texas gulf sulphur insider trading

We disagree. See Bromberg, op. What specific features of the information that she obtained make her case different at 294, seems to have derived from its views that "The defendants are to be judged on the facts known to them when the April 12 release was issued," 258 F.Supp. 80, 17 L.Ed.2d 70 (1966); see also SEC v. R. A. Holman & Co., 366 F.2d 456, 457-458 (2 Cir. Select one: a. insider trading. However, the fact remains that 10(b) of the Securities Exchange Act was not passed to protect investors from the former type of injury, but leaves liability for such misrepresentation up to state law, which is well equipped to handle any such situation. 1965) (Broker induced plaintiff to purchase some stock and to finance the purchase through a factor without disclosing material facts concerning the risks of such a procedure. Mollison left for New York that evening, arriving on Saturday morning. To encourage compliance with these disclosure and reporting requirements, Congress enacted civil ( 18, 15 U.S.C. ), cert. 1966); United States v. Schaefer, 299 F.2d 625, 629 (7 Cir. It was both a classic false press release securities fraud case' and an insider trading case. Standard Shipping (eBay Standard Envelope for Trading Cards, Stamps, Postcards & Coins up to $20) [29] Since none of the parties has raised the question, I assume the continuing vitality of Ruckle, despite what have been regarded as contrary intimations in O'Neill v. Maytag, 339 F.2d 764 (2 Cir. See id. SEC L.Rep. Counsel, Donald M. Feuerstein, Atty., SEC, for Securities and Exchange Commission. 77q(a) (2) and (3), which are virtually identical to the provisions of Rule 10b-5(2) and (3) and were, in fact, the model therefor, see Birnbaum v. Newport Steel Corp., 193 F.2d 461, 463 (2 Cir. denied, 343 U.S. 956, 72 S. Ct. 1051, 96 L.Ed. 258 F. Supp. By 7:00 P. M. on April 15, the hole had been completed to a length of 707 feet but had only encountered additional mineralization during a 26-foot length between the 425 and 451-foot marks. This is probably an overstatement because by the time of the TGS April 16, 1964 press release, exploration had advanced to a point where an estimate of the extent of the tonnage might have been rather accurately made. at 296. [35] Of course, even if TGS were negligent in not obtaining later data, a determination must still be made that the press release was misleading in light of this later information. Free shipping for many products! 240.14a-101-103. Insider Suit Names Texas Gulf Sulphur Aides (April 20, 1965) Texas Gulf Aides Lose in S.E.C. PRIVATE RIGHTS OF ACTION 403 R A. Nevertheless, the evidence shows that he knew about and participated in TGS's land acquisition program which followed the receipt of the K-55-1 drilling results, and that on February 26, 1964 he purchased 50 shares of TGS stock. 1968). The trial court also found, 258 F.Supp. Stephens immediately contacted Fogarty at his [845] home in Rye, N. Y., who in turn telephoned and later that day visited Mollison at Mollison's home in Greenwich to obtain a current report and evaluation of the drilling progress. 2. Texas Gulf, utilizing a geological survey, was conducting mining exploration in Canada. Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. But the case stands differently as to paragraph (2). at 296. My assessment on the Texas Gulf Sulphur press release of April 12 was that due to the rumors that "a major ore strike is I the making," and the unauthorized report being published, there was an actual press release. Thus, anyone in possession of material inside information must either disclose it to the investing public, or, if he is disabled from disclosing it in order to protect a corporate confidence, or he chooses not to do so, must abstain from trading in or recommending the securities concerned while such inside information remains undisclosed. On April 16, the day of the official announcement of the Timmins discovery, the price climbed to a high of 37 and closed at 36 3/8. [24] As to Holyk and Mollison, the SEC has not appealed the holding below that they, not being then members of top management (although Mollison was a vice president) had no duty to disclose their knowledge of the drilling before accepting their options. 1961); SEC Sec.Exch.Act Rel. This is unfortunate because it has resulted in 10(b) being given a construction and significance which, in my opinion, Congress did not foresee and did not intend. The scope and stringency of the violation and penalties differ wildly from country to country. 1960), cert. The choice of an ambiguous general statement rather than a summary of the specific facts cannot reasonably be justified by any claimed urgency. denied, 394 U.S. 976 (1969). 