On November 3, 2016, the Second Circuit upheld the district court’s ruling involving the Facebook IPO that underwriters of the IPO are not required to disgorge short-swing profits made with their sales and purchases of shares in connection with the offering. Section 16(b) of the Securities Exchange Act of 1934 provides for the recovery by the issuer, in an action brought by the issuer or by a security holder of the issuer, of profits gained by a statutory insider (an officer, director, or more than ten percent “beneficial owner”) from any purchase or sale, or any sale and purchase, of the equity securities of the issuer within a six month period. Section 16(b) is intended to prevent such insiders from profiting from “short-swing” variations in share price. Although the lead underwriters alone did not meet the ten percent threshold, “beneficial owner” under Section 13(d) of the Exchange Act can include a “group.” The appellant argued that the lead underwriters and certain pre-IPO shareholders together formed a “group” under Section 13(d) due to the lock-up agreements between them prohibiting the shareholders from selling their stock for a specified period of time except as permitted by the lead underwriters. The court solicited the opinion of the SEC, as amicus curiae, which stated that a typical IPO lock-up agreement between shareholders and underwriters, standing alone, is not sufficient to establish a “group” under Section 13(d). The court agreed, stating that standard IPO lock-up agreements do not form a “group” of shareholders with respect to application of “short-swing” profit rules. The Second Circuit’s holding provides protection for underwriters entering into standard form lock-up agreements, which are standard for typical IPOs.