1070, 1075, 1076 n.29 (1965), the securities laws should be interpreted as an expansion of the common law[21] both to effectuate the broad remedial design of Congress, see SEC v. Capital Gains Research Bureau, supra, 375 U.S. at 195, 84 S.Ct. denied, 365 U.S. 814, 81 S.Ct. With the aid of one Carroll, a public relations consultant, Fogarty drafted a press release designed to quell the rumors, which release, after having been channeled through Stephens and Huntington, a TGS attorney, was issued at 3:00 P. M. on Sunday, April 12, and which appeared in the morning newspapers of general circulation on Monday, April 13. at 281-82. 598 (S.D.N.Y.1966), Howard v. Levine, 262 F.Supp. Texas Gulf Sulphur ( 1968 ), in which the federal appellate court governing Wall Street found that corporate insiders had illegally traded when they bought more stock in their mining company after learning of a probable find of substantial mineral deposits, but before the information was publicly disclosed. Consequently, I agree with the majority in giving the Board's action no weight here. 26 (SD NY 1964); but see, e. g., Weber v. C. M. P. Corp., 242 F.Supp. Insider Trading Project | PDF | Insider Trading | Stocks - Scribd The consequences of holding that negligence in the drafting of a press release such as that of April 12, 1964, may impose civil liability on the corporation are frightening. See Bromberg, Securities Law: SEC Rule 10b-5, p. 19 (1967). 10 (1942)), and have been read, upon close scrutiny of their legislative history, as not requiring specific fraudulent intent, SEC v. Van Horn, 371 F.2d 181, at 184-186 (7 Cir. [28]Examined in retrospect, the situation in Timmins at the time the release was prepared seems to offer good reason for optimism. One of the most famous instances of insider trading was Charles F. Fogarty's purchase of Texas Gulf Sulphur shares during 1963 and 1964. 1962); Stevens v. Vowell, 343 F.2d 374 (10 Cir. ), cert. Faberge, Inc., 45 S.E.C. See 258 F.Supp. [6]Defendant O'Neill did not appear to answer the charge against him; the SEC motion to enter a default judgment against him was denied without prejudice to its renewal upon completion of this appeal. The core of Rule 10b-5 is the implementation of the Congressional purpose that all investors should have equal access to the rewards of participation [852] in securities transactions. We analyze not only the published opinions in Texas Gulf Sulphur, but also the judges' internal memoranda. #2- What is your assessment of the Texas Gulf Sulphur press release of April 12? The insiders here were not trading on an equal footing with the outside investors. Insider trading, or similar practices, are also regulated by the SEC under its rules on takeovers and tender offers under the Williams Act. No. We do intend to convey, however, that where a corporate purpose is thus served by withholding the news of a material fact, those persons who are thus quite properly true to their corporate trust must not during the period of non-disclosure deal personally in the corporation's securities or give to outsiders confidential information not generally available to all the corporations' stockholders and to the public at large. at 294. The case began in 1959 when the Texas Gulf Sulphur Company purchased some property in Timmins, Ontario, to check for ore deposits. Markham v. Cabell, 326 U.S. 404, 66 S.Ct. Section 10(b) was certainly not intended to be a mandate to the Commission to erect a comprehensive regulatory system policing all corporate publicity, as the majority now contend. This was followed by continuous values of ore tenor deeper down, a 100-ft. section runs 0.33% copper, 0.8% lead, 14.3% zinc and 4.2 ozs. cases. supra Table 1 at 16-17. In 1971, S.E.C. JM Quinn B, "SEC v Texas Gulf Sulphur" (SEC v Texas Gulf Sulphur . Scores of day by day intra-company situations come to mind which in the individual opinions of company officers or employees might well affect the price of TGS stock, each individual reacting according to his own judgment. However, it does not necessarily follow that this is an appropriate case for granting an injunction as to future press releases. It is not altogether certain from the present record that the draftsmen could, as the SEC suggests, have readily obtained current reports of the drilling progress over the weekend of April 10-12, but they certainly should have obtained them if at all possible for them to do so. Obviously, a subjective approach presents difficulties. Jun 2013 - Jun 20152 years 1 month. Id. It requires no imagination to venture that such announcements might well have had the "wildest" impact on the market price of TGS stock. For purposes of insider trading law, insiders must wait a "reasonable" time after disclosure before trading. All of the foregoing defendants accepted the options granted them. Factually, the premise posed by the majority is "clearly erroneous." On April 12 a fourth drill rig began to drill K-55-7, which was drilled westerly at a 45 angle, at the eastern edge of the anomaly. Lines, 360 F.2d 774 (2 Cir. At that time approximately 2/3 of the ore ultimately found to exist by the time of the preparation of the April 16 "major strike" release had been discovered by 5 holes placed so as to indicate continuity of mineralization within the large anomaly. There is no indication that Congress intended that the corporations or persons responsible for the issuance of a misleading statement would not violate the section unless they engaged in related securities transactions or otherwise acted with wrongful motives; indeed, the obvious purposes of the Act to protect the investing public and to secure fair dealing in the securities markets would be seriously undermined by applying such a gloss onto the legislative language. 