1962); Dack v. Shanman, 227 F.Supp. The attempt to acquire the adjoining properties at reasonable prices (ultimately $52,500) and the strictures on secrecy are customary in the mining industry, especially when dealing with land of a highly uncertain value. The case offers a common insider-trading fact pattern: after a mining company discovered promising mineral depositsbut before it announced the discoveryseveral insiders bought the company's shares and options to acquire its shares. I agree with Judge Friendly, however, that we should provide guidance to the District Courts with respect to pending private claims for damages based upon Rule 10(b) (5) arising out of the transactions now before us. Several brokers testified that they interpreted the release as affirmative and encouraging. Firm Management White-Collar/Regulatory Pro Bono/Public Service/D&I Is ESG a Trade Secret? The abbreviated announcement to the Canadian press at 9:40 A.M. on the 16th by the Ontario Minister of Mines and the report carried by The Northern Miner, parts of which had sporadically reached New York on the morning of the 16th through reports from Canadian affiliates to a few New York investment firms, are assuredly not the equivalent of the official 10-15 minute announcement which was not released to the American financial press until after 10:00 A.M. Crawford's orders had been [854] placed before that. . We hold only that, in an action for injunctive relief, the district court has the discretionary power under Rule 10b-5 and Section 10(b) to issue an injunction, if the misleading statement resulted from a lack of due diligence on the part of TGS. 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. 1808, 20 L.Ed.2d 653 (May 21, 1968), I see no need for a remand on that score. Similarly 17(a) of the 1933 Act, 15 U.S.C. On Friday morning, April 10th, Mollison and Holyk visited the property and learned the results of the drilling up to that time. In the field of speculation, it would be interesting to know the position the Commission would have taken if TGS had announced that K-55-1 was "one of the most impressive drill holes completed in modern times" and that it "is just beyond your wildest imagination" (SEC Brief, p. 25). While I am not convinced that imposition of liability for damages under Rule 10b-5(2), absent a scienter requirement, even limited in the way just proposed, would not go beyond the authority vested in the Commission by 10(b) to act against "any manipulative or deceptive device or contrivance" and be so inconsistent with the general structure of the statutes as to be impermissible, it is at least clear that the April 12 press release would be the worst possible case for the award of damages for merely negligent misstatement, as distinguished from the kind of recklessness that is equivalent to wilful fraud, see SEC v. Frank, 388 F.2d 486, 489 (2 Cir. Judge Bonsal in a detailed opinion[5] decided, inter alia, that the insider activity prior to April 9, 1964 was not illegal because the drilling results were not "material" until then; that Clayton and Crawford had traded in violation of law because they traded after that date; that Coates had committed no violation as he did not trade before disclosure was made; and that the issuance of the press release was not unlawful because it was not issued for the purpose of benefiting the corporation, there was no evidence that any insider used the release to his personal advantage and it was not "misleading, or deceptive on the basis of the facts then known," 258 F.Supp. Particularly here, where a formal announcement to the entire financial news media had been promised in a prior official release known to the media, all insider activity must await dissemination of the promised official announcement. 1963) (Defendants caused plaintiff corporations, of which they were officers, to issue stock for property which was worth much less than the stock); cf. See S.Rep.No.792, 73rd Cong., 2d Sess. 77l(2) "* * * [offers or] sells a security by means of * * *"; 17(a), 15 U.S.C. Assuming arguendo that the corporation cannot be enjoined except on a showing of lack of due diligence, since Fogarty and those who assisted him in the preparation of the press release were aware of the drilling results to which the district court's finding refers, they obviously did not use due diligence [870] in the preparation of the misleading press release. ", For the defendants, Dean Forrester, Dean of the College of Mines of the University of Arizona and Director of the Arizona Bureau of Mines, said that "one hole is evidence of what you encounter only in that hole" and that even after K-55-3 was drilled in April 1964, it was "much more likely that the materials exposed in those two holes will extend for, let's say two feet outside the limits of the hole than it is likely that it will extend 25 feet or that it will extend 50 feet. I do not think there is any objection to that kind of a clause. 