                    FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

ANDREW E. ROTH,                           
              Plaintiff-Appellant,
               v.                                No. 07-16805
GREGORY REYES; MICHAEL BYRD;                      D.C. No.
                                               CV-06-02786-CRB
ANTONIO CANOVA; JACK CUTHBERT;
BROCADE COMMUNICATION SYSTEM,                     OPINION
INC.,
           Defendants-Appellees.
                                          
         Appeal from the United States District Court
           for the Northern District of California
         Charles R. Breyer, District Judge, Presiding

                  Argued and Submitted
         March 12, 2009—San Francisco, California

                        Filed June 5, 2009

Before: Before: M. Margaret McKeown and Sandra S. Ikuta,
          Circuit Judges, and Donald E. Walter,*
                   Senior District Judge.

                     Opinion by Judge Ikuta




  *
   The Honorable Donald E. Walter, Senior United States District Judge
for the Western District of Louisiana, sitting by designation.

                                6711
                      ROTH v. REYES                   6713


                       COUNSEL

Willem F. Jonckheer, Aaron Darsky, Robert Schubert, Schu-
bert & Reed LLP, San Francisco, California, Paul D. Wexler,
Bragar, Wexler & Eagel, PC, New York, New York, Glenn
F. Ostrager, Ostrager Chong Flaherty & Broitman, New York,
New York, for the plaintiff-appellant.

Robin E. Wechkin, Heller Ehrman LLP, Seattle, Washington,
Robert B. Buehler, Heller Ehrman LLP, New York, New
York, Norman J. Blears, Alexander M. R. Lyon, Heller Ehr-
man LLP, Menlo Park, California for defendant-appellee
Antonio Canova.

Nina F. Locker, Steven D. Guggenheim, Katherine L. Hen-
derson, Wilson Sonsini Goodrich & Rosati, PC, for
defendant-appellee Brocade Communications Systems, Inc.
6714                    ROTH v. REYES
Thomas Christopher, Skadden, Arps, Slate, Meagher & Flom
LLP, San Francisco, California, Garrett J. Waltzer, Morgan K.
Lopez, Skadden, Arps, Slate, Meagher & Flom LLP, Palo
Alto, California, Richard Marmaro, Skadden, Arps, Slate,
Meagher & Flom LLP, Los Angeles, California, for
defendant-appellee Gregory L. Reyes.

Anthony A. De Corso, Eric A. Gressler, Orrick, Herrington &
Sutcliffe LLP, Los Angeles, California for defendant-appellee
Jack Cuthbert.

John M. Potter, Scott G. Lawson, Patrick C. Doolittle, Josh A.
Cohen, Quinn Emanuel Urquhart Oliver & Hedges, LLP, San
Francisco, California, for defendant-appellee Michael Byrd.


                         OPINION

IKUTA, Circuit Judge:

   Andrew Roth brought this action on behalf of Brocade
Communications Systems under § 16(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78p(b). He seeks to
recover “short swing” profits, defined as “profits earned
within a six months’ period by the purchase and sale of secur-
ities,” Blau v. Lehman, 368 U.S. 403, 405 (1962), from four
of Brocade’s top officers: Gregory Reyes, Michael Byrd,
Antonio Canova, and Jack Cuthbert. Because Roth’s action is
barred by § 16(b)’s two-year limitations period, we affirm the
district court’s dismissal of his complaint under Rule 12(b)(6)
of the Federal Rules of Civil Procedure.

                               I

   Section 16(b) was designed to prevent corporate insiders
“from profiteering through short-swing securities transactions
on the basis of inside information.” Foremost-McKesson, Inc.
                              ROTH v. REYES                            6715
v. Provident Securities Co., 423 U.S. 232, 234 (1976). It is a
strict liability rule that “requires the statutorily defined inside,
short-swing trader to disgorge all profits realized on all ‘pur-
chases’ and ‘sales’ within the specified time period, without
proof of actual abuse of insider information, and without
proof of intent to profit on the basis of such information.” Id.
at 251 (alteration omitted). As the Supreme Court explained:

       The general purpose of Congress in enacting § 16(b)
       is well known. Congress recognized that insiders
       may have access to information about their corpora-
       tions not available to the rest of the investing public.
       By trading on this information, these persons could
       reap profits at the expense of less well informed
       investors. In § 16(b) Congress sought to curb the
       evils of insider trading by taking the profits out of a
       class of transactions in which the possibility of abuse
       was believed to be intolerably great. It accomplished
       this by defining directors, officers, and beneficial
       owners as those presumed to have access to inside
       information and enacting a flat rule that a corpora-
       tion could recover the profits these insiders made on
       a pair of security transactions within six months.

