#2- What is your assessment of the Texas Gulf Sulphur press release of April 12? In summary, therefore, we affirm the finding of the court below that appellants Richard H. Clayton and David M. Crawford have violated 15 U.S.C. The Ever-Changing Scope of Insider Trading Liability for Tippees in the 2Andrew Beattie, "Top 4 Most Scandalous Insider Trading Debacles . So recent has been the discovery, and so urgent the effort to accelerate the drill program (four machines have been moved in since the discovery hole was completed), that assays have been completed on only the discovery. We analyze not only the published opinions in Texas Gulf Sulphur, but also the judges' internal memoranda. This assumption raises the question of what is material and who is to make such a determination. By May 15, TGS stock was selling at 58. This hole was drilled westerly at an angle of 60 and was intended to explore mineralization beneath K-55-1. While that term is a word of art in the mining trade used to describe "a property where there is no assurance, from the information known, that a commercially mineable ore body exists" [Pennebaker], its technical definition is no different from the definition in common use. See SEC v. Electrogen Industries, Inc., 68 Civ. 1965), appeal pending; Gann v. BernzOmatic, 262 F.Supp. If a fraud of this kind may ever be cured by ratification, compare Continental Securities Co. v. Belmont, 206 N.Y. 7, 99 N.E. [25] TGS relies [858] on the holding of the court below that "The issuance of the release produced no unusual market action" and "In the absence of a showing that the purpose of the April 12 press release was to affect the market price of TGS stock to the advantage of TGS or its insiders, the issuance of the press release did not constitute a violation of Section 10(b) or Rule 10b-5 since it was not issued `in connection with the purchase or sale of any security'" and, alternatively, "even if it had been established that the April 12 release was issued in connection with the purchase or sale of any security, the Commission has failed to demonstrate that it was false, misleading or deceptive." Insider Trading If you decide to report an employer to a governmental entity for violating the law, you are a (n) ________. 824, 839-44 (1965); Note, 63 Mich.L.Rev. To Catch a Thief: The Misappropriation Theory and Securities Fraud 78u(e), a permanent injunction restraining the issuance of any further materially false and misleading publicly distributed informative items.[26]. silver. In addition 16(a), 15 U.S.C. 1960) (Accountants allegedly induced corporation to go through with a merger (a securities transaction) by preparing false financial statements and making other misrepresentations). Counsel, David Ferber, Sol., Roger S. Foster, Sp. The group included defendant Holyk, TGS's chief geologist, defendant Clayton, an electrical engineer and geophysicist, and defendant Darke, a geologist. The Missing Link Between Insider Trading and Securities Fraud I do not agree on the remand of the issue with respect to Stephens and Fogarty as recipients of stock options. 1966), and cases cited in footnote 11 supra. 80, 17 L.Ed.2d 70 (1966); see also SEC v. R. A. Holman & Co., 366 F.2d 456, 457-458 (2 Cir. at 288. The occurrences out of which this litigation arose are not set forth hereafter in as detailed a manner as they are set out in the published opinion of the court below, but are stated sufficiently, we believe, for the exposition of the issues raised by the several appeals to us. On Friday, November 8, when the drilling began, the stock closed at 17 3/8 on Friday, November 15, after K-55-1 had been completed, it closed at 18. 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. Stock Exchange Regulation, Hearings before the House Committee on Interstate and Foreign Commerce, 73rd Cong., 2d Sess. 13 (1934); S.Rep.No. The market opened at 30 1/8 on the 13th (when the release became public) and closed at 30 7/8 scarcely a sign of public pessimism. FROM Gulf Sulphur autumn (TGS) of 1963 through bought their - JSTOR Ethics, Markets, and the Legalization of Insider Trading In discussing Rule 10b-5 Cohen expressed concern which, as a result of the majority opinion, seems to have been well founded, that Rule 10b-5 would be given an "unwarranted" extension. And, by 7:00 A.M. on Sunday, April 10, eight hours before the release was issued to the press, 77.9% of the drilling in mineralization had been completed, 84.4% by 7:00 P.M. on the 12th, and 90.2% by 7 A.M. on April 13. An official detailed statement, announcing