Levy v. Sterling Holding Co

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit

10-1-2008

Levy v. Sterling Holding Co
Precedential or Non-Precedential: Precedential

Docket No. 07-1849

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2008

Recommended Citation
"Levy v. Sterling Holding Co" (2008). 2008 Decisions. Paper 288.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/288

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2008 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________

No. 07-1849
_________

MARK LEVY,
Appellant

v.

STERLING HOLDING COMPANY, LLC;
NATIONAL SEMICONDUCTOR CORPORATION;
FAIRCHILD SEMICONDUCTOR INTERNATIONAL,
INC.

_________

On Appeal from the United States District Court
for the District of Delaware
(D.C. Civil No. 00-cv-00994)
District Judge: Honorable Gregory M. Sleet

__________
 Argued March 24, 2008

Before: McKEE, RENDELL, and TASHIMA,*
Circuit Judges

(Filed: October 1, 2008)

Jeffrey S. Abraham, Esq. [ARGUED]
Abraham, Fruchter & Twersky
One Penn Plaza, Suite 2805
New York, NY 10119-0000
Counsel for Plaintiff-Appellant
Mark Levy

(continued)

__________________

* Honorable A. Wallace Tashima, Senior Judge of the
United States Court of Appeals for the Ninth Circuit,
sitting by designation.

2
Carolyn H. Feeney, Esq.
Steven B. Feirson, Esq. [ARGUED]
Dechert
Cira Centre, 18th Floor
2929 Arch Street
Philadelphia, PA 19104-0000
Counsel for Defendant-Appellee
Sterling Holding Company, LLC

Paul Vizcarrondo, Jr., Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-0000
Counsel for Defendant-Appellee
National Semiconductor Corporation

Megan W. Casio, Esq.
Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P. O. Box 1347
Wilmington, DE 19899-0000
Counsel for Defendant–Non-Participating
Fairchild Semiconductor International, Inc.

Allan A. Capute, Esq. [ARGUED]
Securities & Exchange Commission
100 F Street, N.E.
Washington, DC 20549-0000
Counsel for Securities and Exchange Commission
Amicus Appellee

3
 __________

OPINION OF THE COURT
__________

RENDELL, Circuit Judge.

Mark Levy filed a shareholder derivative suit on behalf
of Fairchild Semiconductor International, Inc. (“Fairchild”)
against Sterling Holding Company, LLC (“Sterling”) and
National Semiconductor Corporation (“National”) for
disgorgement of short-swing profits, pursuant to section 16(b)
of the Exchange Act of 1934. National and Sterling contend
that two separate SEC Rules, 16b-3 and 16b-7, exempt them
from section 16(b) liability. When this case was before us
previously, at the motion-to-dismiss stage, we ruled that neither
exemption applied here. Levy v. Sterling Holding Co. (Levy I),
314 F.3d 106 (3d Cir. 2002). Thereafter, however, the SEC
amended Rules 16b-3 and 16b-7 to, as it put it, “clarify the
exemptive scope” of these two Rules, making clear that both
apply to the instant fact pattern. Ownership Reports and
Trading by Officers, Directors and Principal Security Holders,
Exchange Act Release No. 52,202 (“2005 Amendments
Release”), 70 Fed. Reg. 46,080, 46,080 (Aug. 9, 2005). The
District Court then ruled in favor of National and Sterling and
against Levy on cross motions for summary judgment. We must

4
decide whether our rulings in Levy I, or the SEC’s more-recent
Rule amendments, govern the case at this stage. For the reasons
that follow, we conclude that at least one of the amendments is
controlling and, therefore, we will affirm the District Court’s
grant of summary judgment to National and Sterling, and its
denial of summary judgment to Levy.

I.

A.

In 1997, Fairchild was spun off from National as a new
company. Three classes of Fairchild stock were created:
(1) Class A common stock; (2) Class B common stock, which
differed from Class A common because it did not entail voting
rights; and (3) preferred stock, which offered a cumulative 12%
dividend. Class A common and Class B common were freely
convertible into each another, but preferred stock was not
convertible into either Class of common. National received a
mix of all three classes of stock and, in exchange for its $58.5
million investment in the new company, so did Sterling. The
only other initial investors were a number of National employees
slated to become key Fairchild employees. The governing
shareholder agreement gave National the power to designate one
of Fairchild’s seven directors and gave Sterling the power to
designate two.

5
 In 1999, Fairchild decided to undertake an initial public
offering (“IPO”) to raise additional capital and was told by a
number of underwriters that it should eliminate its preferred
stock in order for the IPO to be successful. Consistent with this
advice, a majority of Fairchild’s board voted that, as part of the
IPO, all of the company’s outstanding shares of preferred stock
would automatically be reclassified as shares of Class A
common stock. A majority of each of the three classes of
shareholders subsequently approved the reclassification by
written consent. Preferred shares were to be valued at their
contractual liquidation value — the original price plus
accumulated unpaid dividends — and Class A common shares
were to be valued at the price at which the Class A shares would
be offered to the public in the IPO, less underwriting fees and
commissions. Dividing the former by the latter yielded a
76-to-1 conversion ratio, meaning that each share of preferred
stock would become 76 shares of Class A common.1 Prior to
the execution of the IPO, according to the IPO prospectus,
Sterling owned 48% of the outstanding Class A common, 85.1%
of the outstanding Class B common, and 75.9% of the
outstanding preferred, while National owned 14.8%, 14.9%,
and 16.7%, respectively.

On August 9, 1999, the IPO was completed and the
shares of preferred stock owned by Sterling and National were

1
We have rounded off the figures throughout this opinion
because the precise figures are unimportant.

6
reclassified as 4 million and 900,000 shares of Class A common,
respectively. On January 19, 2000 — less than six months later
— with Fairchild undertaking a secondary offering of Class A
common stock, Sterling sold 11 million shares of Class A
common and National sold 7 million shares of Class A common.
The share price of Class A common had increased 84% since the
reclassification.

B.

