Clarus Corporation, the parent of the Black Diamond, MaxTrax and Rhino-Rack brands, filed a lawsuit in The U.S. District Court for the Southern District of New York against Caption Management, LLC, Caption Partners II LP, Caption GP, LLC, William Cooper, and Jason Strasser to “seek to disgorge profits from transactions in Clarus’ common stock in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended.”
Section 16(b) requires that the beneficial owners of more than ten percent of an issuer’s securities, among others, return to the issuer any profits resulting from matching the highest sales price against the lowest purchase price during any six-month period, subject to certain exceptions.
Clarus alleges in the suit, filed March 8, 2024, in The U.S. District Court for the Southern District of New York, that the defendants were at all relevant times, from July 19, 2022 to August 30, 2022, collectively the beneficial owners of more than ten percent of Clarus’ common stock, registered under Section 12 of the Act, and, upon information and belief, profited from their purchases and sales, or sales and purchases, within a period of less than six months. Defendants “must disgorge to Clarus the short swing profits from these transactions.”
The suit states, “During the relevant time period, Clarus operated successful and reputable lines of businesses offering its shareholders significant value and prospects.”
Clarus went on to state in the filing, “In its financial disclosures for the quarter ended June 30, 2022, Clarus reported a 57 percent increase to $114.9 million in its second quarter sales over the comparable period in the prior year, reported continuing access to a line of credit in the amount of $274.5 million and had a market capitalization of approximately one billion dollars. During this time, Clarus’ business prospered and incurred no materially adverse developments, financial setbacks or changes that would impact its business model, quality of its products or prospects. Yet during this same period of time, there transpired highly unusual, irregular and volatile trading in its securities, which caused a precipitous decline in its stock price and a loss of almost half a billion dollars in market capitalization. The Section 16(b) violations alleged herein are especially suspect because they occurred against the backdrop of this unusual trading activity.”
The suit alleges that between July 19, 2022 and August 30, 2022, the defendants purchased and sold, or sold and purchased, shares of Clarus common stock at times when they were beneficial owners of more than ten percent of Clarus stock and those purchases and sales or sales and purchases occurred within a period of less than six months, and may be matched, using the “lowest in, highest out” method to calculate short swing profits realized by the defendants.
“Upon information and belief, the defendants realized short-swing profits that are recoverable by Clarus under Section 16(b), in an amount to be determined at trial,” the suit outlines.
The suit also alleges that upon information and belief:
- Defendants traded the securities at issue in part for their own account and had voting and investment power over the securities at issue and a pecuniary interest therein.
- Defendants did not hold the securities at issue solely for the benefit of third parties or in customer or fiduciary accounts in the ordinary course of business, nor did they hold such securities incident to the establishment or maintenance by them of a primary or secondary market for such securities.
- Defendants have, therefore, violated Section 16(b) and are required to “disgorge their short swing profits in an amount to be determined at trial.”
Clarus said it has an “interest in maintaining a reputation of integrity, an image of probity, for its § 16(b) insiders and in insuring the continued public acceptance and marketability of its stock.”
Clarus said this interest was “injured” by the defendants’ aforementioned trading in violation of Section 16(b).
Clarus Corporation (plaintiff) is demanding judgment against the defendants jointly and severally, as follows:
- requiring the defendants to “disgorge and return” to the plaintiff the short-swing profits recoverable under the Act, together with appropriate pre- and post-judgment interest, in an amount determined at trial;
- reasonable attorneys’ fees, together with the costs and disbursements incurred in connection with this action; and
- such other, further and different relief as the Court deems just and proper.
Image courtesy Black Diamond