a strike of at least 25 million tons of ore, based on the drilling data set forth above, was read to representatives of American financial media from 10:00 A. M. to 10:10 or 10:15 A. M. on April 16, and appeared over Merrill Lynch's private wire at 10:29 A. M. and, somewhat later than [847] expected, over the Dow Jones ticker tape at 10:54 A. M. Between the time the first press release was issued on April 12 and the dissemination of the TGS official announcement on the morning of April 16, the only defendants before us on appeal who engaged in market activity were Clayton and Crawford and TGS director Coates. On November 8, 1963, TGS, selecting the most promising area of the one-quarter section then controlled by it, referred to as Kidd 55, drilled an exploratory hole, 1 1/8 inches in diameter. (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. 521, 53 L.Ed. Insider trading is termed illegal when one uses a company's confidential stock price information for personal gains. 262, 267 n. 1 (1966), some of which may involve this issue, we should explicate more clearly why, despite the principle that a violation of the securities laws or regulations generally gives rise to a private claim for damages, see J. I. [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. Throughout this litigation TGS has supported the legality of the actions of all the defendants the company's counsel having represented, among others, Stephens, Fogerty and Kline. Visual estimates revealed an average content of 0.82% copper and 4.2% zinc over a 525-foot section. 598 (S.D.N.Y.1966), Howard v. Levine, 262 F.Supp. In TGS, the court starts from the position that insiders, as fiduciaries, have an obligation not to use the corporation's information for their personal benefit. Jan. 24, 1968); Howard v. Levine, 262 F.Supp. at 294. 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. The hole was concealed and a barren core was intentionally drilled off the anomaly. 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. The speculators and chartists of Wall and Bay Streets are also "reasonable" investors entitled to the same legal protection afforded conservative traders. At that time drill holes K-55-1, K-55-3 and K-55-4 had been completed; drilling of K-55-5 had started on Section 2200 S and had been drilled to 97 feet, encountering mineralization on the last 42 feet; and drilling of K-55-6 had been started on Section 2400 S and had been drilled to 569 feet, encountering mineralization over the last 127 feet." The majority read the record as conclusively establishing "that knowledge of the results of the discovery hole, K-55-1, would have been important to a reasonable investor and might have affected the price of the stock." And, of course, as we have already emphasized, a corporation's misleading material statement may injure an investor irrespective of whether the corporation itself, or those individuals managing it, are contemporaneously buying or selling the stock of the corporation. 239, 243 (SDNY 1962). Fighting insider trading is clearly at the top of law enforcement's agenda. [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. The Texas Lawbook Free Speech, Due Process and Trial by Jury Appellate Bankruptcy Commercial Litigation Corp. Deal Tracker/M&A GCs/Corp. And, I concur in as much as Part II of Judge Friendly's opinion as discusses the origins of the rule and the relevance of today's decision involving only an application by the S.E.C. It requires no imagination to venture that such announcements might well have had the "wildest" impact on the market price of TGS stock. [16] As Darke's "tippees" are not [853] defendants in this action, we need not decide whether, if they acted with actual or constructive knowledge that the material information was undisclosed, their conduct is as equally violative of the Rule as the conduct of their insider source, though we note that it certainly could be equally reprehensible. See S.Rep.No.792, 73rd Cong., 2d Sess. 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. 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. See Berko v. SEC, 316 F.2d 137, 141-142 (2 Cir. 1271, 1278-80 (1965). 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. at 284, that Darke, after the drilling of K-55-1 had been completed and with detailed knowledge of the results thereof, told certain outside individuals that TGS "was a good buy." US 11th Circuit Opinions and Cases | FindLaw Co., 259 F.Supp. 9 (1934); S.E.C., Tenth Annual Report 50 (1944).
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