Abstract. Rule 52(a) should be given particular weight where expert testimony must of necessity play an important role. Texas Gulf Sulphur Co. was a landmark of the jurisprudence of insider trading in the United States. But the case stands differently as to paragraph (2). May the Future, the Congress or possibly the SEC itself be able to bring some semblance of order by means of workable rules and regulations in this field so that the corporations and their stockholders may not be subjected to countless lawsuits at the whim of every purchaser, seller or potential purchaser who may claim he would have acted or refrained from acting had a news release been more comprehensive, less comprehensive or had it been adequately published in the news media of the 50 States. The trial court's finding that "he sought to, and did, `beat the news,'" 258 F.Supp. (3) As to Mollison and Holyk, as recipients of certain stock options, we affirm the dismissal of the complaint. 258 F.Supp. That is too slim a basis to support a judicial excursion over such uncharted seas. 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. 33, 37 (E.D.Pa.1964); see Ruder, Corporate Disclosures Required by the Federal Securities Laws: The Codification Implications of Texas Gulf Sulphur, 61 Nw.U.L.Rev. No reason appears why outside investors, perhaps better acquainted with speculative modes of investment and with, in many cases, perhaps more capital at their disposal for intelligent speculation, would have been less influenced, and would not have been similarly motivated to invest if they had known what the insider investors knew about the K-55-1 discovery. The trial court found that as of 7:00 P.M. on Thursday, April 9, "There was real evidence that a body of commercially mineable ore might exist." A correct decision in this case may well hang upon [872] their testimony and its credibility because what these observers knew or should have known between November 12, 1963 and April 9, 1964 is basic to a determination of what, if anything, should have been disclosed or whether it was "material. 301 (S.D.N.Y. Whatever they knew or didn't know about Timmins, they were entitled to believe their superiors had reported the facts to the Option Committee unless they had information to the contrary. In so holding, they confuse the inducing motive of the individual purchaser with knowledge of material [877] facts which ought to be revealed to the public at large. See Securities Exchange Act of 1934, Release No. 1965). This action derives from the exploratory activities of TGS begun in 1957 on the Canadian Shield in eastern Canada. Most of the footage drilled by April 10 had been in a single plane (2400 S), but by April 15 drilling had established mineralization in a number of additional planes. Heit v. Weitzen (amicus curiae). L.Rev. See Ruckle v. Roto American Corp., 339 F.2d 24 (2d Cir. 1966), appeal pending. The speculators and chartists of Wall and Bay Streets are also "reasonable" investors entitled to the same legal protection afforded conservative traders. These regulations vary across countries, but generally require disclosure of such information and impose penalties for violations. by Brian JM Quinn ANNOTATION DISPLAY The following case, Texas Gulf Sulphur is an early federal insider trading case. Faced with this problem, the trial court selected a period from November 12, 1963 (the first information) to some date after drilling was resumed when it might reasonably be said that a body of commercially mineable ore might exist. "Shadow Trading" Becomes Insider Trading By Stephen J. Crimmins March 28, 2022 1 Comment On January 14, 2022, the U.S. District Court in San Francisco denied a motion to dismiss charges filed by the Securities and Exchange Commission under an expansive new theory of insider trading liability. The District Court found that "TGS had previously drilled 65 equally promising anomalies, but most of them had revealed either barren pyrite or graphite, while a few had shown marginal mineral deposits in insufficient quantities to be commercially mined." Defendant Mollison purchased 100 shares on November 15 in his name only and on April 8 100 shares were purchased in the name of Mrs. Mollison. 1070, 1079. Finally, 15(c) (1), (2), 15 U.S.C. The Commission can suspend trading for successive periods of 10 days in any security which it feels is being affected by misleading press releases ( 15 (c) (5), 19(a) (4), 15 U.S.C. [14] The trial court found that defendant Murray "had no detailed knowledge as to the work" on the Kidd-55 segment. (Great American brief, pp. Texas Gulf Sulphur, insider trading, U.S. securities laws, insider trades - disclosures, materiality, price impact, secondary trading markets - company liabilities, Securities Exchange Act - Section 16 . This means you can view content but cannot create content. As we stated in List v. Fashion Park, Inc., 340 F.2d 457, 462, "The basic test of materiality * * * is whether a reasonable man would attach importance * * * in determining his choice of action in the transaction in question. During the period of drilling in Timmins, the market price of TGS stock fluctuated but steadily gained overall. See footnote 16, supra. On the other hand, in view of the decline of the market price of TGS stock from a high of 32 on the morning of April 13 when the release was disseminated to 29 3/8 by the close of trading on April 15, and the reaction to the release by other brokers, it is far from certain that the release was generally interpreted as a highly encouraging report or even encouraging at all. 78j(b) and Rule 10b-5 and remand, pursuant to the agreement by all the parties, for a determination of the appropriate remedy. (Emphasis supplied.) 