Id. at 243 (citations, alterations, and internal quotation marks
omitted). An action under § 16(b) to recoup short-swing trad-
ing profits may be brought by the issuer whose stock was
traded or by a stockholder “in behalf of the issuer.” 15 U.S.C.
§ 78p(b).1
  1
   The complete text of § 16(b) provides as follows:
         For the purpose of preventing the unfair use of information
      which may have been obtained by such beneficial owner, direc-
      tor, or officer by reason of his relationship to the issuer, any
      profit realized by him from any purchase and sale, or any sale
      and purchase, of any equity security of such issuer (other than an
      exempted security) or a security-based swap agreement (as
      defined in section 206B of the Gramm-Leach-Bliley Act) involv-
6716                          ROTH v. REYES
   Section 16(b) also contains certain express limitations. One
such limitation provides that a § 16(b) suit may not be
brought “more than two years after the date such [short-
swing] profit was realized.” Id. Another is that § 16(b) “shall
not be construed to cover . . . any transaction or transactions
which the [Securities and Exchange] Commission by rules
and regulations may exempt as not comprehended within the
purpose of this subsection.” Id. Pursuant to this authority, the
SEC has promulgated Rule 16b-3(d)(1), which exempts from
§ 16(b) liability any transaction “involving an acquisition
from the issuer . . . whether or not intended for a compensa-
tory or other particular purpose,” so long as the “transaction

    ing any such equity security within any period of less than six
    months, unless such security or security-based swap agreement
    was acquired in good faith in connection with a debt previously
    contracted, shall inure to and be recoverable by the issuer, irre-
    spective of any intention on the part of such beneficial owner,
    director, or officer in entering into such transaction of holding
    the security or security-based swap agreement purchased or of
    not repurchasing the security or security-based swap agreement
    sold for a period exceeding six months.
       Suit to recover such profit may be instituted at law or in equity
    in any court of competent jurisdiction by the issuer, or by the
    owner of any security of the issuer in the name and in behalf of
    the issuer if the issuer shall fail or refuse to bring such suit within
    sixty days after request or shall fail diligently to prosecute the
    same thereafter; but no such suit shall be brought more than two
    years after the date such profit was realized.
       This subsection shall not be construed to cover any transaction
    where such beneficial owner was not such both at the time of the
    purchase and sale, or the sale and purchase, of the security or
    security-based swap agreement (as defined in section 206B of the
    Gramm-Leach-Bliley Act) involved, or any transaction or trans-
    actions which the Commission by rules and regulations may
    exempt as not comprehended within the purpose of this subsec-
    tion.
15 U.S.C. § 78p(b) (formatting and emphases added). Acquiring a call
option is considered a purchase of an equity security under § 16(b). 17
C.F.R. § 240.16b-6(a).
                                ROTH v. REYES                               6717
is approved by the board of directors of the issuer, or a com-
mittee of the board of directors that is composed solely of two
or more Non-Employee Directors.” 17 C.F.R. § 240.16b-
3(d)(1).2

