Plaintiffs, Capitol First Corporation and its shareholders, asserted, among other things, § 16(b) claims under the Securities Exchange Act of 1934 against defendants, former controlling shareholders for failing to disclose their short-swing transactions in Capitol stock and for realizing improper short-swing profits. Plaintiffs alleged that defendants made their transactions in connection with a scheme to cause restricted shares to be reissued as free-trading shares and to be “immediately and actively” traded in order to create the appearance of an active market demand for Capitol stock and, accordingly, artificially inflate the stock price.
The Court held that plaintiffs’ allegations that defendants, owners in excess of 10% of Capitol’s common stock, purchased and sold shares of Capitol’s stock within a six month period and profited from these short-swing transactions, were sufficient to maintain a § 16(b) action. The Court sustained plaintiffs’ claim that the defendants’ shares could be aggregated to satisfy § 16(b)’s 10% threshold because they were alleged to have acted in concert with each other in furtherance of a commonly held objective with respect to the Capitol stock.
In denying the dismissal motion, the Court rejected the defendants’ argument that plaintiffs were required to allege that the same individual shares were purchased and sold within a six month period in order to state a § 16(b) claim. The Court also rejected defendants’ contention that the claim was barred under the two-year statute of limitations. Although the lawsuit was filed more than two years after the last transaction, the Court ruled that plaintiffs’ allegations, if true, would equitably toll the statute of limitations. (Capitol First Corporation v. Todd, 2006 WL 3827329 (D.N.J. Dec. 27, 2006))