321, 322-325 (S.D.N.Y.1965) (Wyatt, J. Also by 7:00 A. M. on April 13, K-55-6 had found mineralization to the 946-foot mark. Law. At 3:00 P.M. on April 12, 1964, evidently believing it desirable to comment upon the rumors concerning the Timmins project, TGS issued the press release quoted in pertinent part in the text at page 845, supra. See Landis, Liability Sections of Securities Act, 18 Am.Acct. at 296. 8:403. . 330, 331 (1933); Douglas and Bates, Federal Securities Act of 1933, 43 Yale L.J. Such a fact is a material fact and must be effectively disclosed to the investing public prior to the commencement of insider trading in the corporation's securities. Business Quiz 5 Flashcards | Quizlet Counsel, Ofc. [38] Thus one who conspires with or aids and abets another in the [887] fraudulent purchase or sale of securities may have the needed connection. This Day In Market History: Texas Gulf Sulphur Company's Mineral Strike (9) As to Coates, as one who on April 16th purchased stock and gave information on which his son-in-law broker and the broker's customers purchased shares, we reverse the dismissal of the complaint, find that he violated 15 U.S.C. Such thoughts can only arise from unfounded speculative imagination. Dr. Lacy, head of the mining department of the University of Arizona, was of the opinion that "There is no basis for making any sort of prediction out from the hole.". The majority says that negligent misstatement by a corporation is enough for injunctive relief under Rule 10b-5 (2) in a proper case; it reserves the question, not here presented, whether the corporation is liable for damages. Certain newspaper accounts of the release viewed the release as confirming the existence of preliminary favorable developments, and this optimistic view was held by some brokers, so it could be that the reasonable investor would have read between the lines of what appears to us to be an inconclusive and negative statement and would have envisioned the actual situation at the Kidd segment on April 12. Furthermore, such a holding might well have the unfortunate result of deterring the dissemination of corporate news despite the strong policy underlying all securities legislation of encouraging disclosure of information useful to present and potential investors. 416 (SDNY 1955), for policy reasons which seem perfectly consistent with the broad Congressional design "* * * to insure the maintenance of fair and honest markets in * * * [securities] transactions." In the event that it is found that the statement was misleading to the reasonable investor it will then become necessary to determine whether its issuance resulted from a lack of due diligence. 78u), and stiff criminal penalties are provided for failure to comply with the statute or rules promulgated thereunder ( 32, U.S.C. Kidd 55 was only one of several thousand anomalies (areas where there is unusual variation in the electrical conductivity of rocks) that TGS detected in its aerial exploration of the Canadian shield. This is the old version of the H2O platform and is now read-only. How Insider Trading Regulations Help to Ensure Fairness in the 275, 11 L.Ed.2d 237 (1963). On April 10, a third drill rig commenced drilling yet another hole, K-55-5, 200 feet north of K-55-1, parallel to the prior holes, and slanted westerly at a 45 angle. [28]Examined in retrospect, the situation in Timmins at the time the release was prepared seems to offer good reason for optimism. His statement was that: "While, in retrospect, the press release may appear gloomy or incomplete, this does not make it misleading or deceptive on the basis of the facts then known." The Commission advances the argument (successful with the majority) that [883] the "in connection" requirement is satisfied by the mere fact that the public is purchasing and selling securities on the open market. Texas Gulf Sulphur [TGS] Co. TGS experts, on the other hand, denied at the hearing that proven or probable ore could have been calculated on April 11 or 12 because there was then no assurance of continuity in the mineralized zone. Nor is it consonant with reality to suggest, as does the majority, that corporate executives may be motivated in accepting employment by the opportunity to make "secret corporate compensation * * * derived at the expense of the uninformed public." He is, to the best of his ability, taking calculated risks." It was obviously thought that sections outlawing devices that had been shown at great length to be deleterious did not require any lengthy explication. 