Sid,a director of Tech Software Company,learns that a Tech engineer has developed a new,exciting video game.Sid buys Tech stock and tells his friend Uri,who also buys Tech stock.When the new game is released three weeks later,Sid and Uri sell their stock for a big profit.
-Refer to Fact Pattern 26-2.Regarding Sid's profits on the purchase and sale of Tech stock,under Section 16(b) of the Securities Exchange Act of 1934 Tech may recapture

Question

Quizplus · Accepted Answer

Section 16(b) of the Securities Exchange Act of 1934 requires that any profits made by company insiders (such as directors) from the purchase and sale of company stock within a six-month period be returned to the company. In this case, Sid, as a director of Tech Software Company, purchased Tech stock based on insider knowledge of the new video game, and then sold it for a big profit when the game was released three weeks later. Therefore, Tech may recapture all of Sid's profits under Section 16(b).

Sid,a Director of Tech Software Company,learns That a Tech Engineer