), cert. [27] It does not appear to be unfair to impose upon corporate management a duty to ascertain the truth of any statements the corporation releases to its shareholders or to the investing public at [862] large. at 296, and that the release was not "misleading or deceptive on the basis of the facts then known," 258 F.Supp. Consequently, I agree with the majority in giving the Board's action no weight here. The trial court did not find it necessary to decide whether TGS exercised such diligence and has not yet attempted to resolve this issue. See List v. Fashion Park, Inc., 340 F.2d 457, 461-62 (2 Cir. [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. 3844 (Oct. 8, 1957). Hindsight, however, is not the test. 78j(b) and Rule 10b-5, and remand, pursuant to the agreement of all the parties, for a determination of the appropriate remedy. at 296. SEC v. Torr, 87 F.2d 446 (2 Cir. [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. ", The specific relief the SEC seeks is, pursuant to Section 21(e) of Securities Exchange Act of 1934, 15 U.S.C. Knowing that the nature and extent of this prospect could not be measured until further exploration was conducted and that further exploration had to await additional land acquisition they could have made no announcement as was the case here. University of Michigan Law School University of Michigan Law School 1968), where corporate insiders bought stock BEFORE the company announced the discovery of the largest silver ore deposit in North America. This hole was drilled westerly at an angle of 60 and was intended to explore mineralization beneath K-55-1. While we have often said that "a cessation of the alleged objectionable activities by the defendant in contemplation of an SEC suit will not defeat the district court's power to grant an injunction restraining continued activity," SEC v. Boren, 283 F.2d 312 (2 Cir. During the course of that project, the courts developed a complex, fraud-based approach to determining the scope of liability. 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. A definite statement "to clarify" was promised in the future. In any event, the permissible timing of insider transactions after disclosures of various sorts is one of the many areas of expertise for appropriate exercise of the SEC's rule-making power, which we hope will be utilized in the future to provide some predictability of certainty for the business community. The final question to be answered is: were these officers and employees disqualified as the result of possessing information gleaned by the first drill core from purchasing TGS stock? Significantly, however, the court below, while relying upon what these defense experts said the defendant insiders ought to have thought about the worth to TGS of the K-55-1 discovery, and finding that from November 12, 1963 to April 6, 1964 Fogarty, Murray, Holyk and Darke spent more than $100,000 in purchasing TGS stock and calls on that stock, made no finding that the insiders were motivated by any factor other than the extraordinary K-55-1 discovery when they bought their stock and their calls. In, "Securities and Exchange Com'n v. Texas Gulf Sulphur Co.". I am unimpressed with the argument that Stephens, Fogarty and Kline could not perform this duty on the peculiar facts of this case, because of the corporate need for secrecy during the land acquisition program. Yet the requirement of hourly bulletins to the press from the conference room would not be compatible with common [876] sense. If the facts are to be reappraised by an appellate court, they should be measured mutatis mutandis in accordance with the standard set for himself by an experienced and learned trial judge who stated his approach in a case charging directors with wrongdoing, as follows: More, specifically, the Court in Marco said: The Securities and Exchange Commission (referred to as the "SEC" and "Commission"), as an agency of government, has the responsibility of prosecuting persons who, and corporations which, in its judgment have violated laws which the Congress has enacted for the praiseworthy purpose of protecting the public from securities frauds. 180 (S.D.N.Y. Vine v. Beneficial Finance Co., 374 F.2d 627 (2d Cir. There is another group that is conceivably hurt by insider trading: the quasi-insiders known as stock market professionalsinvestment bankers, stock analysts, arbitrageurs, hedge fund managers, portfolio managerswho acquire public and nonpublic corporate information in the course of their work. The President, Claude O. Stephens, the Executive Vice-President, Charles F. Fogarty, and the Exploration Vice President, Richard D. Mollison, were notified, and Fogarty and Mollison flew to the drill site. 77q(a), provides that it "shall be unlawful for any person in the offer or sale of any securities" to engage in fraudulent activity. c. bribery. The scope and stringency of the violation and penalties differ wildly from country to country. A remand on this point is therefore not justified. 