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." Although I see no reason why we could not affirm nevertheless, I am content to leave it for him to consider whether, although he has power to issue an injunction, there is equity in this portion of the bill. 31, 2023 LAW OF CORPORATE MANAGEMENT AND FINANCE LGST 2020 / 8020 Spring 2023 Prof. Vince (Emphasis supplied.) Assuming that the contents of the official release could instantaneously be acted upon,[18] at the minimum Coates should have waited until the news could reasonably have been expected to appear over the media of widest circulation, the Dow Jones broad tape, rather than hastening to insure an advantage to himself and his broker son-in-law.[19]. It would be unrealistic to include any of these purchases as having been made by other than the defendants, and unrealistic to include them as having been made by members of the general public receiving "tips" from insiders. They should not be forced, despite an exercise of the best judgment, to act at their peril or refrain in terrorem from acting. Texas Gulf Sulphur Co., 401 F.2d 833, 843 (2d Cir. [4]The purchases made by "tippees" during this period were: In this connection, we point out that, though several of the Holyk purchases of shares and calls made between November 29, 1963 and March 30, 1964 were in the name of Mrs. Holyk or were in the names of both spouses, we have treated these purchases as if made in the name of defendant Holyk alone. That's somewhat ironic, because the whole concept of disgorgement was initially contrived through the SEC's early insider trading successes, beginning with SEC v. Texas Gulf Sulphur in 1968 . Only a relative handful of holes has been completed since the discovery hole but on the basis of seven tests either completed or drilling it can be stated that a strike length of 600 ft. minimum has been established, showing an ore width of roughly 300 ft. which has been traced so far to a maximum vertical depth of about 800 ft. The Second Circuit embraced the SEC's view that this conduct violated Rule 10b-5. Kline had known since November 1962 that K-55-1 had been drilled, that the drilling had intersected a sulphide body containing copper and zinc, and that TGS desired to acquire adjacent property. 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. Between April 12 and April 15 five additional holes had been drilled, K-55-5, 6, 7, 8 and 10 and by April 15 at 7:00 p. m. 5198 feet of core had been drilled compared with 2776 feet on April 10. We do not believe that Congress intended that the proscriptions of the Act would not be violated unless the makers of a misleading statement also participated in pertinent securities transactions in connection therewith, or unless it could be shown that the issuance of the statement was motivated by a plan to benefit the corporation or themselves at the expense of a duped investing public. 1967); we should not impose such expansive liability in a situation, markedly different from those considered in the cases just cited, where to do so would frustrate, not further, the larger goals of the securities laws. Section 12 of the Act, 15 U.S.C. 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. denied, 385 U.S. 835, 87 S.Ct. 1271, 1289. Insiders, as directors or management officers are, of course, by this Rule, precluded from so unfairly dealing, but the Rule is also applicable to one possessing the information who may not be strictly termed an "insider" within the meaning of Sec. Clayton ordered 200 shares of TGS stock through his Canadian broker on April 15 and the order was executed that day over the Midwest Stock Exchange. 1968). 1945). 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. Since I believe that the findings of the trial court are solidly founded and should be respected, I agree with its decision as to Crawford and Clayton. ); Thiele v. Shields, 131 F.Supp. His awareness of the contents of the April 12 release renders unreasonable any claim that he believed the news was truly public. [1] The complaint alleged (1) that defendants Fogarty, Mollison, Darke, Murray, Huntington, O'Neill, Clayton, Crawford, and Coates had either personally or through agents purchased TGS stock or calls thereon from November 12, 1963 through April 16, 1964 on the basis of material inside information concerning the results of [840] TGS drilling in Timmins, Ontario, while such information remained undisclosed to the investing public generally or to the particular sellers[2]; (2) that defendants [841] Darke and Coates had divulged such information to others for use in purchasing TGS stock or calls[3] or recommended its purchase while the information was undisclosed to the public or to the sellers;[4] that defendants Stephens, Fogarty, [842] Mollison, Holyk, and Kline had accepted options to purchase TGS stock on Feb. 20, 1964 without disclosing the material information as to the drilling progress to either the Stock Option Committee or the TGS Board of Directors; and (4) that TGS issued a deceptive press release on April 12, 1964. 