   Our cases have also interpreted § 16(b) in light of its com-
panion provision, § 16(a), 15 U.S.C. § 78p(b). See Whittaker
v. Whittaker Corp., 639 F.2d 516, 528 (9th Cir. 1981). Section
16(a), as implemented by Rule 16a-3, 17 C.F.R. § 240.16a-3,
requires certain corporate insiders to file statements disclosing
their acquisitions and dispositions of company stock, as well
annual statements of their holdings and transactions.3 Reading
these sections together, we concluded that Congress gave
issuers only a short two-year period in which to bring an
action to recover insiders’ profits under § 16(b) because Con-
gress required insiders to make prompt disclosure of their
transactions under § 16(a). See Whittaker, 639 F.2d at 528.
  2
   17 C.F.R. § 16b-3 provides:
     (d) Acquisitions from the issuer. Any transaction, other than a
     Discretionary Transaction, involving an acquisition from the
     issuer (including without limitation a grant or award), whether or
     not intended for a compensatory or other particular purpose, shall
     be exempt if: (1) The transaction is approved by the board of
     directors of the issuer, or a committee of the board of directors
     that is composed solely of two or more Non-Employee Directors;
     ....
  3
    Section 16(a)(1) provides:
      Every person who is directly or indirectly the beneficial owner of
      more than 10 percent of any class of any equity security (other
      than an exempted security) which is registered pursuant to sec-
      tion 78l of this title, or who is a director or an officer of the issuer
      of such security, shall file the statements required by this subsec-
      tion with the Commission (and, if such security is registered on
      a national securities exchange, also with the exchange).
15 U.S.C. § 78p(a). Rule 16a-3 implements § 16(a) by requiring that
changes in beneficial ownership be filed on Form 4s and annual state-
ments on Form 5s. See 17 C.F.R. § 240.16a-3(a), (g).
6718                         ROTH v. REYES
                                    II

   Roth bases his suit on Brocade’s grant of call options in its
stock (i.e., the right to buy Brocade equity securities at a
stated price) to the four individual defendants.4 Roth alleges
that the defendants were corporate insiders for purposes of
§ 16(b), that they received stock options dated November 19,
1999, November 29, 2000, April 17, 2001, and October 1,
2001, and that they sold shares of Brocade equity securities
within six months of these dates. Roth seeks to recoup the
defendants’ short-swing profits based on their sales of Bro-
cade stock within six months of acquiring the call options.
According to the complaint, these transactions took place no
later than 2002.5

   Roth brought suit on April 24, 2006, long after § 16(b)’s
two-year limitations period for bringing such claims had
passed. Roth’s complaint alleges that this limitations period is
tolled, however, because the defendants failed to disclose
their options acquisitions accurately. According to Roth, the
defendants falsely reported that their options acquisitions
were exempt from § 16(b) under Rule 16b-3(d). Roth argues
that this improper disclosure should toll the running of
§ 16(b)’s limitations period.

   The district court noted, but declined to address, whether
  4
     Although Brocade is listed in the complaint as a “nominal defendant,”
we note that § 16(b) does not apply to Brocade. Brocade is not an officer,
director, or 10% beneficial owner that realized short-swing profits from a
transaction in Brocade equity securities. Moreover, any profits recoverable
from a defendant under § 16(b) would inure to Brocade. Because Brocade
did not move for dismissal from the action, however, we need not address
whether Brocade is a proper defendant. For purposes of this opinion, all
references to “defendants” are to the four individual officers named in
Roth’s complaint.
   5
     One sale in the attachments to Roth’s complaint was dated October 4,
2006. Roth informed the court at oral argument that this was a typographi-
cal error, and the actual date was 2002.
                              ROTH v. REYES                            6719
§ 16(b)’s two-year limitations period barred Roth’s action.
Instead, the district court held that Roth failed to allege facts
sufficient to establish that Brocade’s grants of call options
were not exempt under Rule 16b-3(d)(1). The district court
rejected Roth’s theory that defendants’ transactions did not
qualify for the Rule 16b-3(d)(1) exemption because the call
options were backdated, i.e., “granted on dates prior to their
actual grant dates with exercise prices equal to the market
prices on such dates.”6 Such backdating, according to Roth,
renders the exemption in Rule 16-3(d)(1) inapplicable
because it prevents the grants of stock options from being
approved “in advance” of the transaction, which he argues is
required by the SEC’s interpretation of Rule 16b-3(d)(1). See
Securities Act Release 8600, 70 Fed. Reg. 46080, 46082 n.32
(Aug. 9, 2005) (“With respect to shareholder, board and Non-
Employee Director committee approval, Rule 16b-3(d)
requires approval in advance of the transaction.” (emphasis
added)). The district court characterized Roth’s argument as
a claim that backdating makes the Rule 16-3(d)(1) exemption
per se inapplicable to the backdated transactions, and rejected
it along with Roth’s other efforts to establish that his com-
plaint adequately alleged the non-applicability of Rule 16-
3(d)(1). The district court therefore dismissed the complaint,
and Roth timely appeals.

