Roth v. The Goldman Sachs Group, Inc.
740 F.3d 865
| 2d Cir. | 2014Background
- Goldman owned >10% Leap when it wrote 32,000 Leap call options exercisable at $39, expiring Jan 16, 2010.
- On Oct 2, 2009 Goldman’s Leap ownership dropped below 10% after stock disposals.
- Goldman voluntarily disgorged about $203,000 in profits from other Section 16(b) transactions when it was still a statutory insider.
- The options at issue expired unexercised on Jan 16, 2010; Roth filed a derivative action on Jul 13, 2011.
- The district court held that expiration within six months is a purchase matched to the sale at writing, and that Goldman was not a 16(b) insider at expiration; judgment affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether option expiration within six months is a 16(b) purchase | Roth: expiration is purchase; insider status at expiration. | Goldman: expiration not a purchase; different from writing behavior. | Yes; expiration deemed a purchase. |
| Whether insider status must exist at both purchase and sale | Roth: Goldman insider at writing and expiration. | Goldman: insider only at writing, not at expiration. | No liability because insider status not present at expiration. |
| Effect of Rule 16b-6(d) and SEC interpretations | Rule 16b-6(d) imposes liability for short option expirations. | SEC interpretation supports expiration-as-purchase; rule governs both times. | Court defers to SEC interpretation; expiration treated as purchase for 16(b) purposes. |
Key Cases Cited
- Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418 (U.S. Supreme Court 1972) (flat rule approach; insider liability limited to specified transactions)
- Gwozdzinsky v. Zell/Chilmark Fund, L.P., 156 F.3d 305 (2d Cir. 1998) (two-transaction framework for 16(b); rules for derivatives)
- Allaire Corp. v. Okumus, 433 F.3d 248 (2d Cir. 2006) (expiration of call options under 16b-6(a) limited; distinguishes from expiration under 16b-6(d))
- Magma Power Co. v. Dow Chem. Co., 136 F.3d 316 (2d Cir. 1998) (holder’s non-exercise not a purchase by writer; distinguishes writer’s liability)
- Kern Cnty. Land Co. v. Occidental Petroleum Corp., 411 U.S. 582 (U.S. Supreme Court 1973) (broad definitions of purchase/sale; context of unlawful abuse)