District Court Dismisses Shareholder Claim that Equity Award Share Withholding Triggers Section 16(b) Liability

A US District Court recently dismissed a claim that an insider’s election to satisfy an income tax obligation by having shares withheld from the delivery of an award constituted a non-exempt sale of shares back to the issuer for purposes of Section 16(b) of the Exchange Act, unless the share withholding was required, rather than merely permitted.

While an encouraging development, this decision is now on appeal to the US Court of Appeals for the Fifth Circuit and there are similar unresolved complaints in other jurisdictions. Until this matter is resolved, public companies should continue to consider what steps are appropriate to avoid Section 16 exposure and to review this situation with their executive officers.

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Andrew LiazosAndrew Liazos
Andrew C. Liazos heads the Firm's Executive Compensation Group and the Boston Employee Benefits Practice. Andrew focuses his practice on compensation and benefit matters, including related securities, M&A, IPO, private equity, international and litigation matters. Clients range from Fortune 500 companies to compensation committees to individual executives in employment and severance negotiations. Read Andrew Liazos' full bio.


Eric OrsicEric Orsic
  Eric Orsic is the co-head of the Firm’s Capital Markets and Public Companies Practice Group. Eric advises clients in the areas of mergers and acquisitions, and securities transactions and compliance. He works with publicly and privately held companies to structure and negotiate business acquisitions/dispositions. His public company transactional experience includes public equity and debt offerings, tender offers and going-private transactions. Read Eric Orsic's full bio.


Thomas P. ConaghanThomas P. Conaghan
Thomas (Tom) P. Conaghan represents public and private companies, underwriters and other sources of capital, corporate boards and board committees, and corporate executives. He advises US- and foreign-based public companies on issues relating to mergers and acquisitions (M&A), joint ventures, strategic investments, spin-offs, public and private offerings of securities (including initial public offerings (IPOs)), disclosure, Securities and Exchange Commission (SEC) reporting, corporate governance, executive compensation, and the stock exchange-listed company rules. Tom is co-head of the Firm's Capital Markets and Public Companies Group, and partner-in-charge of the Corporate Group in the Firm's Washington, DC office. Read Tom Conaghan's full bio.

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