising
the conversion right. Id.
          By contrast, in this case it is undisputed that Malone “sold” the Series C stock, and we must instead assess
whether the purchased security and the sold security can be “paired” as the same equity security under § 16(b). The
question here, in other words, is not whether to limit the scope of § 16(b) based on a lack of apparent risk of speculative
abuse but whether the relevant transactions may be paired under § 16(b) in the first place. In this context, we have
explained that a risk of speculative abuse is insufficient to trigger liability. Gwozdzinsky v. Zell/Chilmark Fund, L.P., 156
F.3d 305, 310 (2d Cir. 1998). Accordingly, although the presence of voting rights is irrelevant in deciding whether, in
certain circumstances, to construe a conversion as not a “sale,” thus “remov[ing] the exchange from the ambit of Section
16(b),” Lamb, 363 F.2d 507 (emphasis supplied), the fact that here the voting rights differ between the two
nonconvertible stocks at issue is highly relevant to whether those stocks may be paired under § 16(b).

                                                               8
 
See, e.g., Lamb, 363 F.2d at 522. Rather, that principle has developed in the context of fixed-ratio

convertible instruments, particularly with respect to whether exercising the conversion right is a

“purchase” or “sale” within the meaning of § 16(b). As we explained in Lamb:

              [I]n general, the purchase by an insider of his issuer’s convertible securities, followed
              in less than six months by their conversion, cannot facilitate short-swing trading for
              speculative profits in the convertible securities because normal market activity,
              including arbitrage trading, will insure that the convertible securities have a market
              price at least equivalent to the aggregate price of the securities into which they are
              convertible . . . .

Id. at 521. In other words, the fixed-ratio convertibility feature is what distinguishes economically

equivalent securities. Indeed, we observed in Lamb, “at the risk of being obvious, . . . that ‘economic

equivalence’ has no relevance in a situation where the convertible security did not trade at a price at

least equivalent to the aggregate price of the securities into which it was convertible.”6 Id. at 524–25.

Accordingly, two nonconvertible securities whose prices fluctuate relative to one another do not

qualify as “economically equivalent.”

              Our understanding of “economic equivalence” is consistent with the views of the SEC,

which is “uniquely experienced in confronting short-swing profiteering.” At Home Corp., 446 F.3d

at 409. Based on its authority to interpret the 1934 Act, the SEC has explained that “derivative

securities” that are considered an equity security under § 16(b) include “any option, warrant,

convertible security . . . or similar right with an exercise or conversion privilege at a price related to

an equity security, or similar securities with a value derived from the value of an equity security,”

17 C.F.R. § 240.16a-1(c), but do not include “[r]ights with an exercise or conversion privilege at a

price that is not fixed,” id. § 240.16a-1(c)(6). Under the SEC regulations, obtaining certain financial

instruments with a fixed-ratio conversion feature thus also qualifies as a “purchase” of the security

                                                            
        6 We also noted that “it is clear that ‘logic’ does not require that ‘economic equivalence’ be equally relevant” in

answering other questions relating to the interpretation of § 16(b). Lamb, 363 F.2d at 524.

                                                               9
 
within the meaning of § 16(b).7 See id. § 240.16b-6 (providing rules to determine the relevant

transaction dates and to calculate profits with respect to transactions involving options, derivatives,

and the like). Because the two securities at issue here are not convertible, however, the SEC rules

are of no help to Gibbons’s argument and merely reinforce our conclusion that the Series A stock

and Series C stock cannot be paired under § 16(b).

                                                               C.

              Having failed to show equivalence between Discovery’s Series A stock and Series C stock,

Gibbons asks us to enter uncharted territory by holding that the two securities are sufficiently

“similar” to be paired under § 16(b). We acknowledge the plausibility of this interpretation. As the

leading academic text remarks, “§16(b) is not explicit to the effect that the purchase and sale must be

of the same class, and this section might be applied to the purchase and sale of different ‘classes’ that

were substantially similar.” LOUIS LOSS & JOEL SELIGMAN, FUNDAMENTALS OF SECURITIES

REGULATION 714 (5th ed. 2004). Nonetheless, we decline to go down this road absent SEC

direction.8

              The “substantial similarity” interpretation of § 16(b) runs into at least two obstacles. First, as

we explained above, the statutory text appears to require sameness, not similarity. Thus, while we

have deferred to the SEC’s rules regarding convertible instruments, see, e.g., Analytical Surveys, 684

F.3d at 48–49, in the circumstances presented we are still reluctant to venture beyond a

straightforward reading of the text. Second, although we generally give ambiguous terms of § 16(b)