  6
    Such backdating enhances the value of a call option. Companies gener-
ally grant call options with an exercise price equal to the market price on
the date the options are granted. As a result, the recipient of an option can
profit from exercising it only if the corporation’s stock increases in value
from the date the option was granted. If an option is backdated, giving it
an exercise price equal to a market price lower than the price on the date
the option was granted, the option has value on the day it is granted. See
SEC v. Reyes, 491 F. Supp. 2d 906, 908 (N.D. Cal. 2007) (explaining
stock-options backdating); see also Exchange Act Release No. 28869,
Fed. Reg. 7242, 7248-49 (Feb. 21, 1991) (explaining the factors relevant
to the value of call options).
6720                       ROTH v. REYES
                                  III

   We doubt that Roth had an obligation to affirmatively plead
the inapplicability of any exemption to § 16(b). See Rheem
Manufacturing Co. v. R.S. Rheem, 295 F.2d 473, 477 (9th Cir.
1961) (holding that an insider claiming he was exempt from
liability under § 16(b) had the burden of bringing himself
within the exemption); see also Sorrell v. SEC, 679 F.2d
1323, 1326 (9th Cir. 1982) (noting the well-established
rulethat “[e]xemptions are construed narrowly and the burden
of proof is on the person claiming the exemption.”). We do
not reach this issue, however, nor do we decide whether
Roth’s complaint adequately alleged the inapplicability of
Rule 16b-3(d), because we hold that Roth’s suit is time-
barred. Section 16(b) provides that no “suit shall be brought
more than two years after the date such profit was realized.”
15 U.S.C. § 78p(b). Because Roth’s suit was brought more
than two years after the defendants’ profits were realized, it
is untimely under the plain language of § 16(b). We therefore
affirm the judgment of the district court on that basis. See
Vaught v. Scottsdale Healthcare Corp. Health Plan, 546 F.3d
620, 633 (9th Cir. 2008) (“We may affirm the district court
on any basis supported by the record.” (quoting Moreno v.
Baca, 431 F.3d 633, 638 (9th Cir. 2005))).

   Roth argues that the time for filing his action must be tolled
because the defendants filed inaccurate disclosures under
§ 16(a). Roth notes that the forms filed by defendants claimed
that the call options granted by Brocade were covered by a
Rule 16b-d(3) exemption.7 Because this claim is false, Roth
argues, Brocade (and its shareholders) were not put on notice
that the defendants had made short-swing profits from non-
  7
   The options acquisitions were marked with the code “A,”
which denotes a “grant, award or other acquisition pursuant to Rule
16b-3(d).” Form 4 and Form 5 Instructions, item 8, available at http://
www.sec.gov/about/forms/form4data.pdf and http://www.sec.gov/about/
forms/form5data.pdf.
                         ROTH v. REYES                       6721
exempt transactions. Accordingly, the two-year limitations
period should be tolled during the period in which the defen-
dants failed to disclose their transactions accurately as
required by § 16(a). See Socop-Gonzales v. INS, 272 F.3d
1176, 1184 (9th Cir. 2001) (en banc) (defining “equitable toll-
ing” as “stop[ping] a limitations period from continuing to run
after it has already begun to run”); cf. Tristar Corp. v. Freitas,
84 F.3d 550, 553 (2d Cir. 1996).

   Roth relies on our decision in Whittaker for his argument
that the defendants’ inaccurate disclosures should toll
§ 16(b)’s limitations period. In Whittaker, a corporation
recovered short-swing profits from a defendant whose share
of the corporation’s equity stock, when added to his mother’s
share, exceeded 10% of the company’s equity shares. 639
F.2d at 519. The district court found that the defendant “exer-
cised virtually complete control over his mother’s affairs,”
including her finances and stock holdings, and therefore
“must be deemed the beneficial owner of his mother’s stock”
in the corporation. Id. at 519, 523. The court therefore con-
cluded that the defendant was a 10% beneficial owner within
the meaning of § 16, who “should have reported the transac-
tions under § 16(a), and [who] was liable to the company
under § 16(b) for profits derived from those transactions.”
Id. at 519.The defendant appealed, claiming, among other
things, that some of the alleged short-swing profits were unre-
coverable under § 16(b)’s two-year limitations period.

