The opinion of the court was delivered by: TENNEY
The plaintiff, Leo Portnoy, charges the defendants with violations of section 16(b) of the Securities Exchange Act of 1934 (the "Act"), which prohibits corporate insiders from retaining any profits realized on short-swing investments in their company's securities. 15 U.S.C. § 78p(b). Portnoy urges the Court to disgorge the defendants' profits on a singular sale of stock warrants. Whether his complaint is viewed under the objective or pragmatic approach to section 16(b), the defendants are entitled to summary judgment.
The defendants, Sidney Singer, Sidney Singer, Jr., and Stephen L. Singer, were directors and officers of Seligman & Latz ("S&L"), and they held warrants in S&L common stock. In connection with a public offering, several underwriters purchased a large block of warrants from the Singers.
These warrants were then exercised by the underwriters, who used the stock as part of the offering. From the sale of warrants, the Singers received the substantial consideration of $ 11.57 per warrant. (This price was arrived at by starting with the intended public offering price of $ 18.75, subtracting the exercise price of $ 5.88, and then subtracting the underwriter's discount of $ 1.30). The plaintiff argues that the price received for the warrants should be disgorged. He does not attempt to pair the sale of warrants with their original acquisition which was clearly more than six months before their sale. Instead, he challenges the Singers' realization of a market premium on their warrants through the use of underwriters. The crux of Portnoy's complaint is contained in the following paragraphs:
6. On or about April 22, 1976, said individual defendants (the Singer Group) purchased approximately 170,000 shares of "SL" stock at the price of $ 5.876 per share upon the exercise by the Underwriters ..., as agents for the individual defendants, of warrants to purchase 182,610 shares of "SL" common stock (170,000 of such warrants were owned by the individual defendants) to consummate a "secondary offering" of "SL" shares to the public on April 22, 1976.
7. Less than six months later, on or about April 22, 1976, said individual defendants sold approximately 278,000 shares of "SL" stock at the price of $ 18.75 per share, resulting in a net profit to them of approximately $ 1,970,000.00.
The defendants respond that "(these) allegations are contrary to fact in every essential respect." Affidavit of Sidney Singer, Jr., sworn to February 19, 1981 ("Singer Aff."), P 15. The terms and conditions of the underwriters' purchases were set forth in an underwriting agreement. Exh. A to Singer Aff.
These purchases were made pursuant to what is known as a "firm commitment," whereby the underwriters "assumed all economic risks arising from ... ownership" of the securities, and the sellers "ceased to have any interest in the Stocks and Warrants sold." Singer Aff. PP 4, 5.
The essential feature of such an underwriting is that an underwriting syndicate purchases securities for the accounts of individual underwriters who, as of the effective date of the underwriting agreement, bear the risk of possible financial loss arising from the subsequent offering of the securities to the public.
Affidavit of Richard L. Bond, sworn to February 20, 1981 ("Bond. Aff."), P 3. Because of this, the defendants assert:
The "firm commitment" purchase ... precludes any good faith contention that the Underwriters acted as mere "agents" for the Singer Group. Instead, ... the Underwriting Agreement (Exh. A to Singer Aff.) establishes that the Underwriters became the exclusive beneficial owners of the Warrants and Stock sold to them. Indeed, the Underwriters were required to certify that they were bona fide purchasers of the Stocks and Warrants acquired by them. (See Exhibit "H" annexed hereto.)
In support of their motion for summary judgment, the defendants submitted several affidavits and a statement pursuant to this Court's Local Civil Rule 3(g), stating that there is no genuine issue as to the material facts of this case. In response, the plaintiff has not submitted any "separate, short and concise statement of the material facts as to which it is contended that there exists a genuine issue to be tried." Rule 3(g) provides that the material facts alleged in the movant's statement "will be deemed to be admitted unless controverted by the statement required to be served by the opposing party." These facts are as follows: (1) that the Singer Group sold their warrants; (2) that they did not exercise their warrants; (3) that the underwriters did exercise the warrants and subsequently sold the stock to the public; and (4) that the Singer Group did not purchase or sell any of the stock involved. But even without taking these facts as admitted, the Court finds that this case is ready for summary judgment. The plaintiff, who has cross-moved for summary judgment, does not appear to suggest that the material facts are in dispute. Indeed, in a prior memorandum of law in connection with an unrelated motion, plaintiff's counsel made the following statements:
Plaintiff concludes that there really are no complex factual issues whatsoever in this case and that this Honorable Court is only requested to furnish its legal conclusion as to the ramification of these transactions on behalf of SIDNEY SINGER, SIDNEY SINGER, JR., and STEPHEN L. SINGER.
Plaintiff's counsel was able to resolve virtually all factual issues through a trip to the SEC Reference Room located in this Courthouse. What could be easier access than this? For defendants to ignore the compelling conclusion that there are no material factual issues in PORTNOY is to adopt a struthious-like posture to the obvious. PORTNOY ultimately involves the rendering by this Court of its judgment as to the legal effect of these transaction(s) consummated by the individual defendants. To think that a trial or live testimony is necessary in Portnoy is to engage in a comic book fantasy to the nth degree.
Quoted in Bond Aff. P 8. Accordingly, the Court will proceed to assess the propriety of the ...