(CN) - Carl Icahn is not required to disgorge short-swing profits made on call options of Herbalife and two other public companies, the 2nd Circuit ruled.
John Olagues, a shareholder in Herbalife, Hologic, and Nuance Communications, sued entities controlled by billionaire investor Carl Icahn in federal court demanding Icahn disgorge short-swing profits made on the companies' shares.
Icahn's companies wrote put options betting the stock price of these three companies would increase, and sold the options, collecting cash premiums.
But at the same time, Icahn also bought call options, betting the companies' share prices would fall, which Olagues claims he got at a discount as part of the transaction.
Because the put options were cancelled unexercised within six months of their sale, the law required Icahn to return the premiums, which he did.
Olagues claimed Icahn was also required to disgorge the value of alleged discounts he received on purchases of related call options, but a federal judge disagreed, and the Second Circuit affirmed.
"Olagues has not plausibly alleged that the Icahn entities received a discount on the premiums paid for these call options because, in our view, the open-market option contracts are not meaningfully comparable to the option contracts bought and sold by the Icahn entities," Judge Raymond Lohier said, writing for the three-judge panel.
Icahn's put options were exercisable only on the expiration date, whereas the call options he purchased were exercisable at any time.
However, "Olagues does not allege that structuring the transaction in this way was fraudulent or otherwise illegal," Lohier continued.