Court Rejects Claim for Disgorgement of Short Swing Profits

The Southern District of New York has rejected a claim seeking disgorgement of short swing profits, despite defendant's agreement to certain lock-up provisions in connection with Quintel Entertainment, Inc.'s acquisition of a company in which he was a stockholder and his filing with the SEC of a Schedule 13D report describing himself and other stockholders of the acquired company as members of a group owning more than 10% of Quintel because, among other things, there was no evidence (i) that defendant and the other stock holders "were trying to effectuate a shift in corporate control through the disposition of Quintel stock"; or (ii) "of an agreement to attempt a corporate takeover . . . [or] to use their stock to exert influence over Quintel." In the Court's view, neither the lock-up provisions nor the SEC filing rendered defendant a "beneficial owner" of more than 10% of the shares of Quintel. As a result, he did not have to disgorge profits from his purchases and sales of Quintel stock during a six-month period. (Morales v. Quintel Entertainment, Inc., 1999 WL 987357, S.D.N.Y., 10/27/99)

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Joel W. Sternman at (212) 940-7060 or e-mail jwsternman@rosenman.com, or Steven Binhak at (212) 940- 8846 or e-mail sjbinhak@rosenman.com