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. 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. 78o(c) (5), 78s(a) (4)). 261 (S.D.N.Y. These individuals thereafter acquired TGS stock and calls. at 296. 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. To Catch a Thief: The Misappropriation Theory and Securities Fraud 193, 90 L.Ed. 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. [30] [866] Since that issue is not before us, I merely make the reservation of my position clear. 1963); SEC v. Capital Gains, etc., Bureau, 375 U.S. 180, 193, 84 S.Ct. 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. Jun 2013 - Jun 20152 years 1 month. 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. Visual estimates indicated an average content of 1.14% copper and 8.24% zinc. 406. [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. 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." How Insider Trading Regulations Help to Ensure Fairness in the 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. Insider trading is a crime through judicial interpretation of the Securities Exchange Act of 1934. 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. Transactions in Shares: Rule 10b-5, Insider Trading and Securities Fraud. This requirement is explicit in 10(b) of the Act (15 U.S.C. 78j(b) and Rule 10b-5, and remand, pursuant to the agreement by all the parties, for a determination of the appropriate remedy. Therefore, it would seem elementary that the Commission has a duty to police management so as to prevent corporate practices which are reasonably likely fraudulently to injure investors. Find many great new & used options and get the best deals for Postcard Railroad Train Texas Beaumont TX Gulf Sulphur Company 1970s Chrome at the best online prices at eBay! The statement was released Sunday afternoon and Mollison and Holyk were asked "to return to Timmins as promptly as possible and to move things along." 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. The Moral Problem in Insider Trading - University of Pennsylvania 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." by Brian JM Quinn ANNOTATION DISPLAY The following case, Texas Gulf Sulphur is an early federal insider trading case. 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. 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. Rule 10b-5, 17 CFR 240.10b-5, on which this action is predicated, provides: Rule 10b-5 was promulgated pursuant to the grant of authority given the SEC by Congress in Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. Mr. Justice Goldberg noted in SEC v. Capital Gains Research Bureau, 375 U.S. 180, 193, 84 S.Ct. [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 Berko v. SEC, 316 F.2d 137, 141-142 (2 Cir. The trial court stated only 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 approach has led, in many cases, to doctrinal uncertainty, a result that is reflected in the recent . 77l(2) "* * * [offers or] sells a security by means of * * *"; 17(a), 15 U.S.C. (2) As to Murray, we affirm the dismissal of the complaint. This insider trading activity, which surely constitutes highly pertinent evidence and the only truly objective evidence of the materiality of the K-55-1 discovery, was apparently disregarded by the court below in favor of the testimony of defendants' expert witnesses, all of whom "agreed that one drill core does not establish an ore body, much less a mine," 258 F.Supp. See also 9(a) (4), 15(c) (1), (2), 15 U.S. C. 78i(a) (4); 78o(c) (1), (2). Similarly 17(a) of the 1933 Act, 15 U.S.C. (7) As to Clayton, although the district judge did not specify that the complaint be dismissed with respect to his purchases of TGS stock before April 9, [843] 1964, such a dismissal is implicit in his treatment of the individual appellees who acted similarly. A close reading of 18 will demonstrate that a plaintiff proceeding under that section (as opposed to 10(b)) does not have to show that the misleading statement was issued by a person [or corporation] who engaged or participated in a securities transaction or even that the misstatement was intended to influence securities transactions as part of some fraudulent scheme. An insider's duty to disclose information or his duty to abstain from dealing in his company's securities arises only in "those situations which are essentially extraordinary in nature and which are reasonably certain to have a substantial effect on the market price of the security if [the extraordinary situation is] disclosed." S.E.C. And there are impressive, strong sections within this width which in themselves are quite spectacular. 