October 23, 2019

Supreme Court Refuses to Hear Appeal of a Decision That the Grant of Stock Option Is Not a Stock Sale

In Lampkin v. UBS Fin. Servs. Inc., No. 19-249 (U.S., petition denied Oct. 15, 2019), the Supreme Court declined to review a lower court ruling that the nine million Enron workers who had gotten stock options could not sue UBS over its role in the plan. Workers sued UBS because it was the broker who handled the exercise and sale of their options during the period when Enron was imploding. The court ruled that UBS did not actually sell any stock to the employees because the grants were mandatory and noncontributory, so employees, even though they made a choice when and if to exercise the awards, were not actually buying shares.

The Fifth Circuit decision ruled that the grant of an option is not a sale, consistent with an SEC statement that said that in “plans under which an employer awards shares of its stock to covered employees at no direct cost there is no ‘sale’ in the 1933 Act sense to employees, [as] such persons do not individually bargain to contribute cash or other tangible or definable consideration to such plans.” 

The original district court case seemed to conflate stock options with ESOPs, and the Fifth Circuit decision ignored the argument that the exercise of an option was a voluntary purchase that the SEC did not exclude from its sale definition.