ALPHA VENTURE CAPITAL PARTNERS V. NADER POURHASSAN, No. 21-35274 (9th Cir. 2022)Annotate this Case
The Ninth Circuit panel held that defendant was not required to disgorge to CytoDyn his short-swing profits from exercising options and warrants granted by CytoDyn, entitling him to purchase and later sell CytoDyn shares. The panel held that the short-swing transaction fell within an exemption, set forth in SEC Rule 16b-3(d)(1) because the option and warrant award was “approved by the board of directors” of CytoDyn. The circuit court concluded that the affirmative votes of three of CytoDyn’s five board members, at a meeting where only four board members were present, were sufficient, and a unanimous decision was not required under either the plain text of Rule 16-3(d)(1), Delaware corporate law, or CytoDyn’s bylaws.
The court left the determination of what a corporate board must do to approve insider-issuer acquisitions to the laws of the state where the corporation is incorporated. Reasoning that federal securities law defers to—and does not displace—the state laws governing corporate boards. Thus, the circuit court affirmed the district court’s ruling.