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. But in both cases the courts recognized that further factual and legal development was necessary for the proper resolution of the issue. ), cert. 56-7 (1944); 8 SEC Ann.Rep. WASHINGTON, Dec. 20 (AP) The Texas Gulf Sulphur Com pany and nine officials and em ployes were denied a hearing today by the Supreme Court in a case that may set a precedent governing tha. The trial court also found that later, as of March 30, 1964, Darke not only used his material knowledge for his own purchases but that the substantial amounts of TGS stock and calls purchased by these outside individuals on that day, see footnote 4, supra, was "strong circumstantial evidence that Darke must have passed the word to one or more of his `tippees' that drilling on the Kidd 55 segment was about to be resumed." 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. 4, supra, said to have received "tips" from them, purchased TGS stock or calls thereon. "Securities and Exchange Com'n v. Texas Gulf Sulphur Co.". In summary, the most disturbing aspect of the majority opinion is its utterly unrealistic approach to the problem of the corporate press release. at 294. As to Stephens and Fogarty, the majority decision places insider recipients of stock options in a difficult dilemma. 1961). The majority remand for a determination of the effect of the April 12 release on a reasonable investor because "they cannot `definitively conclude that it was deceptive or misleading to the reasonable investor, or that he would have been misled by it.'" If, as the majority say, the test of the news release is its impact on the "reasonable" investor (although they indicate that the unreasonable speculator, too, comes under their solicitous wing) to avoid the danger of injunction violation it would be necessary to seek a declaratory judgment from the courts (both trial and appellate because following the majority, Rule 52(a) would no longer apply). The testimony was unanimous that no estimate of "magnitude" could be made. The SEC sought rescission of these options. 3844 (Oct. 8, 1957). 106 (S.D.N.Y. Absent any clear indication of a legislative intention to require a showing of specific fraudulent intent, see Note, 63 Mich.L.Rev. at 287, is well documented by the record. Forthcoming: 42 Quinnipiac Law Review (2023) (Symposium Issue), SMU Dedman School of Law Legal Studies Research . The remedy of a permanent injunction against the company, its officers and agents, the issuance of which the majority leaves to the discretion of the trial court, would not only be inappropriate but would be destructive of fundamental rights "inappropriate" because based upon one "too-gloomy" press release on April 12, 1964, with no proof of continuing gloominess thereafter. Tager v. SEC, 344 F.2d 5, 8 (2 Cir. Visual estimates revealed an average content of 0.82% copper and 4.2% zinc over a 525-foot section. c. bribery. We analyze not only the published opinions in Texas Gulf Sulphur, but also the judges' internal memoranda. Roche, a mining stock specialist, added that mines with significantly lower percentages of copper and with no zinc or silver, as here, were profitably operated. silver. If press releases have to read like prospectuses to guard against possible 10b-5 liability, it is safe to predict that they will quickly fall out of favor with corporate management. 1967) (Corporation fraudulently arranged a merger so that one class of shareholders would receive much less than the other class which was comprised of officers and directors. We point out, nevertheless, that the surrender of these options after the SEC commenced the case is not a satisfaction of the SEC claim, and a determination as to whether the issuance of injunctions against Stephens and Fogarty is advisable in order to prevent or deter future violations of regulatory provisions is remanded for the exercise of discretion by the trial court. 1964)." 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. at 1115 (citing SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir.1968)). N.Y.1966), where it said: The conservative (and in my opinion proper) approach of the Commission in Great American is reflected in its statement that "The ore content of a property is never `known' until the ore has been completely removed and the minerals separated." This core was unusually good in mineral content. 