In November 2000, Levy, a Fairchild shareholder, filed
a derivative suit against National and Sterling, pursuant to
section 16(b) of the Securities and Exchange Act of 1934, which
generally provides for the disgorgement of any profits earned by
statutory insiders from short-swing trading. See 15 U.S.C.
§ 78p(b).2 The four elements required for section 16(b) liability

2
Section 16(b) provides, in pertinent part:

For the purpose of preventing the unfair use of
information which may have been obtained by
such beneficial owner, director, or officer by
reason of his relationship to the issuer, any profit
realized by him from any purchase and sale, or
any sale and purchase, of any equity security of
such issuer (other than an exempted security) or a
security-based swap agreement . . . involving any
such equity security within any period of less than
six months, unless such security or security-based

7
are (1) a purchase of a security and (2) a sale of that security
(3) by a director or officer of the issuer or by a beneficial owner
of 10% of any Class of the issuer’s securities (4) within a six-
month period. See id.; Levy I, 314 F.3d at 111. As a general
rule, any profits earned through transactions that meet these
elements rightfully belong to the issuer. There is no mens rea
requirement — section 16(b) creates a strict liability regime.

swap agreement was acquired in good faith in
connection with a debt previously contracted,
shall inure to and be recoverable by the issuer,
irrespective of any intention on the part of such
beneficial owner, director, or officer in entering
into such transaction of holding the security or
security-based swap agreement purchased or of
not repurchasing the security or security-based
swap agreement sold for a period exceeding six
months. . . . This subsection shall not be construed
to cover any transaction where such beneficial
owner was not such both at the time of the
purchase and sale, or the sale and purchase, of the
security or security-based swap agreement . . .
involved, or any transaction or transactions which
the Commission by rules and regulations may
exempt as not comprehended within the purpose
of this subsection.

Securities Exchange Act of 1934 § 16(b), 15 U.S.C. § 78p(b).

8
 According to the statute itself, the purpose of section
16(b) is “preventing the unfair use of information which may
have been obtained by such beneficial owner, director, or officer
by reason of his relationship to the issuer.” 15 U.S.C. § 78p(b).
The statute authorizes the SEC to promulgate rules and
regulations exempting from liability transactions that are “not
comprehended within [this] purpose.” Id.; see Levy I, 314 F.3d
at 112. Exercising this authority, the SEC has established a
number of section 16(b) exemptions. See 17 C.F.R. §§ 240.16b-
1, .16b-3, .16b-5 to .16b-8 (codifying SEC Rules 16b-1, 16b-3,
and 16b-5 to 16b-8).

Levy claimed that the reclassification of National’s and
Sterling’s preferred stock holdings constituted a “purchase” of
Class A common stock so that the profits that National and
Sterling earned from their sale of Class A common less than six
months later belong to Fairchild. National and Sterling filed
motions to dismiss, contending that two separate exemptions —
Rule 16b-3 and Rule 16b-7 — shielded them from section 16(b)
liability.3

3
National and Sterling also maintained — and continue to
maintain — that, under the so-called “unorthodox transaction”
doctrine, the reclassification did not constitute a “purchase” for
section 16(b) purposes. See Kern County Land Co. v.
Occidental Petroleum Corp., 411 U.S. 582, 593-94 (1973). We
will refrain from addressing this argument because our analysis
of Rules 16b-3 and 16b-7 below makes it unnecessary for us to

9
 Adopted in 1996, the version of Rule 16b-3 that was in
effect until 2005 provided, in pertinent part:

Transactions between an issuer and its officers or
directors.

(a) General. A transaction between the issuer
(including an employee benefit plan sponsored by
the issuer) and an officer or director of the issuer
that involves issuer equity securities shall be
exempt from section 16(b) of the Act if the
transaction satisfies the applicable conditions set
forth in this section.

....

(d) Grants, awards and other acquisitions from the
issuer. Any transaction involving a grant, award
or other acquisition from the issuer (other than a
Discretionary Transaction) shall be exempt if:

(1) The transaction is approved by the
board of directors of the issuer . . . ;

(2) The transaction is approved or ratified
by . . . the written consent of the holders of

do so.

10
 a majority of the securities of the issuer
entitled to vote . . . ; or

(3) The issuer equity securities so acquired
are held by the officer or director for a
period of six months following the date of
such acquisition . . . .

17 C.F.R. § 240.16b-3 (amended 2005).

The 1991 version of Rule 16b-7, which remained in
effect until 2005, provided, in pertinent part:

Mergers, reclassifications, and consolidations.

(a) The following transactions shall be exempt
from the provisions of section 16(b) of the Act:

(1) The acquisition of a security of a
company, pursuant to a merger or
consolidation, in exchange for a security of
a company which, prior to the merger or
consolidation, owned 85 percent or more
of either:

(i) The equity securities of all other
companies involved in the merger or

11
 consolidation, or in the case of a
consolidation, the resulting company; or

(ii) The combined a sse ts of all the
companies involved in the merger or
consolidation . . . .

17 C.F.R. § 240.16b-7 (amended 2005). Even though the SEC
added the word “reclassifications” to the Rule’s title in 1991, the
Rule’s text did not specifically refer to them.

National and Sterling argued that Rule 16b-3(d)
exempted them from any liability related to the reclassification
because the reclassification fit within the category of a “grant,
award, or other acquisition from the issuer” — as an “other
acquisition” — and was approved by a majority of Fairchild’s
board and a majority of the voting shareholders (even though
approval by either of the two would have sufficed). They
maintained that Rule 16b-7’s exemption applied as well because
they acquired the disputed Class A common stock as part of a
“reclassification” that met the Rule’s 85% cross-ownership
requirement.

The District Court granted National’s and Sterling’s
motions to dismiss, finding that the reclassification fell within
the scope of Rule 16b-7 and that Levy’s section 16(b) suit thus
necessarily failed. The Court did not rule on the applicability of
Rule 16b-3(d). Levy then appealed to our Court.

12
 C.

In an opinion filed December 19, 2002, we reversed,
concluding that neither Rule 16b-3(d) nor Rule 16b-7 exempted
National or Sterling from section 16(b) liability. As to Rule
16b-3(d), we reasoned that, despite the apparent open-endedness
of the language “other acquisition from the issuer,” and despite
the fact that the Rule made no mention of “compensation,” the
SEC intended it to apply only to transactions with a
compensatory nexus. Levy I, 314 F.3d at 120-24. We reviewed
in depth the release issued by the SEC in 1996 in connection
with the adoption of the Rule, and relied on a number of
excerpts that, we thought, indicated that the SEC adopted the
1996 version of the Rule in order to spur participation in
employee benefit plans and to make it clear that the exemption
applied to participant-directed transactions, such as the exercise
of a stock option. Id. at 122-24. We did acknowledge,
however, that one portion of the release “appear[ed] to cut
against our position” that Rule 16b-3(d) required a
compensatory nexus. Id. at 124. In that portion, the SEC
explained:

New Rule 16b-3 exempts from short-swing profit
recovery any acquisitions and dispositions of
issuer equity securities . . . between an officer or
director and the issuer, subject to simplified
conditions. A transaction with an employee
benefit plan sponsored by the issuer will be

13
 treated the same as a transaction with the issuer.
However, unlike the current rule, a transaction
need not be pursuant to an employee benefit plan
or any compensatory program to be exempt, nor
need it specifically have a compensatory element.