1966) (dictum); Heit v. Weitzen, 260 F.Supp. Texas Gulf Sulphur is mostly known today for transforming insider trading law, but the judges of the Second Circuit hearing that case struggled more with the question of corporate liability. I do not think there is any objection to that kind of a clause. Texas Gulf Sulphur 1 in transforming insider trading law. The Wild World Of Biotech Insider Trading | Seeking Alpha At this time, neither the TGS Stock Option Committee nor its Board of Directors had been informed of the results of K-55-1, presumably because of the pending land acquisition program which required confidentiality. 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. 9323 stated: Section 10(b) of the Act (see footnote 8, supra) was taken by the Conference Committee from Section 10(b) of the proposed Senate bill, S. 3420, and taken from it verbatim insofar as here pertinent. The Harvard Law School Forum on Corporate Governance | Contributors Id. 9-10 (1933). 249, 255 (1973), citing Texas Gulf Sulphur, 401 F.2d at 854. The case was tried at length before Judge Bonsal of the Southern District of New York, sitting without a jury. . Export Reading mode BETA. The "large anomaly" did not suggest "an extensive region of mineralization" and furthermore TGS did not own or control it in any event. 824, 839-44 (1965); Note, 63 Mich.L.Rev. 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. at 293. We will shortly be exploring this issue in the in banc consideration of Schoenbaum v. Firstbrook, 2 Cir., 405 F.2d 215. cases. 521, 53 L.Ed. Of course there would be but one answer: It could not. What's Insider Trading? The Texas Gulf Sulphur Case In Dirks v. SEC, 463 U.S. 646, 662, 103 S.Ct. [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. H.R.Rep.No. Business Quiz 5 Flashcards | Quizlet The derivation of Rule 10b-5 is peculiar. Standard Shipping (eBay Standard Envelope for Trading Cards, Stamps, Postcards & Coins up to $20) The Second Circuit . 26 (SD NY 1964); but see, e. g., Weber v. C. M. P. Corp., 242 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. The article also stated that the richness of the copper was so great that the core was flown out of the country to be assayed and that four more drill rigs were scheduled to start working the following week. 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. Insider Trading And its Legal Mechanism in India - Commercial Law 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. 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. Insider Trading - Meaning, Examples, Cases, Is it Illegal? - WallStreetMojo 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. Id. 301 (SDNY 1966); Cochran v. Channing Corp., 211 F.Supp. However, this release was based on more information of significance than was available on April 10 at 7:00 p.m. The decision to issue a press release was not made until Saturday, at which point Fogarty testified it "would just be very difficult for us to try to find anyone in Timmins." 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. ), cert. Similarly, corporate officers or directors may be liable for causing their corporation to engage in securities transactions. But even he did not act on the belief that the second press release had in fact reached the market, see 258 F. Supp. 3255, 3265, 77 L.Ed.2d 911 (1983), the Court found that a tippee's duty to disclose or abstain "is derivative from that of the insider's duty," and thus a tippee is only liable under 10(b) or . syllabus LGST 2020-8020 s2023 v.4 1 .pdf - AS OF: MAR. View syllabus [LGST 2020-8020 s2023 v.4] (1).pdf from LGST 2020 at University of Pennsylvania. at 296. The Securities Act, 1933 prohibited fraud in the sale of securities. 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. The Commission in that case also stated two truisms (1) that "it is extremely important that all facts relevant to an estimate of the value of such property be disclosed," and (2) that "the judgment of the `value' of this property is dependent upon the results of exploratory work * * *." The provisions of Sections 17(a) (2) and (3) of the Securities Act of 1933, 15 U.S.C. While we certainly agree with the trial court that "in retrospect, the press release may appear gloomy or incomplete,"[28] 258 F. [863] Supp. . 78ff). v. Texas Gulf Sulphur became the first insider trading case to be litigated in federal courts in American history, making the beginning of disgorgement in S.E.C. 92,141 (S.D.N.Y. 78j(b). The case continues to receive significant scholarly attention. 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. But such a statement could be made of almost any fact related to TGS. 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. 1960), cert. 