   [1] We rejected this argument, concluding that Congress
intended the two-year limitations period to be tolled “when
the pertinent § 16(a) reports are not filed.” Id. at 528. Our
conclusion was based on several factors. First, we noted that
the legislative history of § 16 demonstrated “a strong congres-
sional intent to curb insider trading abuses,” and concluded
that “this purpose would be thwarted if insiders could escape
liability by not reporting as required under § 16(a).” Id. Sec-
ond, we pointed to “the complementary nature of § 16(a) and
§ 16(b),” and stated that the short limitations period for bring-
6722                     ROTH v. REYES
ing actions under § 16(b) was understandable “only in the
context of the insider’s duty to make prompt disclosure.” Id.
We further relied on the fact that § 16(b) was enforceable by
individual shareholders through derivative suits on behalf of
their company, and reasoned that, “[i]f insiders could insulate
their transactions from the scrutiny of outside shareholders by
failing to file § 16(a) reports and waiting for the two year time
limit to pass, then Congress’ creation of these shareholders’
derivative suits would be nullified.” Id. Finally, we stated that
our holding was consistent with “the purpose of § 16 to
impose absolute accountability within clearly demarcated
boundaries.” Id. at 529. We reasoned that this purpose is bet-
ter supported by a rule that the limitations period begins run-
ning from a date that can be clearly calculated, such as the
“dates on which purchases and sales are made” and “the dates
on which § 16(a) reports are filed with the SEC,” rather than
from the date that a company should have discovered it had
a cause of action under § 16(b). Id. In light of these factors,
we concluded that “tolling of the two year time period is
required when the pertinent § 16(a) reports are not filed.” Id.
at 528.

   [2] The reasoning in Whittaker does not support Roth’s
argument that the time period for bringing an action under
§ 16(b) should be tolled if an insider does file the required
§ 16(a) reports but also erroneously claims an exemption for
the disclosed transactions. To the contrary, expanding the
equitable tolling rule as Roth suggests would be inconsistent
with the statutory scheme because it would effectively elimi-
nate the two-year limitations period in any case that turned on
the applicability of an exemption. Under Roth’s proposed
rule, a shareholder could bring a derivative action at any time
against an insider who disclosed a purportedly exempt trans-
action. If a court ultimately determined the insider’s claim of
exemption was invalid, the company’s action against the
insider would have been timely because the limitations period
was tolled due to the inaccurate disclosure. But even if the
insider prevailed, the court’s ruling that the insider’s claim of
                         ROTH v. REYES                      6723
exemption was valid and the company’s action was time-
barred would come too late to help the insider. The insider
would be the victor in a suit that should not have been liti-
gated in the first place. In either scenario, the insider would
be put to the expense of defending himself long after the two-
year limitations period had run. We may not read § 16(b)’s
limitations period in a manner that would effectively nullify
the limitations period whenever an insider engaged in an
exempt transaction. “In construing a statute we are obliged to
give effect, if possible, to every word Congress used.” Reiter
v. Sonotone Corp., 442 U.S. 330, 339 (1979).

   Other factors we considered in Whittaker also weigh
against tolling § 16(b)’s limitations period under the circum-
stances presented in this case. For one, Roth’s argument that
the time to bring an action under § 16(b) commences only
when it has been determined that the § 16(a) filings are free
from erroneous claims of exemptions is inconsistent with the
congressional goal of having “a limitations period which can
be mechanically calculated from objective facts.” 639 F.2d at
529. Nor would it further the congressional goal of public dis-
closure to eliminate the two-year limitations period when an
insider erroneously reports a transaction as exempt; to the
contrary, doing so would undermine insiders’ incentives to
disclose exempt transactions at all. Giving effect to the limita-
tions period in § 16(b) whenever an insider discloses relevant
transactions, even if the form claims an inapplicable exemp-
tion, supports the goals of disclosure and transparency under-
lying the securities laws.

  [3] In sum, we decline Roth’s invitation to render § 16(b)’s
two-year limitations period a nullity in any case turning on the
applicability of an exemption. Because we reject Roth’s pro-
posed equitable tolling rule as contrary to the statutory
scheme Congress created and inconsistent with our analysis in
Whittaker, we conclude that Roth’s suit is barred by § 16(b)’s
two-year limitations period. Accordingly, we need not reach
Reyes’s and Byrd’s individual defenses.
6724                 ROTH v. REYES
  The judgment of the district court is AFFIRMED.