Ownership Reports and Trading by Officers, Directors and
Principal Security Holders, Exchange Act Release No. 37,260
(“1996 Rule 16b-3 Release”), 61 Fed. Reg. 30,376, 30,378-79
(June 14, 1996) (emphasis added) (footnotes omitted).
Nonetheless, we concluded that “the weight of the SEC’s
pronouncements on Rule 16b-3, and particularly Rule 16b-3(d),
suggest that the transaction should have some connection to a
compensation-related function.” Levy I, 314 F.3d at 124.

Examining the applicability of the exemption set forth in
Rule 16b-7, we began our analysis by noting that “the SEC has
not set forth its interpretation clearly so our threshold challenge
is to ascertain what in fact was its interpretation.” Id. at 112.
We reasoned that the SEC must have added “reclassifications”
to the Rule’s title for a reason, but found that, “[u]nfortunately,
. . . the title and text of the rule, standing alone, do not provide
us assistance in our effort to ascertain the SEC’s purpose.” Id.
at 113.

Based on a pair of SEC releases, we concluded that the
SEC intended for Rule 16b-7 to exempt some, but not all,
reclassifications from section 16(b) liability. Id. at 113-15. The

14
first release was from 1981 (i.e., ten years before
“reclassifications” was added to the Rule’s title) and included a
question and answer regarding the Rule’s applicability to
reclassifications:

Question: Although not specifically mentioned,
does Rule 16b-7 apply to transactions structured
as (1) statutory exchanges; (2) liquidations; or
(3) reclassifications?

Answer: The staff is of the view that, for
purposes of Rule 16b-7, a statutory exchange may
be the substantive equivalent of a merger,
consolidation or sale of assets. Therefore, the
acquisition and disposition of stock in a statutory
exchange would be exempt under Rule 16b-7,
assuming all of the conditions of the rule are
satisfied. A liquidation, on the other hand, is not
covered by Rule 16b-7, since the liquidation in
substance and purpose bears little resemblance to
the types of transactions specified in the rule.
Rule 16b-7 does not require that the security
received in exchange be similar to that
surrendered, and the rule can apply to
transactions involving reclassifications.

Interpretive Release on Rules Applicable to Insider Reporting
and Trading, Exchange Act Release No. 18,114, 46 Fed. Reg.

15
48,147, 48,176-77 (Oct. 1, 1981) (emphasis added) (footnotes
omitted). Essentially, we read the language “can apply” to mean
“sometimes applies.” Levy I, 314 F.3d at 113-14.

The second release, from 2002, pertained to proposed
amendments to Form 8-K and exempted from reporting
requirements “[a]cquisitions or dispositions pursuant to holding
company formations and similar corporate reclassifications and
consolidations.” Form 8-K Disclosure of Certain Management
Transactions, Exchange Act Release No. 45,742, 67 Fed. Reg.
19,914, 19,919 (Apr. 23, 2002) (emphasis added). It noted that
“[t]hese are the transactions exempted from Section 16(b) short-
swing profit recovery by Exchange Act Rule 16b-7.” Id. at
19,919 n.56. We reasoned that this release “does not suggest
that all reclassifications are per se exempt” and that, because it
“clearly hedges on the point,” it “thus supports a conclusion that
some but not all reclassifications are exempt from section
16(b)’s restrictions.” Levy I, 314 F.3d at 114.

Next, lacking “specific SEC guidance about which
reclassifications are exempt from section 16(b) under Rule 16b-
7,” we devised a two-part test, under which a particular
reclassification would be exempt if it (1) met the 85% cross-
ownership requirements that the Rule clearly made applicable to
mergers and consolidations and (2) was a transaction “not
comprehended within the purpose” of section 16(b). Id. at
114-15 (quoting 15 U.S.C. § 78p(b)).

16
 Applying our newly-created test, we found that the
reclassification here failed part two — at least at the motion-to-
dismiss stage. Id. at 115-18. We rejected National and
Sterling’s argument that the reclassification changed only the
form, not the substance, of their investments in Fairchild such
that it did not present an opportunity for insiders to benefit over
the public and thus did not implicate Congress’s purpose in
enacting section 16(b). Indeed, we concluded that it did present
such an opportunity. We based our conclusion on two
independent grounds. First, we found that, reading the
pleadings in the light most favorable to Levy, the
reclassification proportionately increased National’s and
Sterling’s interests in Fairchild by leaving them with a greater
percentage of Fairchild’s common stock. Id. at 116-17. Second,
after contrasting the pros and cons of common-stock and
preferred-stock ownership, we decided that the reclassification
“so chang[ed] the risks and opportunities of the preferred
shareholders in [Fairchild 4 ] that the SEC would not have
intended to exempt the reclassification from section 16(b) by
Rule 16b-7.” Id. at 117-18.

National and Sterling petitioned for rehearing, and the
SEC submitted an amicus brief in support. We denied the
rehearing request, despite the fact that the SEC maintained in its

4
While we wrote “National and Sterling” here, the context
makes clear that this was a mistake and that we meant to write
“Fairchild.”

17
brief that our ruling in Levy I was inconsistent with its view that
both exemptions applied here.5

D.

