Portnoy v. Texas International Airlines, Inc. (678 F.2d 695, 1982)

CUMMINGS, Chief Judge.

This Portnoy’s Complaint asserts that he is a stockholder of Texas International Airlines (TIA) and that under Section 16(b) of the Securities Exchange Act of 1934, TIA ought to recover short-swing profits supposedly realized by defendants National Aviation & Technology Corporation, GATX Aircraft Corporation, and MEI Corporation. Portnoy brought this suit on behalf of TIA because it purportedly refused to take action.

On August 24, 1972, the three defendants acquired TIA warrants as part of a reorganization necessitated by TIA’s financial difficulties. Warrants to buy stock are equity securities for the purposes of Section 16(b). See 15 U.S.C. § 78c(a)(ll). Each defendant acquired a number of warrants sufficient to make it a 10% beneficial owner of a class of equity securities of TIA and therefore subject to Section 16(b). The warrants entitled their holders to purchase TIA common stock at a price of $4.18 per share and were exercisable through June 20, 1982.

On November 29, 1978, the defendants and 19 other TIA warrantholders sold their warrants for $4.725 per warrant to three underwriters. On December 6, 1978, the underwriters exercised the warrants and paid TIA $4.18 for each underlying share of common stock. These shares and other shares purchased from TIA were sold by the underwriting group to the public at $9.625 per share, giving the underwriters a 72