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. Such a deceptive or manipulative practice would be prohibited by 10(b) and Rule 10b-5. (1934); S. Rep.No.1455, 73rd Cong., 2d Sess. However, at the time of Texas Gulf Sulphur , it was not yet clear that insider trading was punishable as a crime. In May 2011, Raj Rajaratnam, the former head of the Galleon Group hedge fund, received an eleven-year prison sentence for insider trading, the longest ever imposed. Court decisions Much of the development of insider trading law has resulted from court decisions. ), cert. 78p(a), requires certain officers, directors and major shareholders to file reports with the Commission and the stock exchanges as to their initial holdings of stock and subsequent changes. 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). Meanwhile, drilling operations continued. . The only difference of substance between 17(a) and Rule 10b-5 is that the latter applies to purchasers as well as sellers. In the House Committee hearings on the proposed House bill, Thomas G. Corcoran, Counsel with the Reconstruction Finance Corporation and a spokesman for the Roosevelt Administration, described the broad prohibitions contained in 9(c), the section which corresponded to Section 10(b) of S. 3420 and eventually to Section 10(b) of the Act, as follows: "Subsection (c) says, `Thou shalt not devise any other cunning devices' * * *. Insider trading takes place legally every day, when corporate insiders. Short answer: Insider trading regulations are laws that aim to prevent individuals with access to non-public information from using it to trade securities, thus gaining an unfair advantage. Of course subsection (c) is a catch-all clause to prevent manipulative devices. 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. In any event if the Commission feels that its arsenal should be augmented, Congress not the courts is the proper forum for its arguments. On April 8 TGS began with a second drill rig to drill another hole, K-55-6, 300 feet easterly of K-55-1. On April 13, a previously-invited reporter for The Northern Miner, a Canadian mining industry journal, visited the drillsite, interviewed Mollison, Holyk and Darke, and prepared an article which confirmed a 10 million ton ore strike. Texas Gulf Sulphur Co. 1967. By doing so, a person acts in violation of their duties and breaches the trust of the affected parties. at 282. 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.). See Bromberg, op. However, it cannot be doubted that one of the most important purposes of the securities legislation was to prevent improper information being circulated by the issuer, and I therefore am not disposed to hold that Congress meant to deny a power whose use in appropriate cases can be of such great public benefit and do so little harm to legitimate activity. As to these eight individuals we remand so that in accordance with the agreement between the parties the Commission may notice a hearing before the court below to determine the remedies to be applied against them. 78u), and stiff criminal penalties are provided for failure to comply with the statute or rules promulgated thereunder ( 32, U.S.C. [834] [835] [836] [837] [838] [839] Philip A. Loomis, Jr., Gen. The speculators and chartists of Wall and Bay Streets are also "reasonable" investors entitled to the same legal protection afforded conservative traders. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir. 673 (N.D.Indiana 1966) (Defendant corporation allegedly aided and abetted an alleged violation of 10b-5 by its brokerage firm because of its failure to report the improper activities of said firm to the proper authorities. An attempt has been made to understand how these Indigenous laws impact the Market and how they curtail these illegal activities from it. Texas Gulf, utilizing a geological survey, was conducting mining exploration in Canada. [869] The Supreme Court made this clear beyond peradventure in the leading case of Hecht Co. v. Bowles, 321 U.S. 321, 64 S.Ct. Rep. 7327. 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." at 282-283. But in both cases the courts recognized that further factual and legal development was necessary for the proper resolution of the issue. 1934 Act, 10(b) SEC Rule 10b-5 . So far as concerns paragraphs (1) and (3), this is not very important since these are clearly within the ambit of 10(b) and relate to frauds that would give rise to civil liability in any event. Indeed, the Commission has been charged by Congress with the responsibility of policing all misleading corporate statements from those contained in an initial prospectus to those contained in a notice to stockholders relative to the need or desirability of terminating the existence of a corporation or of merging it with another. [2]The purchases by the parties during this period were: [3] A "call" is a negotiable option contract by which the bearer has the right to buy from the writer of the contract a certain number of shares of a particular stock at a fixed price on or before a certain agreed-upon date. There were several choices. Practically all TGS stock in question here was purchased between November 12, 1963 and April 8, 1964.

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