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. Therefore, the court below concluded that only directors Stephens and Fogarty, of the top management, would have violated the Rule by accepting stock options without disclosure, but it also found that they had not acted improperly as the information in their possession was not material. Consequently, although Clayton is named only as an appellant our decision with respect to the materiality of K-55-1 renders it necessary to treat him also as an appellee. On April 7, drilling of a third hole, K-55-4, 200 feet south of and parallel to K-55-1 and westerly at a 45 angle, was commenced and mineralization was encountered over 366 of its 579-foot length. Since the majority admit that Kline knew only that a hole containing favorable bodies of copper and zinc ore had been drilled in Timmins, it seems clear that he did not possess material information that had to be disclosed. 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. Of even greater relevance to the Congressional purpose of investor protection is the fact that 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. Accordingly, we hold that Rule 10b-5 is violated whenever assertions are made, as here, in a manner reasonably calculated to influence the investing public, e. g., by means of the financial media, Fleischer, supra, 51 Va.L.Rev. denied, 365 U.S. 814, 81 S.Ct. 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]. Absent any clear indication of a legislative intention to require a showing of specific fraudulent intent, see Note, 63 Mich.L.Rev. ), cert. 95 (S.D.N.Y. 4, supra, said to have received "tips" from them, purchased TGS stock or calls thereon. at 295 (emphasis supplied), that the draftsmen "exercised reasonable business judgment under the circumstances," 258 F.Supp. But disclosure of the "results", namely, preliminary visual inspection of the contents, would have violated the Commission's own rules and standards. 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. Texas Gulf Sulphur Co., 401 F.2d 833, 843 (2d Cir. And there are impressive, strong sections within this width which in themselves are quite spectacular. 193, 90 L.Ed. 1356 (1952); Hooper v. Mountain States Sec. And still deeper, a strong zinc section of better than 100 ft. averaged out to in excess of seven ounces of silver in addition to ore-grade zinc values. This paper includes a comparative overview of the difference between India's Insider trading laws and the U.S.'s Insider trading laws. 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. 1961); Royal Air Properties, Inc. v. Smith, 312 F.2d 210 (9 Cir. [2] Over time, the U.S. Supreme Court embraced some of its holdings while rejecting others. However, the importance of this case to the corporate and financial community centers around the news release, its timing and its content. 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. Meanwhile, drilling operations continued. While drilling activity ensued to completion, TGC officials were taking steps toward ultimate disclosure of the discovery. Sec. (1934); H.R.Rep.No. 78ff) provisions. Texas Gulf Sulphur Co., a federal circuit court supported the SEC's ruling, stating that anyone who has inside . Fair To All People: The SEC and the Regulation of Insider Trading That being the case, I find it unnecessary to decide whether or not Kline was in "top management.". [6]Defendant O'Neill did not appear to answer the charge against him; the SEC motion to enter a default judgment against him was denied without prejudice to its renewal upon completion of this appeal. Therefore it seems clear from the legislative purpose Congress expressed in the Act, and the legislative history of Section 10(b) that Congress when it used the phrase "in connection with the purchase or sale of any security" intended only that the device employed, whatever it might be, be of a sort that would cause reasonable investors to rely thereon, and, in connection therewith, so relying, cause them to purchase or sell a corporation's securities. The novel problem in the instant case is to define the responsibility of officers when a directors' committee administering a stock option plan proposes of its own initiative to make options available to them and others at a time when they know that the option price, geared to the market value of the stock, did not reflect a substantial increment likely to be realized in short order and was therefore unfair to the corporation. At that time approximately 2/3 of the ore ultimately found to exist by the time of the preparation of the April 16 "major strike" release had been discovered by 5 holes placed so as to indicate continuity of mineralization within the large anomaly. Id. 31, 2023 LAW OF CORPORATE MANAGEMENT AND FINANCE LGST 2020 / 8020 Spring 2023 Prof. Vince 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. These regulations vary