Posted by Richard A. Rosen and Charles E. Davidow, Paul, Weiss, Rifkind, Wharton & Garrison LLP, on Wednesday, November 23, 2016
Editor's Note: Richard A. Rosen and Charles E. Davidow are partners in the Litigation Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss publication by Mr. Rosen, Mr. Davidow, Daniel J. Kramer, Walter Rieman, and Raphael M. Russo.
On November 3, 2016, in an appeal arising out of the 2012 initial public offering (“IPO”) of Facebook, Inc. (“Facebook”), the Second Circuit ruled that standard lock-up agreements between lead underwriters and pre-IPO shareholders in advance of an IPO do not, without more, render those parties a “group” within the meaning of Section 13(d) of the Securities Exchange Act of 1934. Lowinger v. Morgan Stanley, No. 14-3800-cv (2d Cir. Nov. 3, 2016). As a result, a standard lock-up agreement will not be independently sufficient to trigger liability under Section 16(b) for short-swing profits.