In 2005, in response to our opinion in Levy I, the SEC
adopted amendments to Rules 16b-3 and 16b-7 in order “to
clarify the exemptive scope of these rules, consistent with
statements in previous Commission releases.” 2005
Amendments Release, 70 Fed. Reg. at 46,080. The SEC
explained its disagreement with Levy I and its impetus for the
amendments in the adopting release:

In particular, the Levy v. Sterling opinion read
Rules 16b-3 and 16b-7 to require satisfaction of
conditions that were neither contained in the text
of the rules nor intended by the Commission. The
resulting uncertainty regarding the exemptive
scope of these rules has made it difficult for
issuers and insiders to plan legitimate
transactions, and may discourage participation by
officers and directors in issuer stock ownership

5
Despite Levy’s contention to the contrary, “[t]he failure of
a petition to achieve the necessary votes for rehearing does not
. . . imply any judgment on the merits and has no jurisprudential
significance.” In re Grand Jury Investigation, 542 F.2d 166,
173 (3d Cir. 1976).

18
 programs or employee incentive plans. With the
clarifying amendments to Rules 16b-3 and 16b-7
that we adopt today, we resolve any doubt as to
the meaning and interpretation of these rules by
reaffirming the views we have consistently
expressed previously regarding their appropriate
construction.

Id. at 46,081.

Rule 16b-3(d) was amended to read, in pertinent part:

(d) Acquisitions from the issuer. Any transaction,
other than a Discretionary Transaction, involving
an acquisition [by an officer or director] from the
issuer (including without limitation a grant or
award), whether or not intended for a
compensatory or other particular purpose, shall be
exempt if [one of the same three conditions from
the 1996 version of the Rule are met].

17 C.F.R. § 240.16b-3(d) (new material underlined). Thus,
there is now no doubt that Rule 16b-3(d) does not require a
compensatory nexus.

Rule 16b-7 was amended to read, in pertinent part:

19
(a) The following transactions shall be exempt
from the provisions of section 16(b) of the Act:

(1) The acquisition of a security of a
company, pursuant to a merger,
reclassification or consolidation, in
exchange for a security of a company that
before the merger, reclassification or
consolidation, owned 85 percent or more
of either:

(i) The equity securities of all other
companies involved in the merger,
reclassification, or consolidation, or in the
case of a consolidation, the resulting
company; or

(ii) T h e c o m b ine d a sse ts of a ll the
companies involved in the merger,
reclassification, or consolidation . . . .

....

(c) The exemption provided by this section
applies to any securities transaction that
satisfies the conditions specified in this
section and is not conditioned on the
transaction satisfying any other conditions.

20
17 C.F.R. § 240.16b-7 (new material underlined). Thus, there
is no now no doubt that Rule 16b-7 applies to any
reclassification that meets the Rule’s 85% cross-ownership
requirement.

Further, the SEC explicitly indicated that “because [the
Rule 16b-3 amendments] clarify regulatory conditions that
applied to [that exemption] since [it] became effective on
August 15, 1996, they are available to any transaction on or after
August 15, 1996 that satisfies the regulatory conditions so
clarified.” 2005 Amendments Release, 70 Fed. Reg. at 46,080.
The SEC similarly made clear its view that “because [the Rule
16b-7 amendments] clarif[y] regulatory conditions that applied
to that exemption since it was amended effective May 1, 1991,
[they are] available to any transaction on or after May 1, 1991
that satisfies the regulatory conditions so clarified.” Id. The
transaction at issue here occurred in August 1999 — well after
both of these dates, but six years before the adoption of the
“clarifying” regulations.

E.

Before the adoption of the 2005 amendments, Levy,
National, and Sterling had filed cross motions for summary
judgment. After the amendments were adopted, the District
Court denied Levy’s motion and granted those of National and
Sterling, finding that the new versions of both Rules applied to
the 1999 reclassification and shielded National and Sterling

21
from section 16(b) liability. Levy v. Sterling Holding Co., 475
F. Supp. 2d 463 (D. Del. 2007). Specifically, the Court
concluded that the new Rules were permissible constructions of
section 16(b), id. at 470-74, and that applying them here would
have no impermissible retroactive effect because the changes
made to the old Rules were “clarifying” rather than
“substantive,” id. at 475-78. Levy then filed this timely appeal.

II.

The District Court had jurisdiction pursuant to 15 U.S.C.
§ 78aa and 28 U.S.C. § 1331, and we now have appellate
jurisdiction pursuant to 28 U.S.C. § 1291.6 We review de novo
the grant or denial of summary judgment by a district court.
Abramson v. William Paterson Coll. of N.J., 260 F.3d 265, 276
(3d Cir.2001). Summary judgment is appropriate “if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that

6
Although denials of summary judgment usually are not
appealable, we have repeatedly made clear that “‘when an
appeal from a denial of summary judgment is raised in tandem
with an appeal of an order granting a cross-motion for summary
judgment, we have jurisdiction to review the propriety of the
denial of summary judgment by the district court.’” Transportes
Ferreos de Venezuela II CA v. NKK Corp., 239 F.3d 555, 560
(3d Cir. 2001) (quoting Nazay v. Miller, 949 F.2d 1323, 1328
(3d Cir. 1991)).

22
there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law.”
Fed. R. Civ. P. 56(c).

III.

Levy raises three issues on appeal. First, he maintains
that, under the doctrine of stare decisis, the mandate that we
issued in Levy I requires the grant of summary judgment in his
favor. Second, Levy contends that new Rule 16b-3 and new
Rule 16b-7 both exceed the authority that Congress delegated to
the SEC in section 16(b). Third, he asserts that applying either
of the new Rules to exempt National’s or Sterling’s acquisition
of Class A common stock through Fairchild’s 1999
reclassification would have an impermissible retroactive effect.
Levy does not argue, however, that the transactions at issue
failed in any way to meet the requirements of the new Rules.
Thus, he has effectively conceded that if we were to conclude
that either of the new Rules is a permissible exercise of the
SEC’s authority that may properly be applied to a 1999
reclassification, we would affirm the District Court’s grant of
summary judgment to National and Sterling and its denial of his
motion for summary judgment.

A.

Levy argues that the following three premises, together,
require the grant of summary judgment in his favor: (1) all four

23
elements of a section 16(b) violation were met by both National
and Sterling; (2) we already ruled in Levy I that neither Rule
16b-3 nor Rule 16b-7 exempted National or Sterling from
liability; and (3) prior panel decisions may only be overruled by
our Court sitting en banc, which has not happened here. Even
assuming that these premises are correct, however, Levy’s
proposed conclusion does not follow from them.

