On May 2, 2014, the United States District Court for the Southern District of New York held that there is no liability under Section 16(b) of the Exchange Act of 1934 for underwriter transactions where the underwriters entered into “lock-up” agreements with company insiders limiting the ability of the shareholders to sell their stock during the underwriters’ promotion of an IPO. In re Facebook, Inc., IPO Sec. and Derivative Litig., No. 13-4016 (S.D.N.Y. May 2, 2014). The plaintiffs alleged that the underwriters entered into “lock-up” agreements with each selling shareholders that collectively owned more than 10% of the stock of Facebook. The “lock-up” agreements prohibited the selling shareholders from selling or otherwise disposing of their stock during the IPO. The plaintiffs further alleged that the “lock-up” agreements created a “common purpose” of controlling the market of Facebook stock. Thus, plaintiffs asserted, the underwriters and selling shareholders constituted a “group” for purposes of Section 16(b). Accordingly, the plaintiffs sought to disgorge over $100 million in profits from trading that the underwriters engaged in as part of the IPO. In dismissing the plaintiffs’ claims, the court noted that the underwriters were not alleged to own more than 10% of Facebook’s stock. The court found that it would not be appropriate to consider the underwriters and the selling shareholders to constitute a “group.” According to the court, the lock-up agreements did not create a common purpose between the selling shareholders and the underwriters. While the lock-up agreements did limit the selling shareholders’ ability to sell or dispose of Facebook stock, the underwriters did not have reciprocal obligations. The underwriters were permitted to act as distributors of Facebook stock that could both buy and sell Facebook stock during the IPO. Thus, the court concluded that there was no commonality of interested needed to form a “group” for purposes of Section 16(b) liability.