texas gulf sulphur insider trading texas gulf sulphur insider trading
The geologist Darke possessed undisclosed material information and traded in TGS securities. 416, 419 (S.D N.Y.1955) (Kaufman, J. . These officers, who engaged in securities transactions on the basis of material, nonpublic information, 1 2 3 (p. 389) 4 5 6 78u(e), a permanent injunction restraining the issuance of any further materially false and misleading publicly distributed informative items.[26]. 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 1070, 1079. 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 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." The majority approve of this interpretation because "the investing public may be injured as much by one's misleading statement containing inaccuracies caused by negligence as by a misleading statement published intentionally to further a wrongful purpose." Dasho v. Susquehanna Corp., 380 F.2d 262 (7 Cir. Tamar Frankel, Insider Trading, 71 SMU L. REV. Original Item: S.E.C. 2 of SEC Act, 15 U.S.C. Fleischer, Securities Trading and Corporate Information Practices: The Implications of the Texas Gulf Sulphur Proceeding, 51 Va.L.Rev. Its area was then limited to its one-quarter segment. Wilko v. Swan, 346 U.S. 427, 74 S.Ct. Firm Management White-Collar/Regulatory Pro Bono/Public Service/D&I Is ESG a Trade Secret? This requirement is explicit in 10(b) of the Act (15 U.S.C. SEC L.Rep. Friday morning, April 10, he had been on the Kidd tract "and had been advised by defendant Holyk as to the drilling results to 7:00 p.m. on April 10. The SEC argued below and maintains on this appeal that this release painted a misleading and deceptive picture of the drilling progress at the time of its issuance, and hence violated Rule 10b-5(2). It is unfortunate that the atmosphere surrounding this important issue has been so colored and in the collective mind of the majority so contaminated by the comparatively insignificant stock purchase issue. If the only choices open to a corporation are either to remain silent and let false rumors do their work, or to make a communication, not legally required, at the risk that a slip of the pen or failure properly to amass or weigh the facts all judged in the bright gleam of hindsight will lead to large judgments, payable in the last analysis by innocent investors, for the benefit of speculators and their lawyers, most corporations would opt for the former. Texas Gulf Sulphur, a Second Circuit decision that recognized insider trading as fraud under Rule 10b-5 of the Exchange Act, was the headline securities decision of the decade. We are to put ourselves so far as we can in the position of the legislature that uttered them, and decide whether or not it would declare that the situation that has arisen is within what it wishes to cover. H.Rep.No.85, 73dCong., 1st Sess. [874] The Commission's position, consistent with its rules and regulations to protect the public from premature announcements which might well arouse speculative fervor are well expressed in its argument before this Court in its brief on appeal in Securities and Exchange Commission v. Great American Industries, Inc., et al., 259 F.Supp. It should be realized that the construction given 10b-5 will turn it into a comprehensive regulatory provision applicable to all corporate and individual statements, but without any of the detailed standards necessary to implement such a program. 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." 1962). contemporaneous assessments of early insider trading law include William Cary, Insider Trading in Stocks, 21 Bus. ); cf. To them, completely disregarding the trial court's findings and substituting themselves as a jury, these purchases are "the only truly objective evidence of the materiality of the K-55-1 discovery." The hole was concealed and a barren core was intentionally drilled off the anomaly. Thus 12(a), 15 U.S.C. [7] Mollison had returned to the United States for the weekend. 1966) (dictum); Heit v. Weitzen, 260 F.Supp. See Securities Exchange Act of 1934, Release No. [16] Judges Waterman and Anderson, believing that there had been no definitive finding below as to whether Darke, expressly or by implication, transmitted to these outsiders any indication of the extremely favorable results of the drilling operation in which he was engaged, would remand for a determination on this issue, and if it should be determined that Darke did make such revelations, for a determination of the appropriate remedy. By the evening of April 10 in this hole, too, substantial copper mineralization had been encountered over the last 42 feet of its 97-foot length. As it is our holding that the information acquired after the drilling of K-55-1 was material, we, on the basis of the findings of direct and circumstantial evidence on the issue that the trial court has already expressed, hold that Darke violated Rule 10b-5 (3) and Section 10(b) by "tipping" and we remand, pursuant to the agreement of the parties, for a determination of the appropriate remedy. Essay about Texas Gulf Sulphur Case Study - 690 Words | Bartleby Under such circumstances, the most effective procedure is the quick and speedy denial of such rumors through a release to the public Press * * *". 