Olagues v. Perceptive Advisors LLC, 902 F.3d 121

Background

Plaintiffs (Olagues and Wollney) filed a derivative Section 16(b) claim on behalf of Repros against Perceptive (Advisors, Fund, Edelman) seeking disgorgement of $1.7M received from writing call options that later expired.
Perceptive owned ~16% of Repros when it wrote calls (Jan–Mar 2013) and concurrently bought puts; the puts were ‘‘in the money’’ and were exercised, resulting in sale of ~2,050,000 shares and reducing Perceptive’s stake below the 10% Section 16(b) threshold.
The calls expired out-of-the-money on March 16, 2013, and plaintiffs alleged those expirations constituted the Section 16(b) “purchases” corresponding to the earlier “sales” (the writings).
Plaintiffs argued the relevant time for expiration is when option holders became irrevocably committed to let calls expire (per OCC/FINRA operational deadlines), so the calls constructively expired before Perceptive lost insider status.
Perceptive argued, and the district court (on reconsideration) and Second Circuit agreed, that liability under 17 C.F.R. § 240.16b-6(d) attaches "upon cancellation or expiration"—i.e., at the actual moment of expiration/exercise under OCC/FINRA rules—by which time Perceptive was no longer a >10% beneficial owner.
The Second Circuit affirmed dismissal, holding the plain meaning of the regulation controls and that the puts were exercised immediately prior to expiration so Perceptive fell below 10% before the calls expired.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
When does Section 16(b) liability for expiring written call options "attach" under 17 C.F.R. § 240.16b-6(d)?	The relevant moment is when option holders become irrevocably committed (per FINRA/OCC operational deadlines) to let calls expire, which occurred before the puts were exercised.	Liability attaches "upon cancellation or expiration"—i.e., at the actual moment of expiration/exercise under OCC/FINRA rules (11:59 p.m. expiration; puts auto-exercised immediately prior).	Held for defendant: the plain meaning controls; liability measured at actual expiration/time of exercise, and Perceptive was below 10% then.
Whether writing the calls constituted a Section 16(b) "sale" and expiration a corresponding "purchase"	Calls expired less than six months after writing, so expiration is a Section 16(b) purchase triggering liability.	Agrees calls can be sales and expirations purchases but denies insider status at purchase time.	Held calls were sales and expirations purchases under the regulation, but no liability because insider status ceased before expiration.
Whether the exercise of puts triggered Section 16(b) liability or required disgorgement	Plaintiffs sought only disgorgement for call expirations, not for put exercises.	Perceptive relied on regulation excluding exercise/closing of derivative positions from Section 16(b) matching liability.	Held: SEC regulations exclude closing by exercise from Section 16(b); puts’ exercise does not create disgorgement obligation.
Whether courts should adopt an "irrevocable-commitment" (constructive expiration) approach over plain-text timing	Plaintiffs urged that operational cutoff for exercise (FINRA) should determine timing to prevent insiders avoiding liability via timing quirks.	Perceptive urged plain textual reading; objective mechanical rule (actual expiration) aligns with statute/regulations and predictability.	Held for defendant: plain meaning favored; purpose-based arguments do not overcome the unambiguous regulatory text.

Key Cases Cited

Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (rule on pleading standard)
DiLorenzo v. Murphy, 443 F.3d 224 (2d Cir. 2006) (discussing irrevocable commitment concept)
Roth v. Goldman Sachs Grp., Inc., 740 F.3d 865 (2d Cir. 2014) (interpreting § 240.16b-6 and derivative treatment)
Gollust v. Mendell, 501 U.S. 115 (discussing strict liability nature of § 16(b))
Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418 (interpretation of § 16(b) purpose and mechanical rules)
Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582 (excluding ‘‘borderline transactions’’ from § 16(b))
Allaire Corp. v. Okumus, 433 F.3d 248 (2d Cir. 2006) (derivative positions and § 16(b) rules)
Magma Power Co. v. Dow Chemical Co., 136 F.3d 316 (2d Cir. 1998) (characterizing § 16(b) strictness)
Foremost-McKesson, Inc. v. Provident Securities Co., 423 U.S. 232 (on strict liability and purposive limits)