Ninth Circuit Affirms Exemption for Conversion of Convertible Note

As noted in an earlier blog, a judge in the Northern District of California dismissed a pro se complaint filed by J.D. Jordan, one of the plaintiffs in the recent tax withholding cases, alleging that a group of investment funds engaged in a non-exempt purchase of common stock by converting a convertible note, allowing the purchase to be matched with the funds’ sales of common stock. The plaintiff’s theory of liability wasn’t entirely clear, but the district court held that the conversion was exempt from Section 16(b) by virtue of Rule 16b-6(b).

The Ninth Circuit has now affirmed the district court’s decision, in a brief memorandum opinion that adopted the district court’s reasoning. There’s nothing surprising about the outcome.