MEMORANDUM OPINION AND ORDER
This suit is brought pursuant to § 16(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78p(b), which "provides that
beneficial owners of more than ten percent of any class of an
equity security must turn over, to the issuer of that security,
any profits earned from a purchase and sale of the securities of
that issuer if the purchase and sale are separated by less than
six months." Morales v. Freund, 163 F.3d 763, 764 (2d Cir.
1999). The purpose of this statutory provision is "to deter
`insiders,' who are presumed to possess material information
about the issuer, from using such information as a basis for
purchasing or selling the issuer's equity securities at an
advantage over persons with whom they trade." Gwozdzinsky v.
Zell/Chilmark Fund, L.P., 156 F.3d 305, 308 (2d Cir. 1998)
(footnote omitted); accord Morales v. Quintel Entm't, Inc.,
249 F.3d 115, 121 (2d Cir. 2001).
The case was scheduled for trial on January 29, 2002. The
Court resolved five in limine motions made by defendants and
one in limine motion made by plaintiff in Opinions dated
January 9 and January 10, 2002. At a conference on January 15,
the parties raised additional issues that would benefit from
pre-trial resolution, and the Court adjourned the date of trial
until April 8, 2002 to permit full briefing of those issues.
The parties have now submitted cross-motions for summary
judgment. Defendants request summary judgment on the basis that,
as investment advisers, they are exempt from liability.
Defendants have also submitted a letter brief requesting
reconsideration of the Court's Opinion of January 9, 2002, which
held that certain of plaintiffs claims are not time-barred.
Plaintiffs motion for summary judgment asks the Court to
reconsider Judge Marrero's decision of September 29, 2000 and
decide that defendants as a group are not eligible for the
investment adviser exemption; in the alternative, plaintiff
partial summary judgment on the basis that defendants were not
entitled to the exemption prior to February 17, 1998. This
Opinion resolves both parties' requests for reconsideration and
motions for summary judgment.
I. The Court's Decision that Plaintiffs Claims Are Not
Defendants request reconsideration of the Court's decision in
its Opinion dated January 9, 2002, which resolved defendants'
first in limine motion. In that in limine motion, defendants
sought to preclude plaintiff from presenting any claims relating
to any time period other than May 27, 1998 — September 30, 1998
and September 10, 1997 — November 21, 1997. Defendants asserted
that claims that arose prior to those dates are barred by the
statute of limitations, viewed in conjunction with Rule 9(f) of
the Federal Rules of Civil Procedure. In its January 9 Opinion,
the Court decided that Fed.R.Civ.P. 9(f) does not limit
plaintiff's claims to the dates stated in the complaint and that
the statute of limitations also does not limit plaintiff's
claims, because equitable tolling applies.*fn1 Defendants now
request reconsideration on the ground that plaintiffs complaint
provided no notice of claims arising from transactions prior to
September 10, 1997.
In its complaint, plaintiff alleged that defendants 1) sold
shares of Egghead.Com, Inc. ("Egghead") between July 6, 1998 and
September 30, 1998 which matched purchases between May 27, 1998
and July 2, 1998, and 2) sold Egghead shares between September
10, 1997 and November 21, 1997. Compl. ¶¶ 22-23, 25. Plaintiff
did not identify in its complaint the purchase dates for this
latter group of shares but provided an explanation for not doing
so: "[Defendants] failed, in violation of Section 13(d) of the
Exchange Act, to report the purchases that they made while they
maintained a greater than 10% beneficial ownership. . . ."
Compl. ¶ 25. Furthermore, plaintiff asserted in its complaint
that defendants may be liable for "additional purchases and
sales . . . of which plaintiff is now unaware." Compl. ¶ 26.
It was because of defendants' failure to make required
disclosures that I held, in the Opinion dated January 9, 2002,
that equitable tolling applies to plaintiffs claims. For
comparable reasons, I decide that plaintiff was not required to
include in its complaint information about stock purchases which
defendants wrongfully failed to disclose. Plaintiff provided
ample notice of its claim, based on the information available to
it; and plaintiff specifically gave notice that it was seeking
to impose liability based on unknown purchases that matched
sales between September 10, 1997 and November 21, 1997. It
should come as no surprise to defendants that those unknown
purchases occurred prior to September 10, 1997.
II. Defendants' Entitlement to the Investment Adviser
According to the current version of Rule 16a-1 promulgated
under the Securities and Exchange Act of 1934, securities are
not counted toward the 10% ownership threshold that triggers
liability for shortswing profits if they are "held for the
benefit of third parties or in customer or fiduciary accounts in
the ordinary course