across countries, but generally require disclosure of such information and impose penalties for violations. See 3 Loss, Securities Regulation, 1424 n. 7 (2d ed. 808, 823 (E.D.Wisc.1962) (dictum), aff'd, 319 F.2d 634 (7 Cir. 258 F. Supp. Texas Gulf Sulphur was a mother lode of legal issues. The evidence as to the effect of this release on the investing public was equivocal and less than abundant. See Stockwell v. Reynolds & Co., 252 F.Supp. Miller v. Bargain City, U. S. A., 229 F.Supp. In summary, the most disturbing aspect of the majority opinion is its utterly unrealistic approach to the problem of the corporate press release. Rep. 7327. Against this factual background, what position should have been taken by those few officers and employees of TGS [875] after they knew of the core, K-55-1, and the reports thereon made after visual inspection and analysis? Assuming the majority's and the Commission's full disclosure theory, would the facts as then developed have given the buying or selling public the so-called advantages possessed by the insiders? We hold, therefore, that all transactions in TGS stock or calls by individuals apprised of the drilling results[14] of K-55-1 were made in violation of Rule 10b-5. Question 2. It is most doubtful that Congress intended such a result, and the merits of such a change are so unexplored that Congress should certainly be consulted before making it. Of course subsection (c) is a catch-all clause to prevent manipulative devices. [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. By March 27, 1964, TGS decided that the land acquisition program had advanced to such a point that the company might well resume drilling, and drilling was resumed on March 31. N.Y.1964). 6 . If the SEC had appealed the ruling dismissing this portion of the complaint as to Holyk and Mollison, I would have upheld the dismissal quite apart from the special circumstance that a refusal on their part could well have broken the wall of secrecy it was important for TGS to preserve. The majority opinion appears to approve of the Commission's position without reservation. See S. E. C. v. Great American Industries, Inc., 259 F. Supp. (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. Several hundred of these were considered worthy of further study and options on the land around them were acquired. All the information that was available upon the completion of the drilling, November 12, 1963, was contained in a core (denominated K-55-1) which was visually examined by Dr. Walter Holyk, Chief Geologist for TGS, and by Kenneth H. Darke, a TGS geologist. The insider trading prohibition found a new home in the flexible confines of Rule 10b-5. SEC Enforcement on Insider Trading and the Dark Web The Act and the Rule apply to the transactions here, all of which were consummated on exchanges. Insider Trading - crsreports.congress.gov The companies, the securities of which are listed on exchanges, their employees and investing public alike should have some knowledge of the rules which will govern their actions. 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. The attention this case has received from the profession and our in banc consideration make it incumbent on us to give the district courts in our circuit as much guidance as we can. (1934); Comment, 74 Yale L.J. As fiduciaries, insiders have an . What specific features of the information that she obtained make her case different 557 (D.Ore.1966) (Plaintiff induced to sell his stock to the corporation for less than its true value because the defendants, stockholders and directors of the company fraudulently concealed material facts); New Park Mining Co. v. Cranmer, 225 F.Supp. 854, 94 L.Ed. We disagree. at 229-30, 100 S.Ct. 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. 14. ); but see Dack v. Shanman, 227 F.Supp. So, the trial court concluded, "There is no doubt that the drill core of K-55-1 was unusually [844] good and that it excited the interest and speculation of those who knew about it." The next day the market closed at 30. 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. While additional drilling was done on Saturday and Sunday, April 11 and 12, the cores had not been seen by the geologists advising management, and there was no way of communicating with the drill site even if someone had been available there to give a reliable appraisal. 1383, 73rd Cong., 2d Sess. No.1383. ), cert. 23 (E.D.N.Y. Commenting on the disclosure purposes of the House bill (H.R. 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. Finally, 15(c) (1), (2), 15 U.S.C. Whistleblower 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. In an enforcement proceeding for equitable or prophylactic relief, the common law standard of deceptive conduct has been modified in the interests of [855] broader protection for the investing public so that negligent insider conduct has become unlawful.