Issuer Repurchases Outside the Reach of Section 16(b): No Short-Swing Liability for Treasury Stock Buybacks

Introduction

This commentary examines the Eleventh Circuit’s June 2, 2025 per curiam decision in Andrew E. Roth v. Austin Russell, No. 24-10448. The dispute arises under Section 16(b) of the Securities Exchange Act of 1934, which authorizes an issuer—or a shareholder suing on its behalf—to recover “short-swing” profits realized by company insiders (beneficial owners, officers or directors) on any purchases and sales of its stock within six months.

Plaintiff‐appellant Andrew Roth, a Luminar Technologies, Inc. shareholder, demanded that Luminar sue its founder and majority stockholder, Austin Russell, to recover approximately $23 million in alleged insider profits. Russell had sold about 10.5 million shares in July 2021 at an average $21 per share, and less than six months later, Luminar itself repurchased 15 million shares on the open market at $15.45 per share. Roth claimed that Russell’s indirect, pro rata economic interest in the treasury shares gave rise to a matching Section 16(b) claim. All lower courts—including the district court and the Second Circuit in related suits—had rejected that theory, and the Eleventh Circuit affirmed.

Summary of the Judgment

The court held that Section 16(b) imposes strict liability only when the “beneficial owner, director or officer” both sells and purchases the issuer’s stock within a six-month period. An issuer’s own repurchase of its shares on the open market is not a Section 16(b) “sale and purchase” by an insider, and therefore yields no disgorgement remedy. Key points:

Statutory Text: Section 16(b) applies to “any sale and purchase” entered into by the insider; it does not reach transactions entered into by the issuer.
Regulatory Guidance: SEC rules have long exempted treasury‐stock transactions from Section 16(a) reporting—and, by rule 16a-10, exempted them from Section 16(b) liability as well.
Precedent Uniformity: Every federal court to address the same issue has refused to extend Section 16(b) to issuer repurchases (e.g., Roth ex rel. LAL Fam. Corp. II, Roth ex rel. Altice USA v. Drahi, Roth v. CK Amarillo LP).

Accordingly, the Eleventh Circuit affirmed the dismissal of Roth’s Section 16(b) claim against Russell.

Analysis

1. Precedents Cited

Popkin v. Dingman (S.D.N.Y. 1973): Early decision emphasizing that Section 16(b) liability attaches only to the insider’s own acquisition and disposition of shares, not those by the issuer. The Eleventh Circuit echoed the principle that “ordinary purchases and sales” under the statute “must have been performed . . . by the insider.”
Foremost-McKesson, Inc. v. Provident Securities Co. (U.S. 1976): The Supreme Court stressed that Section 16(b)’s strict liability is confined to its “narrowly drawn limits” and must be imposed only by clear and unmistakable text.
Reliance Electr. Co. v. Emerson Elect. Co. (U.S. 1972): Established that Section 16(b) exemptions track Section 16(a) reporting exemptions; if an insider need not report a transaction, the transaction cannot generate short-swing liability.
Alexander v. Sandoval (U.S. 2001): Cited for the principle that the express provision of one enforcement mechanism implies the exclusion of others.
Loper Bright Enterprises v. Raimondo (U.S. 2024): Not directly at issue here but noted by the parties as a recent Supreme Court rule-of-law case—no SEC regulation at issue in the Eleventh Circuit decision was challenged as invalid.

2. Legal Reasoning

The court’s reasoning proceeded in two complementary strands:

a. Textual Interpretation of Section 16(b)

– The statute imposes liability “irrespective of any intention” on the part of the insider “in entering into such transaction” (15 U.S.C. § 78p(b)). Strict liability thus turns on who “enter[s] into” the sale and purchase of issuer equity.
– By plain text, “such transaction” refers to an insider’s trades, not those executed by the issuer itself. Reading that strict liability onto an issuer repurchase would require an express textual hook that the statute lacks.

b. Regulatory Framework

– Section 16(a) requires insiders to report their own acquisitions and dispositions. Section 16(b) liability is coextensive with Section 16(a) reportable events. See 17 C.F.R. § 240.16a-10.
– Treasury‐stock buybacks by an issuer have been expressly exempted from Section 16(a) since the 1930s, and the SEC found no need to re-create a carve-out from Section 16(b) when it repealed the old rule in 1991, explaining that issuer transactions are outside Section 16(b)’s “short-swing” realm.
– The court also rejected reliance on an SEC amicus brief in Feder v. Frost (2d Cir. 2000), noting that under Kisor v. Wilkie (2019) rules for deference, the regulations are unambiguous and “issuer repurchases” plainly fall outside their scope.

3. Impact

This decision cements a uniform nationwide rule:

Issuers and shareholders suing on their behalf cannot pursue short-swing recovery when the company repurchases its own stock on the open market.
Section 16(b) remains a strict liability device only for inside trades by beneficial owners, officers, or directors.
Corporate treasury operations—like buybacks, redemptions or retirement of shares—are governed by separate doctrines (e.g., fiduciary duties, SEC disclosure rules), not the short-swing regime.
Future plaintiffs will face a clear textual and regulatory bar to Section 16(b) claims based solely on the issuer’s own repurchases.

Complex Concepts Simplified

Strict Liability: No requirement to prove intent or wrongdoing; if the statutory elements are met, liability automatically follows.
Beneficial Owner: Any person who has direct or indirect economic interest in company shares, as defined by SEC rule 16a-1(a)(2).
Section 16(a) Reporting: Insiders must file SEC forms disclosing any purchase or sale of company stock; these forms enable monitoring and enforcement of short-swing profit rules.
Short-Swing Profits: Gains realized by insiders on purchases and sales of issuer stock within six months; designed to deter unfair use of inside information.
Treasury Stock: Shares that an issuer has issued and later reacquired; held in the company’s treasury and not considered “outstanding” for many governance purposes.

Conclusion

The Eleventh Circuit’s ruling in Roth v. Russell clarifies that Section 16(b)’s strict short-swing liability applies exclusively to insiders’ own paired transactions, not to buybacks conducted by the issuer itself. The decision reinforces the tight textual interplay between Section 16(b) and Section 16(a) reporting requirements, and aligns with every other federal court that has considered the issue. Going forward, companies and practitioners can rely on this clear boundary: treasury‐stock repurchases—no matter how large or close in time to an insider’s sale—will not trigger disgorgement under the short-swing statute. This preserves Section 16(b) as a narrow, deterrent‐based remedy against insider trading, without importing corporate buybacks into its sweep.