275, 11 L.Ed.2d 237 (1963). So, it is here no justification for insider activity that disclosure was forbidden by the legitimate corporate objective of acquiring options to purchase the land surrounding the exploration site; if the information was, as the SEC contends, material,[9] its possessors should have kept out of the market until disclosure was accomplished. But this must be recorded as one of the most impressive drill holes completed in modern times. Michigan Business & Entrepreneurial Law Review [Vol. (1934). 1966) (by implication). As to the sufficiency of the news release, the first issue would be what constitutes a "reasonable" investor. On Saturday morning, April 11th, both the New York Herald Tribune and the New York Times prominently reported a major ore discovery. at 282 n. 10. I suppose it would be clear, under Ruckle v. Roto American Corp., 339 F.2d 24 (2 [865] Cir. at 843-47. The majority support their action in part by a long quotation from H.R.Rep. PDF The Ethics of Insider Trading Reform - Mercatus Center The Wild World of Biotech Insider Trading - Medium It would seem, by the same token, that if, to make the pill easier to swallow, he urged the directors to include others lacking the knowledge he possessed, he would be liable for all the resulting damage. A definite statement "to clarify" was promised in the future. The core of the drill hole contained relatively high percentages of copper and zinc and some silver, although the percentages at any given point fluctuated widely. 275, 11 L.Ed.2d 237 (1965); cf. ); Cooper v. North Jersey Trust Co., 226 F.Supp. Gediman v. Anheuser Busch, Inc., 299 F.2d 537, 545 (2 Cir. Mollison had been advised by Holyk as to the drilling results up to 7:00 p.m. on April 10th. L.Rev. at 296. Fighting insider trading is clearly at the top of law enforcement's agenda. 1340, 1364 (1966). LaThis article found in the Wall Street Journal applies to insider trading. #2- What is your assessment of the Texas Gulf Sulphur press release of April 12? The only alteration made by the Conference Committee was to substitute the present closing language of Section 10(b), "* * * in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors" for the closing language of the original Section 10(b) of S. 3420, "* * * which the Commission may declare to be detrimental to the interests of investors." Ethics, Markets, and the Legalization of Insider Trading SEC v. Texas Gulf Sulphur Co. - Open Casebook The majority suggest with, in my opinion, most remarkable business naivete that, instead of the April 12, 1964 press release which the trial court had found as a matter of fact had been issued in the exercise of "reasonable business judgment under the circumstances," in their 1968 judgment "it would have obviously been better to have specifically described the known drilling progress as of April 10th by stating the basic facts." When and how are promising results to be disclosed. The mere fact that an insider did not engage in securities transactions does not negate the possibility of wrongful purpose; perhaps the market did not react to the misleading statement as much as was anticipated or perhaps the wrongful purpose was something other than the desire to buy at a low price or sell at a high price. That is too slim a basis to support a judicial excursion over such uncharted seas. [27] See the discussion in footnotes 20, 21, and 22, supra, and in the accompanying text, dispensing with a fraudulent intent requirement in actions based on clause (3) of Rule 10b-5. Hindsight, however, is not the test. SEC Enforcement on Insider Trading and the Dark Web 7.25). In SEC v. Texas Gulf Sulphur Co. (1966), a federal circuit court stated that anyone in possession of inside . By doing so, a person acts in violation of their duties and breaches the trust of the affected parties. Insider trading is a crime through judicial interpretation of the Securities Exchange Act of 1934. Later, on March 16, he helped prepare a letter for Dr. Holyk's signature in which