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company makes a profit on a transaction with respect to the company's stock during a given six-month period, that officer, director, or shareholder must pay the difference back to the company. Note that the profit calculated is the maximum considering each pair of sales and purchases, a larger trade
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In order to achieve its goals , Congress chose a relatively arbitrary rule capable of easy administration. The objective standard of
Section 16(b) imposes
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could be paired with trades up to six month prior as well as up to six months later and the correct calculation is a linear programming problem
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The statutory text of the rule can be found at section 16(b) of the
Securities Exchange Act of 1934, codified at 15 U.S.C. section 78p(b).
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212:"Short-Swing Profit Liability Calculator for Insider Trading Under Section 16(b) of the Securities Exchange Act of 1934"
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134:. The rule mandates that if an officer, director, or any shareholder holding more than 10% of outstanding shares of a
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and insiders of a company from making short-term profits at the expense of the firm. It is part of
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upon substantially all transactions occurring within the statutory time period, regardless of the
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See
William A. Klein et al., Business Associations, 511 (6th ed. Foundation Press)(2006).
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Bershad v. McDonough, 428 F.2d 693, 696 (7th Cir. 1970).
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