No matter how much a shareholder strives and seeks, it cannot find the “profit realized” when an issuer repurchases its own stock on the open market. This according to the Eleventh Circuit’s per curiam opinion in Roth v. Russell. 2025 WL 1553628 (11th Cir. June 2, 2025).
Andrew Roth saw an opportunity when Luminar Technologies, Inc.—a publicly traded auto technology company in which he held stock—repurchased 15 million shares of its own stock on the open market at over $15 a share. In his view, this repurchase allowed him to recover the “profit realized” by Luminar’s “beneficial owner, director, or officer” under section 16(b) of the Securities Exchange Act, 15 U.S.C. § 78p(b), because the purchase occurred “less than six months” after Luminar’s CEO and majority shareholder, Austin Russell, sold over 10 million company shares at around $21 per share. Roth sent a demand letter to Luminar, asking that it sue Russell to recover the $23 million in profits he realized from the stock repurchase. The company refused.
Roth then sued Russell, citing section 16(b) and seeking disgorgement of Russell’s profits. Russell countered that section 16(b) does not permit an issuer to “recover the profits realized by the beneficial owner, director, or officer from the repurchase of the issuer’s own stock.” The district court agreed: Section 16(b) “‘distinguishes between the’ beneficial owner, director, or officer ‘who can be liable under the statute and the company issuing the stock, which cannot be liable, and . . . the statute predicates liability on trades conducted by the’ beneficial owners, directors, or officers, ‘not the company.’” So, Roth appealed.
Relying on the statute’s text and the SEC’s regulations implementing it, the Eleventh Circuit affirmed the district court. As to the text, the Eleventh Circuit reasoned that the imposition of strict liability for violations of section 16(b) was fatal on the facts. This strict liability, removing any need to demonstrate the actor’s intent, applies only where a “beneficial owner, director, or officer” has effected the sale or purchase “of any equity security.” Strict liability does not attach, by the statute’s own terms, where the seller or purchaser is the issuer itself rather than the “beneficial owner, director, or officer” of the issuer.
And Roth’s reliance on regulations implementing section 16(b) was misplaced, according to the Eleventh Circuit. It offered three reasons why. First, the SEC’s rules, and comments thereto, have specifically “excepted issuer stock repurchases from section 16(b)’s reach” since the Securities Exchange Act’s passage in the 1930s. This exception is grounded in the rationale that issuer itself “is the beneficiary of the short-swing profit provision.” Second, because issuer stock repurchases are not covered by section 16(a)’s reporting requirements, it follows that such repurchases are not covered by section 16(b)’s strictures. Indeed, the SEC’s rules—and precedent applying them—make clear that an event must be reportable under 16(a) before it can trigger liability under 16(b). Third, the rules’ definition of beneficial ownership require “direct or indirect pecuniary interest in the equity securities.” Russell did not have such an interest in the repurchased shares; only Luminar did. Since a “corporation and its shareholders are distinct entities,” Dole Food Co. v. Patrickson, 538 U.S. 468, 474, (2003), Luminar’s interest in these shares could not be attributed to Russell absent a showing that Russell used the company as an investment vehicle or his own alter ego. See Popkin v. Dingman, 366 F. Supp. 534, 537–38 (S.D.N.Y. 1973).
The statute’s text, the SEC’s regulations, and established precedent all point in one direction. The Eleventh Circuit therefore joined every other court to consider the question in holding that “section 16(b) does not allow the issuer (or a shareholder on its behalf ) to recover profits realized by a beneficial owner, director, or officer from the issuer’s repurchase of its own stock on the open market.” The district court’s dismissal of Roth’s complaint for failure to state a claim was therefore affirmed.