SW Legal Educational Publishing

Stock Appreciation Rights Are Not Securities
Description Claim that exercise of cash appreciation of Stock Appreciation Rights involved insider trading and securities fraud rejected for lack of evidence of fraud and because the Rights are not securities.
Topic Securities Law
Key Words Stock Appreciation Rights, Insider Trading
C A S E   S U M M A R Y
Facts Riverwood granted its senior executives stock appreciation rights (SARs). They "would receive payment from the company equal to the difference between the SARs grant value and the fair market value of Riverwood's stock at the time they exercised them." Later, Manville Corporation, majority owner of Riverwood, decided to sell it, if a good price was to be had, which was announced. Deals with prospective buyers were negotiated. During that time, the executives exercised their SARs for $7 million. Clay, a shareholder, sued, claiming insider trading and securities fraud. District court dismissed the suit; Clay appealed.
Decision Affirmed. The SARs were not securities. They were cash-only instruments, not stock options, with no stock rights. Nor are SARs "privileges with respect to" securities, as may be puts, calls, straddles, and options. There is no market for SARs. Since there are no securities, there is no insider trading issue. Nor is there securities fraud. The company truthfully reported that it was for sale. The company had no duty to report the details of negotiations with various prospective buyers.
Citation Clay v. Riverwood International Corp., 157 F.3d 1259 (11th Cir., 1998)

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