## Facts

- William G. Livingston worked for Merrill Lynch from 1951 to 1972 as a securities salesman (“Account Executive”).
- In January 1972, Merrill Lynch created an Account Executive Recognition Program and awarded Livingston and others the title “Vice President.”
- The title did not change Livingston’s job: his duties remained the same, he had no executive or policy-making responsibilities, and he did not attend board or executive committee meetings.
- Livingston received some internal information (e.g., rankings of retail office performance) that was not public, but it was regularly distributed to other salesmen and was not useful for stock trading.
- In November and December 1972, Livingston sold 1,000 shares of Merrill Lynch stock.
- In March 1973, he repurchased 1,000 shares, realizing $14,836.37 in profit.
- Merrill Lynch sued to recover the profit under § 16(b) of the Securities Exchange Act of 1934, alleging Livingston was an “officer” who engaged in prohibited short-swing trading.

## Issues

1. Whether an employee holding an honorary “Vice President” title, without executive or policy-making responsibilities and without trading-relevant inside access, qualifies as an “officer” subject to § 16(b) strict liability for short-swing profits.

## Decision

- The Ninth Circuit reversed the district court’s judgment for Merrill Lynch.
- The court held that Livingston was not an “officer” within the purview of § 16(b).
- Because § 16(b) did not apply, Merrill Lynch could not recover Livingston’s short-swing profits.

## Legal Principles

- Section 16(b) is a prophylactic, strict-liability rule aimed at preventing speculative short-swing trading by corporate insiders presumed likely to have trading-advantageous, nonpublic company information.
- “Officer” under § 16(b) is determined by a functional inquiry into actual responsibilities and informational access, not by corporate title alone.
- An honorary or inflated title (including “Vice President”) does not trigger § 16(b) absent executive or policy-making authority or access to material, nonpublic information relevant to trading.
- Receipt of internal information does not establish § 16(b) officer status when the information is widely distributed within comparable employee groups and not useful for securities trading.

## Conclusion

The Ninth Circuit held that § 16(b) did not reach a salesman given an honorary “Vice President” title where his role remained non-executive and his information access did not include trading-relevant inside information; imposing strict liability in those circumstances would extend § 16(b) beyond the insider class it targets.


Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Livingston, 566 F.2d 1119 (9th Cir. 1978)