In National Cable & Telecommunications Associates v.
Brand X Internet Services, 545 U.S. 967 (2005), the Supreme
Court left no doubt that if a court of appeals interprets an
ambiguous statute one way, and the agency charged with
administering that statute subsequently interprets it another way,
even that same court of appeals may not then ignore the
agency’s more-recent interpretation. In 2000, the United States
Court of Appeals for the Ninth Circuit held that broadband cable
Internet service constituted a “telecommunications service”
under Title II of the Communications Act, a classification with
significant regulatory implications. Id. at 979-80. In 2002,
however, the Federal Communications Commission (“FCC”)
issued a declaratory ruling that the term “telecommunications
service” did not encompass broadband cable Internet service.
Id. at 977-78. When numerous parties challenged the FCC
ruling, the Ninth Circuit held, under principles of stare decisis,
that it was bound by its interpretation of “telecommunications
service,” notwithstanding the FCC’s conflicting interpretation
from two years later. Id. at 979-80.

24
 The Supreme Court reversed, explaining that “[a] court’s
prior judicial construction of a statute trumps an agency
construction otherwise entitled to Chevron deference 7 only if the
prior court decision holds that its construction follows from the
unambiguous terms of the statute and thus leaves no room for
agency discretion.” Id. at 982. The Court reasoned that
“allowing a judicial precedent to foreclose an agency from
interpreting an ambiguous statute . . . would allow a court’s
interpretation to override an agency’s,” which would fly in the
face of “Chevron’s premise . . . that it is for agencies, not courts,
to fill statutory gaps.” Id. Further, the Court emphasized, the
Ninth Circuit’s approach “would produce anomalous results,” as
the relative weight of conflicting judicial and agency
interpretations of an ambiguous statute “would turn on the order
in which the interpretations issue.” Id. at 983; see also Smiley
v. Citibank (S.D.), N.A., 517 U.S. 735, 744 n.3 (1996) (“Where
. . . a court is addressing transactions that occurred at a time
when there was no clear agency guidance, it would be absurd to
ignore the agency’s current authoritative pronouncement of what
the statute means.”); Reich v. D.M. Sabia Co., 90 F.3d 854, 858
(3d Cir. 1996) (“Although a panel of this court is bound by, and
lacks authority to overrule, a published decision of a prior panel,

7
As discussed below, under Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., courts generally must accord
great deference to an agency’s interpretation of a statute that
Congress has authorized it to administer. 467 U.S. 837, 842-43
(1984).

25
a panel may reevaluate a precedent in light of intervening
authority and amendments to statutes or regulations.” (emphasis
added) (citation omitted)).

We see no reason why these principles should not apply
equally to the interpretation of a regulation. After all, “[w]hen
the construction of an administrative regulation rather than a
statute is in issue, deference is even more clearly in order.”
Udall v. Tallman, 380 U.S. 1, 16-17 (1965); see also Facchiano
Constr. Co. v. U.S. Dep’t of Labor, 987 F.2d 206, 213 (3d Cir.
1993) (“[A]n administrative agency’s interpretation of its own
regulation receives even greater deference than that accorded to
its interpretation of a statute.”). Accordingly, we conclude that
a judicial opinion construing an agency’s regulation does not
necessarily bar a court from giving effect to a subsequent,
different interpretation by the agency, unless, according to the
earlier opinion, the judicial construction flowed unambiguously
from the terms of the regulation. To find otherwise would
produce the same “anomalous results” that the Brand X Court
sought to avoid, creating a first-in-time rule for determining
whether a judicial or administrative interpretation of a regulation
is authoritative.

We reached a similar conclusion in a similar context in
United States v. Marmolejos, 140 F.3d 488 (3d Cir. 1998), a
case that involved an amendment by the Sentencing
Commission of an application note that accompanied an
ambiguous section of the Sentencing Guidelines. There, we

26
made clear that an earlier, conflicting judicial construction of the
ambiguous Guidelines section did not preclude us from
considering the more-recent interpretation of that section
provided by the Commission in the application note amendment.
Id. at 492-93 & n.7. In such a situation, we explained, “‘this
court is not bound to close its eyes to the new source of
enlightenment.’” Id. at 493 (quoting United States v. Joshua,
976 F.2d 844, 855 (3d Cir. 1992)). Importantly, as we noted in
Marmolejos, the Supreme Court has analogized Sentencing
Commission commentary on the Guidelines to an agency’s
interpretation of its own rules. Id. at 493 n.7 (citing Stinson v.
United States, 508 U.S. 36, 44-45 (1993)).

Here, the new Rules constitute both (1) interpretations of
a statute, as they construe the provision of section 16(b) granting
the SEC authority to exempt transactions “not comprehended
within [the statute’s] purpose,” and (2) interpretations of
regulations, as they set forth the SEC’s understanding of what
the old Rules meant all along. Looking at the new Rules from
either perspective, it is clear that, notwithstanding the doctrine
of stare decisis, Levy I does not necessarily foreclose us from
considering them. In Levy I, we did not conclude that section
16(b) unambiguously precluded the SEC from exempting
transactions like the 1999 reclassification. Similarly, we did not
indicate that our reading of old Rule 16b-3 or of old Rule 16b-7
flowed unambiguously from their terms. Indeed, we struggled
to divine their applicability to the instant fact pattern. With
respect to Rule 16b-3, we concluded only that “the weight of the

27
SEC’s pronouncements . . . suggest[ed]” that we should read in
a compensatory nexus requirement. Levy I, 314 F.3d at 124
(emphasis added). Further, we recognized that a portion of the
SEC’s adopting release “appear[ed] to cut against” this
interpretation. Id. As to Rule 16b-7, we repeatedly noted the
lack of clear guidance in the text or elsewhere regarding whether
and to what extent reclassifications fell within the Rule’s scope.
Id. at 112-14. Our conclusion as to both represented our view
of what the SEC probably intended.

Accordingly, Levy I does not control the result here
simply by virtue of the fact that it came first and has not been
overturned.

B.

Levy also contends that new Rule 16b-3 and new Rule
16b-7 are improper exercises of the authority that Congress
granted the SEC in section 16(b). This argument equates to a
claim that both new Rules are impermissible interpretations of
the portion of the statute that provides that section 16(b) does
not apply to “any transaction or transactions which the
Commission by rules and regulations may exempt as not
comprehended within the purpose of this subsection.” 15 U.S.C.
§ 78p(b). Because Chevron deference applies here, and the
statutory interpretations embodied in the new Rules easily pass

28
muster under this lenient standard, we disagree with Levy on
this issue as well.