1968); see Jennings, Insider Trading in Corporate Securities: A Survey of Hazards and Disclosure Obligations under Rule 10b-5, 62 Nw.U.L.Rev. 10 (1942). This visual estimate convinced TGS that it was desirable to acquire the remainder of the Kidd 55 segment, and in order to facilitate this acquisition TGS President Stephens instructed the exploration group to keep the results of K-55-1 confidential and undisclosed even as to other officers, directors, and employees of TGS. The hole was concealed and a barren core was intentionally drilled off the anomaly. Corp., 282 F.2d 195, 201 n. 4 (5 Cir. [15] Inasmuch as the visual evaluation of that drill core (a generally reliable estimate though less accurate than a chemical assay) constituted material information, those advised of the results of the visual evaluation as well as those informed of the chemical assay traded in violation of law. By-passing momentarily the general knowledge possessed by the officers of TGS as to the far-flung nature of the company's operations, its heavy concentration in the sulphur field, its non-engagement in the field of copper mining, the adverse effect which low sulphur prices had had for many years on the company's earnings despite substantial sales and focusing attention solely upon the Timmins property, the participants in that exploration and the knowledge available to them, I find no factual disputes of importance. In Dirks v. SEC, 463 U.S. 646, 662, 103 S.Ct. Prior to these transactions these persons had owned 1135 shares of TGS stock and possessed no calls; thereafter they owned a total of 8235 shares and possessed 12,300 calls. The majority read the phrase as merely requiring that the allegedly misleading statement be issued by a publicly traded corporation. It therefore cannot be said that TGS was negligent in not obtaining more current data, and it is certainly not negligent simply because it decided to issue the statement when it did. They call it "a major factor in determining whether the K-55-1 discovery was a material fact" and say that this "virtually compels the inference that the insiders were influenced by the drilling results." The first five paragraphs read as follows: Should Make Substantial Open Pit Operation, TEXAS GULF SULPHUR COMES UP WITH A "MAJOR", See Big Tonnages Of Base Metals, Plus Silver. at 296 (emphasis supplied) rather than from an appropriate primary inquiry into the meaning of the statement to the reasonable investor and its relationship to truth. The Commission should have the authority to deal with new manipulative devices." As to the sufficiency of the news release, the first issue would be what constitutes a "reasonable" investor. After all, this first drill core was "unusually good and * * excited the interest and speculation of those who knew about it." However, as they have surrendered the options and the corporation has canceled them, supra at 292, n. 17, we find it unnecessary to order that the [857] injunctions prayed for be actually issued. Since the issue of negligence is open to full review, Mamiye Bros v. Barber SS. at 271). And there are impressive, strong sections within this width which in themselves are quite spectacular. (Ibid.) Therefore, the statements in the legislative history applicable to the reporting and disclosure provisions have no bearing on the correct interpretation of 10 (b). In any event if the Commission feels that its arsenal should be augmented, Congress not the courts is the proper forum for its arguments. What were the motives behind each of the purchases? Primarily, our task should be to review errors of law. Visual estimates revealed an average content of 0.82% copper and 4.2% zinc over a 525-foot section. In each case, then, whether facts are material within Rule 10b-5 when the facts relate to a particular event and are undisclosed by those persons who are knowledgeable thereof will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity. Of course, if any of the five knowledgeable defendants had rejected his option there might well have been speculation as to the reason for the rejection. Even this procedure would not suffice if future events should prove the facts to have been over or understated or too gloomy or optimistic because the courts will always be ready and available to substitute their judgment for that of the business executives responsible therefor. The Commission can also obtain injunctions to enforce compliance with the disclosure and other provisions of the Securities Exchange Act ( 21, 15 U.S.C. Under the current insider trading regime in the United States, stiff penalties1are imposed for a crime that has never been defined by statute or regulation.2The principal statutory authority for insider trading liability is section 10(b) of the Securities Exchange Act of 1934, which prohibits the employment of "any manipulative or deceptive On this day 54 years ago, the Texas Gulf Sulphur Company announced a major copper strike 350 miles north of Toronto that would become the focus of a landmark insider trading case. Also by 7:00 A. M. on April 13, K-55-6 had found mineralization to the 946-foot mark. While additional drilling was done on Saturday and Sunday, April 11 and 12, the cores had not been seen by the geologists advising management, and there was no way of communicating with the drill site even if someone had been available there to give a reliable appraisal. Thus, even if TGS or its insiders had not engaged in securities transactions, if there were evidence from which it could be inferred that the press release was intentionally issued to depress the price of the stock as part of some fraudulent scheme, a 10b-5 violation would have been stated. 1555, 12 L.Ed.2d 423 (1964), violation of Rule 10b-5(2) may not do so under all circumstances, including those presented by the April 12 press release.