## Facts

- A Sperry Rand Corporation shareholder brought a derivative action under § 16(b) of the Securities Exchange Act of 1934 to recover alleged short-swing profits realized by Martin Marietta Corporation on trades in Sperry stock.
- George M. Bunker was Martin’s president and chief executive officer and was responsible for approving Martin’s stock transactions.
- Martin held a substantial investment in Sperry, and Bunker served for several months as a director of Sperry while remaining Martin’s chief executive.
- During Bunker’s tenure on Sperry’s board, Martin purchased over 100,000 additional shares of Sperry stock.
- Bunker resigned from Sperry’s board; his resignation letter stated he had become a Sperry director because Martin owned a substantial number of Sperry shares.
- Within six months of Martin’s purchase of the additional shares, Martin sold them at a profit.
- After a demand on Sperry was not acted upon, the shareholder sued in the Southern District of New York; after a bench trial, the district court found no “deputization” and dismissed.
- The shareholder appealed.

## Issues

1. Whether a corporation is a statutory “director” for § 16(b) purposes when it deputizes its chief executive to sit on an issuer’s board in circumstances indicating the executive represents the corporation’s interests.
2. Whether § 16(b) liability applies when the insider is a director at the time of purchase but resigns before the matching sale, with purchase and sale occurring within six months.

## Decision

- The Second Circuit reversed the district court’s dismissal.
- The court held Martin was a § 16(b) “director” of Sperry by deputization during Bunker’s board service.
- The court held Martin could not avoid § 16(b) liability merely because Bunker resigned before the sale, where the purchase and sale occurred within six months.
- The case was returned for proceedings consistent with imposing § 16(b) liability for the short-swing profits.

## Legal Principles

- Section 16(b) imposes automatic, objective liability for an insider’s short-swing profits; intent, actual misuse of information, or proof of access to inside information is not required.
- Courts interpret § 16(b) in light of its remedial purpose to prevent unfair use of information, including through functional rather than purely formal classifications.
- A corporation may be deemed a § 16(b) “director” when it deputizes an individual to serve on an issuer’s board as the corporation’s representative; deputization is determined case by case from the surrounding facts.
- Insider status at the time of purchase is sufficient for § 16(b) coverage of a matching sale within six months; resignation between the two legs of the transaction does not defeat liability.

## Conclusion

The Second Circuit treated Martin as a statutory director because its chief executive served on Sperry’s board as Martin’s representative, and it applied § 16(b) to Martin’s purchase-and-sale sequence within six months despite the executive’s intervening resignation, preventing evasion of the statute’s strict short-swing profit rule.


Feder v. Martin Marietta Corp., 406 F.2d 260 (2d Cir. 1969)