Chevron deference applies to an agency’s statutory
interpretation “when it appears that Congress delegated
authority to the agency generally to make rules carrying the
force of law, and that the agency interpretation claiming
deference was promulgated in the exercise of that authority.”
United States. v. Mead Corp., 533 U.S. 218, 226-27 (2001). If
we determine that the situation does indeed call for Chevron
deference, we proceed to a two-step inquiry. First, we ask
“whether Congress has directly spoken to the precise question
at issue.” Chevron U.S.A. Inc. v. Natural Res. Def. Council,
Inc., 467 U.S. 837, 842 (1984). If the answer is yes, we “must
give effect to the unambiguously expressed intent of Congress”
and our inquiry ends there. Id. at 842-43. If, however, the
answer is no, we move on to step two, under which we must
give the agency’s interpretation “controlling weight” unless it is
“arbitrary, capricious, or manifestly contrary to the statute.” Id.
at 843. In other words, where Congress has left a “statutory
gap” for the agency to fill, we must accept any interpretation by
the agency that fills the gap “in reasonable fashion.” Brand X,
545 U.S. at 980.

Here, Congress has generally authorized the SEC to make
rules that have the force of law in implementing the Exchange
Act, Securities Exchange Act of 1934 § 23(a), 15 U.S.C.
§ 78w(a), and has specifically authorized it to create binding

29
exemptions from short-swing profit recovery, 15 U.S.C. §
78p(b). Because the SEC was acting pursuant to this authority
when it promulgated new Rule 16b-3 and new Rule 16b-7,
Chevron deference clearly applies. See 2005 Amendments
Release, 70 Fed. Reg. at 46,084-85 & nn.54, 71. Further, by
broadly pronouncing that section 16(b) does not apply to “any
transaction or transactions which the Commission by rules and
regulations may exempt as not comprehended within the
purpose of this subsection,” 15 U.S.C. § 78p(b), Congress
certainly left a gap for the agency to fill. Thus, the key question
for us to answer is whether it was reasonable for the SEC to
think that the transactions exempted by the new Rules are “not
comprehended within the purpose” of section 16(b).

As noted above, section 16(b)’s self-proclaimed purpose
is “preventing the unfair use of information which may have
been obtained by such beneficial owner, director, or officer by
reason of his relationship to the issuer.” 15 U.S.C. § 78p(b).
The Supreme Court has expanded upon this purpose:

The general purpose of Congress in enacting
s[ection] 16(b) is well known. Congress
recognized that insiders may have access to
information about their corporations not available
to the rest of the investing public. By trading on
this information, these persons could reap profits
at the expense of less well informed investors. In

30
 s[ection] 16(b) Congress sought to “curb the evils
of insider trading [by] . . . taking the profits out of
a Class of transactions in which the possibility of
abuse was believed to be intolerably great.” It
accomplished this by defining directors, officers,
and beneficial owners as those presumed to have
access to inside information and enacting a flat
rule that a corporation could recover the profits
these insiders made on a pair of security
transactions within six months.

Foremost-McKesson, Inc. v. Provident Sec. Co., 423 U.S. 232,
243-44 (1976) (alterations in original) (citations and footnotes
omitted) (quoting Reliance Elec. Co. v. Emerson Elec. Co., 404
U.S. 418, 422 (1972)).

In the 2005 adopting release, the SEC explained why it
believed the transactions exempted by new Rule 16b-3 —
transactions between directors or officers and the issuer — were
not comprehended within this purpose:

Typically, where the issuer, rather than the trading
markets, is on the other side of an officer or
director’s transaction in the issuer’s equity
securities, any profit obtained is not at the
expense of uninformed shareholders and other
market participants of the type contemplated by
the statute.

31
2005 Amendments Release, 70 Fed. Reg. at 46,083 (quoting
1996 Rule 16b-3 Release, 61 Fed. Reg. at 30,377).

In other words, the purchase of securities from, or sale of
securities to, the issuer by a director or officer does not present
the same informational asymmetry, and associated opportunity
for speculative abuse, that, according to the Supreme Court,
Congress was targeting in enacting section 16(b). Because this
rationale is perfectly reasonable — and applies equally whether
or not the transaction has a compensatory nexus — we conclude
that new Rule 16b-3 is a permissible construction of section
16(b) and a valid exercise of the SEC’s congressionally
delegated authority.8 The two courts of appeals that have
considered this question reached the same conclusion. Roth v.

8
Levy maintains that the SEC’s reasoning is flawed because
it “ignores [the fact] that such unfair short-term speculative
activity can take place even absent a transaction with an
uninformed member of the investing public.” (Appellant’s Br.
60 (emphasis added)). But Levy’s argument is based on a faulty
premise, as a transaction “need not . . . pose absolutely no risk
of speculative abuse” for the SEC to be free to exempt it from
section 16(b) liability. Dreiling v. Am. Express Co., 458 F.3d
942, 950 (9th Cir. 2006). Rather, as indicated by the Supreme
Court in its above explanation of section 16(b)’s purpose, the
relevant inquiry is whether the risk of speculative abuse is not
“‘intolerably great.’” Foremost-McKesson, Inc., 423 U.S. at 243
(quoting Reliance Elec. Co., 404 U.S. at 422); accord Dreiling,
458 F.3d at 950 .

32
Perseus, L.L.C., 522 F.3d 242, 249 (2d Cir. 2008); Dreiling v.
Am. Express Co., 458 F.3d 942, 949-52 (9th Cir. 2006).

As for new Rule 16b-7, the SEC explained in the 2005
adopting release that it is “based on the premise that the
exempted transactions” — including reclassifications — “are of
relatively minor importance to the shareholders of a particular
company and do not present significant opportunities to insiders
to profit by advance information concerning the transaction.”
2005 Amendments Release, 70 Fed. Reg. at 46,085. “Indeed,”
the SEC continued, “by satisfying either of the rule’s 85%
ownership tests, an exempted transaction does not significantly
alter the economic investment held by the insider before the
transaction.” Id. In essence, the SEC’s position is that
reclassifications, in addition to mergers and consolidations, that
meet the 85% cross-ownership requirement do not pose much
risk of abuse of inside information because they usually change
merely the form of the insider’s pre-existing investment in the
issuer. Id. We think this is a reasonable explanation as to why
the exempted transactions are not comprehended within the
purpose of section 16(b) and, therefore, conclude that new Rule
16b-7, like new Rule 16b-3, is a permissible construction of
section 16(b) and a valid exercise of the authority delegated to
the SEC by Congress. We note that the only other court of
appeals to have faced this issue as to Rule 16b-7 agreed, finding
that new Rule “falls safely within the Commission’s delegated
authority.” Bruh v. Bessemer Venture Partners III L.P., 464
F.3d 202, 214 (2d Cir. 2006).