31, 2023 LAW OF CORPORATE MANAGEMENT AND FINANCE LGST 2020 / 8020 Spring 2023 Prof. Vince The case continues to receive significant scholarly attention. 22, 23). See Pettit v. American Stock Exchange, 217 F.Supp. As Stephens and Fogarty have surrendered the options and the corporation has canceled them, there has certainly been no violation of 10b-5 by them with respect to those options. The derivation of Rule 10b-5 is peculiar. [21] Even at common law, the essentially private remedy of rescission which is sought here does not require more than a showing of negligence and frequently even less than that, see Restatement, Contracts, 476, comm. was "the first federal court decision to ad-dress insider trading of securities under 10(b) of the Securities Exchange Act of 1934 and Under the majority's decision, an insider must perform the uncommon act of refusing such an option, promoting speculation as to the reasons therefor, or accept the option and face possible 10b-5 liability. Before insiders may act upon material information, such information must have been effectively disclosed in a manner sufficient to insure its availability to the investing public. Clayton, who was unaware of the April 16 disclosure announcement TGS was to make can, in support of his claim that the favorable news was public, rely only on the rumors and on the phone calls received by TGS prior to the placing of his order from those who seemed to have heard some version or rumors of the news. Texas Gulf Sulphur 1 in transforming insider trading law. For a core length of a shade better than 600 ft., the hole averaged in excess of 1% copper, 8% zinc and nearly four ounces of silver. For an example of the effective use of this latter power see SEC Sec.Exch.Act Rel. Insider trading law is irreparably broken - The Washington Post Agreeing with the result reached by the majority and with most of Judge Waterman's searching opinion, I take a rather different approach to two facets of the case. In fact, the Commission itself indulges in the very speculation it condemns for, after conceding that "the trial court correctly stated that one drill hole does not establish the existence of a commercially mineable mineral deposit," it straightway contends that the information which arose after the drilling of this first and only (for 4 months) drill hole revealed such "chances of imminent success, viewed in the light of the magnitude of the potential economic benefit to Texas Gulf" as to require disclosure by insiders desiring to buy TGS securities. 78o(c) (1) "* * * effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security * * *") demonstrate that when Congress intended that there be a participation in a securities transaction as a prerequisite of a violation, it knew how to make that intention clear. Practically all TGS stock in question here was purchased between November 12, 1963 and April 8, 1964. 1968); SEC v. Texas Gulf Sulphur Co., 258 F. Supp. The inference is therefore inescapable that the Court felt that a reasonable investor would not be misled by it. 275, 11 L.Ed.2d 237 (1963), that the elements of a cause of action for "fraud" vary "with the nature of the relief sought" and that "It is not necessary in a suit for equitable or prophylactic relief to establish all the elements required in a suit for money damages." [38] In two cases, on motions to dismiss, two courts have permitted 10b-5 actions to continue where defendants were not alleged to be intimately connected with a purchase or sale of securities. Gediman v. Anheuser Busch, Inc., 299 F.2d 537, 545 (2 Cir. Conversely, we are not a jury of nine with no requirement of a unanimous verdict. denied, 394 U.S. 976 (1969). 9-10 (1933). ), cert. A corporation may itself violate Rule 10b-5 if it engages in fraudulent activities in connection with a merger or other transaction involving securities. at 296. I would grant the application for an injunction. [13]The April 16th article in The Northern Miner resulted from the reporter's April 13th visit to the drill site where he interviewed defendants Mollison, Holyk and Darke and looked at records of the drilling to that time. See Sections 2 and 16 of the Act; H.R.Rep.No. This requirement is explicit in 10(b) of the Act (15 U.S.C. 9 (1934); S.E.C., Tenth Annual Report 50 (1944). 193, 90 L.Ed. K-55-10 was drilled westerly at a 45 angle commencing April 14 and had encountered mineralization over 231 of its 249-foot length by the evening of April 15. The Commission also seeks court orders upon certain of the individual defendants that are essentially remedies of a private, rather than of a regulatory nature, court orders designed to have those individual defendants disgorge any profits they enjoyed from TGS stock transactions they or their "tippees" engaged in from November 12, 1963 to April 17, 1964.
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