“the construction that best serves the congressional purpose of curbing short-swing speculation by

corporate insiders,” Reliance Elec., 404 U.S. at 424, we have also explained that § 16(b) creates

“mechanical requirements,” Gwozdzinsky v. Zell/Chilmark Fund, L.P., 156 F.3d 305, 310 (2d Cir.
                                                            
          By contrast, “[t]he acquisition of a floating-price option or convertible security is . . . not a purchase under
              7

§ 16(b).” Analytical Surveys, 684 F.3d at 49 (citing 17 C.F.R. § 240.16a-1(c)(6)).
           Of course, we have no occasion to consider what effect future SEC guidance might have on the conclusions
              8

that we reach today.

                                                               10
 
1998), and is “‘simple and arbitrary in its application,’” At Home Corp., 446 F.3d at 409 (quoting

Whiting v. Dow Chem. Co., 523 F.2d 680, 687 (2d Cir. 1975)); cf. Foremost-McKesson, 423 U.S. at 252

(“[S]erving the congressional purpose does not require resolving every ambiguity in favor of liability

under § 16(b). . . . [C]ourts should not be quick to determine that, despite an acknowledged

ambiguity, Congress intended the section to cover a particular transaction.”). As the Supreme Court

explained in Reliance Electric, Congress intended for § 16(b) to be “a relatively arbitrary rule capable of

easy administration,” rather than one that “reach[es] every transaction in which an investor actually

relies on inside information.” 404 U.S. at 422. Gibbons’s invitation to adopt a jurisprudence of

“similarity” runs contrary to this fundamental statutory purpose. The obvious difficulty of

calculating an insider’s “profits” in this context further underscores the administrability concerns

that a doctrine of “similarity” would create.

        Undeterred, Gibbons argues that § 16(b) should apply because of the heightened degree of

similarity between the two securities at issue in “this case,” and that we need not grapple with cases

that “may come along that will require a tougher call by this Court.” Appellant’s Reply Br. 4

(emphasis in original). This argument misses the point. Whether to adopt a similarity-based

approach to the term “equity security” in § 16(b) is a threshold interpretive question of whether

§ 16(b) creates rules or standards. As we have already explained, § 16(b) is designed not only to

stem a risk of insider abuse—which we readily acknowledge could present itself in these

circumstances—but also to create rules that can be mechanically applied. Cf. Gwozdzinsky, 156 F.3d

at 310 (explaining that the potential for speculative abuse in particular circumstances is insufficient

to trigger liability under § 16(b)). Accordingly, the better interpretation of § 16(b) is that the statute

simply does not apply to these nonpairable transactions.

        Nor does the Eleventh Circuit’s opinion in Gund v. First Florida Banks, Inc., 726 F.2d 682

(11th Cir. 1984) cast doubt on our conclusion. That case involved an insider’s sale of convertible

                                                    11
 
debentures and subsequent purchase of common stock using the proceeds of the sales. Id. at 684.

Gund—the “insider”—argued that because of the structure and market prices of the respective

financial instruments, his transactions “contain[ed] no potential for insider abuse.” Id. at 686. The

Eleventh Circuit found this “pragmatic” argument to be inapposite, explaining that § 16(b) “literally

applies to Gund’s transactions” because Gund had “stipulated to every element of section 16(b)

liability.” Id. at 687. With “no ambiguity to resolve,” the Court concluded that disgorgement was

required. Id.

        The Gund decision is short on analysis, but the holding seems to rely on the convertibility of

the instruments at issue. The Eleventh Circuit pointed out that Gund had transacted “convertible

and conversion securities,” id. at 687, and that instead of converting the debenture, Gund’s

transaction “involv[ed] the sale of a convertible security and the purchase of the conversion

security,” id. at 687 n.7. As best we can tell, Gund stands for the proposition that convertibility

between financial instruments is a sufficient condition to make those instruments matching securities

under § 16(b). Whether that proposition is good law in this Circuit is beside the point here, because

the question raised in the present case is whether convertibility is a necessary condition for two

different securities to be paired under § 16(b). In sum, Gund has no bearing on our resolution of this

case.

                                           CONCLUSION

        To summarize, we hold that an insider’s purchase and sale of shares of different types of

stock in the same company does not trigger liability under § 16(b) of the Securities Exchange Act of

1934, 15 U.S.C. § 78p(b), where those securities are separately traded, nonconvertible, and come

with different voting rights.

        Accordingly, the judgment of the District Court is AFFIRMED.

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