33
 C.

Finally, Levy contends that, even if Levy I does not bind
us for any of the reasons discussed above, and even if the new
Rules are permissible constructions of section 16(b), actually
applying the new Rules here to the 1999 reclassification would
have an impermissible retroactive effect

Drawing on the well-established principle that
“[r]etroactivity is not favored in the law,” the Supreme Court
held in Bowen v. Georgetown University Hospital, 488 U.S.
204, 208 (1988), that an agency may not promulgate rules that
operate retroactively unless Congress has expressly delegated to
it the authority to do so. However, we have held that a new rule
should not be deemed to be “retroactive” in its operation — and
thus does not implicate the Supreme Court’s concerns in Bowen
— if it “d[oes] not alter existing rights or obligations [but]
merely clarifie[s] what those existing rights and obligations
ha[ve] always been.” Appalachian States Low-Level
Radioactive Waste Comm’n v. O’Leary, 93 F.3d 103, 113 (3d
Cir. 1996). Thus, where a new rule constitutes a clarification —
rather than a substantive change — of the law as it existed
beforehand, the application of that new rule to pre-promulgation
conduct necessarily does not have an impermissible retroactive
effect, regardless of whether Congress has delegated retroactive
rulemaking power to the agency.

34
 Many of our sister courts of appeals have endorsed
similar approaches, finding retroactivity to be a non-issue with
respect to new laws that clarify existing law. See, e.g., Piamba
Cortes v. Am. Airlines, Inc., 177 F.3d 1272, 1283 (11th Cir.
1999) (“[C]oncerns about retroactive application are not
implicated when an amendment that takes effect after the
initiation of a lawsuit is deemed to clarify relevant law rather
than effect a substantive change in the law.”); Pope v. Shalala,
998 F.2d 473, 483 (7th Cir. 1993) (“A rule simply clarifying an
unsettled or confusing area of the law. . . does not change the
law, but restates what the law according to the agency is and has
always been: ‘It is no more retroactive in its operation than is a
judicial determination construing and applying a statute to a case
in hand.’” (quoting Manhattan Gen. Equip. Co. v. Comm’r, 297
U.S. 129, 135 (1936))), overruled on other grounds by Johnson
v. Apfel, 189 F.3d 561, 563 (7th Cir. 1999); Cookeville Reg’l
Med. Ctr. v. Leavitt, 531 F.3d 844, 849 (D.C. Cir. 2008); Brown
v. Thompson, 374 F.3d 253, 258-61 & n.6 (4th Cir. 2004);
ABKCO Music, Inc. v. LaVere, 217 F.3d 684, 689-91 (9th Cir.
2000); Orr v. Hawk, 156 F.3d 651, 654 (6th Cir. 1998); Liquilux
Gas Corp. v. Martin Gas Sales, 979 F.2d 887, 890 (1st Cir.
1992). But see Princess Cruises, Inc. v. United States, 397 F.3d
1358, 1363 (Fed. Cir. 2005).

In determining whether a new regulation merely
“clarifies” the existing law, “[t]here is no bright-line test” to

35
guide us. Marmolejos, 140 F.3d at 491.9 After reviewing the
relevant case law from our Court and other courts of appeals,
however, we think that four factors are particularly important for
making this determination: (1) whether the text of the old
regulation was ambiguous, see, e.g., ABKCO Music, Inc., 217
F.3d at 691; Piamba Cortes, 177 F.3d at 1283-84; (2) whether
the new regulation resolved, or at least attempted to resolve, that
ambiguity, see, e.g., Marmolejos, 140 F.3d at 491; Liquilux Gas
Corp., 979 F.2d at 890; (3) whether the new regulation’s
resolution of the ambiguity is consistent with the text of the old
regulation, see, e.g., Marmolejos, 140 F.3d at 491; Boddie v.
Am. Broad. Cos., 881 F.2d 267, 269 (6th Cir. 1989); and

9
Marmolejos and a number of other Third Circuit cases that
we discuss in this section involve amendments to the Sentencing
Guidelines or its commentary made after the defendant had
already been sentenced. Generally, a defendant’s sentence is to
be based on the version of the advisory Guidelines and
commentary in effect at the time of sentencing. U.S.S.G.
§ 1B1.11(a). However, unless an Ex Post Facto Clause violation
would result, “a post-sentencing amendment . . . should be given
effect” — and the defendant’s sentence adjusted accordingly —
“if it ‘clarifies’ the guideline or comment in place at the time of
sentencing.” Marmolejos, 140 F.3d at 490 (emphasis added).
Because the ultimate inquiry is the same, we think our
statements as to when an amendment to the Guidelines or its
commentary is “clarifying” are equally applicable to the
determination of whether an amendment to a statute or
regulation is “clarifying.”

36
(4) whether the new regulation’s resolution of the ambiguity is
consistent with the agency’s prior treatment of the issue, see,
e.g., First Nat’l Bank of Chi. v. Standard Bank & Trust, 172
F.3d 472, 479 (7th Cir. 1999); Orr, 156 F.3d at 654.10

Before turning to the application of these four factors to
the case before us, we note that there are two other factors on
which some courts of appeals rely that we do not find to be all
that significant. First, we do not consider an enacting body’s
description of an amendment as a “clarification” of the pre-
amendment law to necessarily be relevant to the judicial
analysis. United States v. Diaz, 245 F.3d 294, 304 (3d Cir.

