Freshfields Obtains Landmark Victory in First Ever Section 16(b) “Group” Jury Trial

Freshfields Client Empery Asset Management Exonerated by a Federal Jury in Manhattan after Disgorgement Claim for Nearly $500 Million Brought Against PIPE Investors

A Freshfields trial team obtained a first-of-its-kind, bet the fund jury verdict on Thursday, June 18, 2026, after a two-week trial in the Southern District of New York. The Plaintiff, Todd Augenbaum, brought a Section 16(b) claim under the Securities Exchange Act against eight investors that participated in a 2020 PIPE transaction with Kartoon Studios Inc.’s predecessor company.  Augenbaum claimed the investors formed a “group” and sought disgorgement of nearly $500 million in alleged short-swing profits. After three hours of deliberation, the jury unanimously found in favor of Empery Asset Management and its remaining non-settling co-defendant, Brio Capital. This was the first Section 16(b) “group” jury trial in U.S. history. 

Section 16(b) applies to executives, officers and shareholders owning 10% or more of a company who profit from “short swing” trading in the company’s stock. The defendants in this case invested in a PIPE that saved the Company right as COVID shut down the country, after which the stock price soared. None of the defendants were 10% holders on their own.

Augenbaum purchased 10 shares of stock one year later and then sued the investors, as a shareholder does not need to have owned shares when the event occurred to bring a claim under Section 16(b). Citing communications between the investors and the Company’s placement agent, as well as certain terms of the March 2020 PIPE, including a lock-up of the participating CEO’s shares, the Court ordered the case to trial.    

Differentiating for a lay jury between a parallel transaction where different investors agree on the same terms to acquire securities, and a Section 13(d) “group,” where shareholders agree to act together to acquire shares, carried enormous risk. Nonetheless, given the affirmative evidence in Empery’s favor, Empery instructed Freshfields to defend the case through trial. After six of the eight defendants settled the majority of the disgorgement claims right before trial, Freshfields presented the jury with a defense that centered around Empery’s fierce independence when co-investing alongside other investors.   

The jury's decision vindicated Empery's investment in Kartoon, which helped the company weather a liquidity crisis and survive to the present day. Empery’s decision to take this matter to trial rather than settling with the shareholder plaintiff is also an important victory for all investors participating in syndicated offerings in U.S. markets.

Notwithstanding the successful outcome for Empery, the case presents numerous complexities for lawyers and investors navigating parallel offerings. Freshfields is partnering with important stakeholders in an effort to bring clarity to the rules.

Ryan Lane, Principal and Founder of Empery Asset Management said, “We could not be more thrilled with the outcome of the case and the professionalism, skill and expert judgement of the talented Freshfield’s team and their lead, Andrew Gladstein. The Freshfields team won this case by simplifying an extremely complex statue and distilling the facts down to basic everyday concepts that could be understood by a jury, delivering justice for Empery and avoiding a chilling effect on common place transactions in the financial markets.”

The trial team was led by Partner Andrew Gladstein, Counsel Jacob Johnston, partners Tim Howard and Nicholas Caselli and Associates Shannon Sciaretta, Alex Carlton, Sruthi Rao, Ben Underwood and Charlotte Laurence.

In addition, the Freshfields team partnered with and received critical assistance from Adriana Schwartz of Seward and Kissel.