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. 2, supra, and persons listed in fn. Fair To All People: The SEC and the Regulation of Insider Trading The SEC Takes Command Texas Gulf Sulphur The opportunity to extend that administrative rule to the common law would be mined in the financial transactions surrounding the discovery of copper and zinc ore in deposits owned by the Texas Gulf Sulphur Company near Timmins, Ontario. at 282-283. To go further than this, as [868] Professor Loss powerfully argues, Securities Regulation at 1785, would totally undermine the carefully framed limitations imposed on the buyer's right to recover granted by 12(2) of the 1933 Act. 1959), relative to an interpretation of the words contained within a congressional statute, that "* * * unless they explicitly forbid it, the purpose of a statutory provision is the best test of the meaning of the words chosen. Appellant Crawford, who ordered[17] the purchase of TGS stock shortly before the TGS April 16 official announcement, and defendant Coates, who placed orders with and communicated the news to his broker immediately after the official announcement was read at the TGS-called press conference, concede that they were in possession of material information. TGS could have announced by November 15, 1963 that it had completed a first exploratory hole, the core of which by visual examination revealed over a length of 599 of 655 feet drilled, an average copper content of 1.15%, zinc 8.64% or, had TGS waited until mid-December, by chemical analysis 1.18% copper, 8.26% zinc and 2.94% ounces of silver per ton; that TGS would try to acquire the other three-quarters of the segment unless the announcement boosted prices to unwarranted heights; that if the property could be acquired further exploratory holes would be drilled to ascertain the nature and extent, if any, of the ore body; that reports of developments would be made from time to time but that the SEC had indicated that TGS should advise its stockholders and the public that there was no proof as yet that a body of commercial ore exists on the property. More important, however, is the realization which we must again underscore at the risk of repetition, that the investing public is hurt by exposure to false or deceptive statements irrespective of the purpose underlying their issuance. I concur in Judge Waterman's majority opinion and I concur in the discussion of law set forth in Part II of Judge Friendly's concurring opinion. Primarily, our task should be to review errors of law. 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. Here the trial court had an opportunity not only to hear the qualifications of the experts but also from their demeanor and responses to form its opinion as to their credibility. In SEC v. Texas Gulf Sulphur Co. (1966), a federal circuit court stated that anyone in possession of inside . 21 (S.D.N.Y. Thus it is immaterial whether Crawford's orders were executed before or after the announcement was made in Canada (9:40 A.M., April 16) or in the United States (10:00 A.M.) or whether Coates's order was executed before or after the news appeared over the Merrill Lynch (10:29 A.M.) or Dow Jones (10:54 A.M.) wires. That insider can be held liable by trading in the denied, 394 U.S. 976 (1969). 78j reads in pertinent part as follows: 78j. Gen. When and how are promising results to be disclosed. Crawford points to the scattered rumors of the discovery which had been circulating for some time before April 15, to the release of the information to The Northern Miner on April 15 to be published by it on the 16th, to the arrangement made by TGS with the Ontario Minister of Mines for the release of an abbreviated report on the evening of the 15th (which did not eventuate until 9:40 A.M., April 16), and to the corporation's official announcement at 10:00 A.M. on the 16th, all of which transpired prior to an anticipated execution of his purchase orders that had been placed by him after trading had closed on the Midwest Exchange on April 15. LaThis article found in the Wall Street Journal applies to insider trading. 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." 258 F.Supp. Following a visit to the discovery property, The Northern Miner can say that a major new zinc-copper-silver mine is definitely in the making, one that has all the earmarks of shaping into a substantial open pit operation. 1965) (Plaintiffs retained stock in a company solely because a broker misrepresented or failed to disclose certain material facts. Drilling of the initial hole, K-55-1, at the strongest part of the anomaly was commenced on November 8 and terminated on November 12 at a depth of 655 feet.

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