10
Levy devotes a number of pages in his briefs to the
argument that the new Rules may not be applied to the 1999
reclassification because they are “legislative,” as opposed to
“interpretive.” This distinction, however, does not advance his
cause. The significance of a rule’s classification as “legislative”
is that an agency must promulgate it through the use of the
formal notice-and-comment rulemaking procedures contained in
the Administrative Procedure Act (“APA”). Chao v. Rothermel,
327 F.3d 223, 227 (3d Cir. 2003). Although the inquiries may
hinge on some of the same factors, the legislative-interpretive
dichotomy has no bearing on whether a rule has an
impermissible retroactive effect. Similarly, in response to
another of Levy’s contentions, we note that an agency’s decision
to use the APA’s formal rulemaking procedures to promulgate
a rule does not affect whether that rule may be applied to pre-
promulgation conduct.

37
2001); Marmolejos, 140 F.3d at 493. But see Heimmerman v.
First Union Mortgage Corp., 305 F.3d, 1257, 1260 (11th Cir.
2002); First Nat’l Bank, 172 F.3d at 478. Second, we do not
take the fact that an amendment conflicts with a judicial
interpretation of the pre-amendment law to mean that the
amendment is a substantive change and not just a clarification.
Marmolejos, 140 F.3d at 492-93. As we explained in
Marmolejos, “one could posit that quite the opposite was the
case — that the new language was fashioned to clarify the
ambiguity made apparent by the caselaw.” Id. at 492.11 But see
Nat’l Mining Ass’n v. Dep’t of Labor, 292 F.3d 849, 860 (D.C.

11
There are Guideline amendment cases in which we have
made statements to the contrary, suggesting that a conflict with
a prior judicial interpretation does make an amendment
substantive, as opposed to clarifying. But these cases are
distinguishable. In United States v. Brennan, 326 F.3d 176,
197-98 (3d Cir. 2003), Diaz, 245 F.3d at 303, and United States
v. Bertoli, 40 F.3d 1384, 1405-07 (3d Cir. 1994), applying the
new amendment would have resulted in a greater sentence for
the defendant and thus would have implicated the Ex Post Facto
Clause. As we explicitly indicated in Marmolejos, when ex post
facto issues are involved, the rules of the game are different.
140 F.3d at 492 n.6. In United States v. Roberson, 194 F.3d
408, 417-18 (3d Cir. 1999), there was no pre-existing ambiguity
in the Guidelines section at issue. The Sentencing
Commission’s amendment to the commentary conflicted not
only with a prior judicial construction, but also with the plain
meaning, of the relevant provision. Id.

38
Cir. 2002); United States v. Capers, 61 F.3d 1100, 1110 (4th
Cir. 1995).

Focusing first on Rule 16b-3, we think that all four
factors identified above point to the conclusion that the new
Rule is a clarification of the previous version and that, thus,
applying it to the 1999 reclassification would have no
impermissible retroactive effect. First, we already determined
in Levy I that old Rule 16b-3(d)’s reference to “[a]ny transaction
involving a grant, award or other acquisition from the issuer”
was ambiguous. As discussed above, we thought it unclear from
the text of the Rule whether “other acquisition” referred truly to
any other acquisition or, instead, only to those acquisitions that,
like grants and awards, involve compensation. Levy I, 314 F.3d
at 121-22.12 Second, new Rule 16b-3 resolved this ambiguity,

12
Levy contends that “other acquisition” in the phrase “grant,
award or other acquisition from the issuer” unambiguously
referred only to transactions with a compensatory nexus because
“grants” and “awards” both involve compensation. As support,
he invokes the interpretive canon ejusdem generis, under which
“where general words follow specific words in a statutory
enumeration, the general words are construed to embrace only
objects similar in nature to those objects enumerated by the
preceding specific words.” Circuit City Stores, Inc. v. Adams,
532 U.S. 105, 114-15 (2001) (internal quotation marks omitted).
But while this may be one way to approach the language, it is
not the only way. See Chicakasaw Nation v. United States, 534
U.S. 84, 94 (2001) (“[C]anons [of interpretation] are not

39
explicitly providing that the Rule’s exemption is available
“whether or not [the transaction at issue was] intended for a
compensatory or other particular purpose.” 17 C.F.R.
§ 240.16b-3(d). Third, the new Rule’s resolution of the
ambiguity is consistent with the text of the old Rule, which
made no mention of a compensatory nexus requirement.
Finally, the new Rule’s resolution of the ambiguity is not at odds
with the SEC’s earlier-expressed understanding of the old Rule.
To the contrary, as noted above, the SEC stated in the release it
issued upon adopting the old Rule that “a transaction need not
be pursuant to an employee benefit plan or any compensatory
program to be exempt, nor need it specifically have a
compensatory element.” 1996 Rule 16b-3 Release, 61 Fed. Reg.
at 30,379. Levy points to a number of SEC statements that
suggest that, in promulgating old Rule 16b-3(d), the agency was
primarily concerned with transactions pursuant to employee
benefit plans; however, these statements do not conflict with the
position that the old Rule also applied to transactions with no
compensatory nexus whatsoever.13

mandatory rules. They are guides that ‘need not be
conclusive.’” (quoting Circuit City Stores, Inc., 532 U.S. at
115)).
13
Levy also maintains that by including subsection (f), which
provided that certain “discretionary transactions” involving
employee benefit plans required a six-month waiting period in
order to be exempt, the SEC somehow implicitly conveyed the

40
 While the District Court chose to address the retroactivity
implications of new Rule 16b-7 as well, we decline to do so.
We have already determined that new Rule 16b-3(d) is a valid
exercise of the SEC’s authority, whose application to the 1999
reclassification would not give rise to any retroactivity concerns.
Because this is a sufficient independent ground for affirming the
District Court’s disposition of the case, we express no opinion
as to whether new Rule 16b-7 merely clarifies the old Rule or,
relatedly, whether applying it here would have an impermissible
retroactive effect.

view that old Rule 16b-3(d) required a compensatory nexus.
Specifically, he contends that it would have been irrational for
the SEC not to exempt these discretionary transactions but to
exem pt purely volitional, non-compensation-related
transactions, given that the latter arguably present greater
opportunity for speculative abuse. Although Levy’s argument
may raise questions as to the wisdom of a particular regulatory
scheme, we do not think that the SEC’s inclusion of subsection
(f) equated to a statement from the SEC that only transactions
involving compensation fell within the scope of old Rule
16b-3(d).

41
 IV.

In light of the foregoing, we will AFFIRM the District
Court’s grant of summary judgment to National and Sterling and
its denial of summary judgment to Levy. Further, to the extent
it is inconsistent with our opinion today, we OVERRULE
Levy I.

42