Motion to Dismiss Denied in Firm Client’s Section 16(b) Short-Swing Profits Action

In Clarus Corporation v. Caption Management LLC, et al., the U.S. District Court for the Southern District of New York denied a motion to dismiss filed by defendants, including an SEC-registered investment advisor, its affiliated funds, and two of its principals. The Court’s March 24, 2025 decision allows Clarus Corporation’s claims under Section 16(b) of the Securities Exchange Act of 1934 to proceed.

Clarus, a manufacturer of outdoor and lifestyle equipment, filed suit to recover short-swing profits allegedly earned by defendants when they purchased and sold (or sold and purchased) shares of Clarus stock within a six-month period after becoming beneficial owners of more than 10% of the company’s outstanding securities. The defendants sought dismissal on the grounds that they were exempt from liability under SEC rules applicable to investment advisors and control persons, and that they did not act as a “group” under Section 16.

The Court rejected those arguments at the pleading stage, holding that the exemptions asserted by defendants constituted affirmative defenses not properly resolved on a motion to dismiss. The Court further held that Clarus had plausibly alleged that defendants acted as a group of beneficial owners and engaged in transactions subject to disgorgement under Section 16(b).

The Kane Kessler litigation team of Jeffrey H. Daichman, Dana M. Susman and Jonathan M. Sabin represent Clarus in this action.