TGS made a substantial offer for lands near K-55-1, and on the same day he, who had never before purchased calls on any stock, purchased a call on 100 shares of TGS stock. In their opinion, the majority have become so involved in usurping the function of the trial court, in selecting the witnesses they (at variance with the trial court) choose to believe, in forming their own factual conclusions from the evidence (in disregard of Rule 52 (a)), in deciding with, of course, the benefit of the wisdom of hindsight, how they, had they been executives of Texas Gulf Sulphur Company (TGS), would have handled the publicity attendant to the exploration of the Timmins property, in determining (to their own satisfaction) the motives which prompted each of the individual defendants to buy TGS stock and in becoming mining engineering experts in their own right, that I find it desirable in fact, essential to state my opinion as to the fundamental jurisdiction of the Court of Appeals and the issues properly before us. They argue that the "connection" that has to exist between a corporate statement and a security transaction is supplied by the theoretical argument that every "material" corporate statement presumably affects the market price of the issuer's securities. 193, 90 L.Ed. Here there is no danger of repetition of an unduly gloomy press release like that of April 12. Russell G. Ryan, a former assistant director of enforcement at the Securities and Exchange Commission and former deputy chief of enforcement at the Financial Industry Regulatory Authority, is a. 724 (E. D.Pa.1966) (Brokerage house liable to plaintiff if it failed to supervise adequately one of its employees who allegedly was guilty of "churning" or excessive turnover in plaintiff's account.). Until Saturday morning TGS did not intend to issue a press release on the progress of the exploration. 1808, 20 L.Ed.2d 653 (May 21, 1968), I see no need for a remand on that score. Tager v. SEC, 344 F.2d 5, 8 (2 Cir. See 3 Loss, Securities Regulation 1692-96 (1961). . 2. 78i provides that it shall be unlawful for any broker, dealer or other person to create a false or misleading appearance of activity in the market for a stock or to attempt to affect the price of a stock by certain specific manipulative devices. Texas Gulf Sulphur Company - Wikipedia TGS decided to acquire the surrounding plots in the Kidd 55 area to enable it fully to investigate the anomaly. Daily progress reports of the drilling of this hole K-55-3 and of all subsequently drilled holes were sent to defendants Stephens and Fogarty (President and Executive Vice President of TGS) by Holyk and Mollison. Obviously if such a resumption were to have any meaning to such "tippees," they must have previously been told of K-55-1. The District Court characterized the press release as an accurate portrayal of the situation as it was known at that time. An attempt has been made to understand how these Indigenous laws impact the Market and how they curtail these illegal activities from it. 643 (S.D.N.Y.1965), consolidated appeal pending sub nom. (Emphasis supplied.) See Berko v. SEC, 316 F.2d 137, 141-142 (2 Cir. 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. Feb. 26, 1968). at 295 (emphasis supplied), that the draftsmen "exercised reasonable business judgment under the circumstances," 258 F.Supp. 78u(e), against Texas Gulf Sulphur Company (TGS) and several of its officers, directors and employees, to enjoin certain conduct by TGS and the individual defendants said to violate Section 10(b) of the Act, 15 U.S.C. View syllabus [LGST 2020-8020 s2023 v.4] (1).pdf from LGST 2020 at University of Pennsylvania. As has been well said, of a situation where time pressures and consequent risks were less, "One source of perplexity as to the appropriate bounds of the civil remedy for misleading [867] filings is that any remedy imposed against the issuer itself is indirectly imposed on all holders of the common stock, usually the most important segment of the total category of investors intended to be protected." at 288. 1964) (Trust company alleged to be a participant in a fraudulent scheme whereby loans were made to plaintiff by [888] a factor who converted the stock when it was pledged as collateral for the loan. Thank you. This action was commenced in the United States District Court for the Southern District of New York by the Securities and Exchange Commission (the SEC) pursuant to Sec. "[13] Roche, a Canadian broker whose firm specialized in mining securities, characterized the [851] importance to investors of the results of K-55-1.
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