Activist Shareholders and Directors, Beware! (Nishimura & Asahi)

When exiting minority holdings, not only beware about insider trading rules, but also short-swing profit rules. “Similar to the securities laws of other jurisdictions, Japanese securities laws also have short swing profit rules that require directors (and equivalents thereto) or 10% or greater shareholders to disgorge profits earned from matching buy-sell transactions (i.e., purchases and sales occurring within a six month window of each other, subject to certain limited exceptions) regardless of whether they are in possession of material non-public information. To avoid a costly surprise, an investor should confirm that it has not acquired any Public Company shares during the six month period leading up to the proposed share sale in order to avoid the perfunctory short swing profit disgorgement rules under Japanese securities laws. “