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. In March of 1959, aerial geophysical surveys were conducted over more than 15,000 square miles of this area by a group led by defendant Mollison, a mining engineer and a Vice President of TGS. If we were writing on a clean slate, I would have some doubt whether the framers of the Securities Exchange Act intended 10b to provide a remedy for an evil that had long been effectively handled by derivative actions for waste of corporate assets under state law simply because in a particular case the waste took the form of a sale of securities. Ellis v. Carter, 291 F.2d 270, 272-274 (9th Cir. The Exchange Act was passed after the 1929 stock market crash with the intent, in part, to restore public trust in the markets. Corp., 188 F.2d 783, 787 n. 2 (2 Cir. 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. It was both a classic false press release securities fraud case' and an insider trading case. [9] Congress intended by the Exchange Act to eliminate the idea that the use of inside information for personal advantage was a normal emolument of corporate office. TGS decided to acquire the surrounding plots in the Kidd 55 area to enable it fully to investigate the anomaly. JM Quinn B, "SEC v Texas Gulf Sulphur" (SEC v Texas Gulf Sulphur . But such a statement could be made of almost any fact related to TGS. S.E.C. Texas Gulf Sulphur Co., 401 F. 2d 833 (2d Cir. The High Powered Committee on Stock Exchange Reforms, 1986 (Ch. at 295, and in assuming that disclosure of the full underlying facts of the Timmins situation was not a viable alternative to the vague generalities which were asserted. Thomas Conradt and David Weishaus bought shares of SPSS Inc. after illegally discovering about their near future acquisition of IBM. 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. 78j (b) and Rule 10b-5; we reverse the judgment order entered below dismissing the complaint against appellees Charles F. Fogarty, Richard H. Clayton, Richard D. Mollison, Walter Holyk, Kenneth H. Darke, Earl L. Huntington, and Francis G. Coates, as we find that they have violated 15 U.S.C. See Fischman v. Raytheon Mfg. Therefore, when materially misleading corporate statements or deceptive insider activities have been uncovered, the courts, as they should, have broadly construed the statutory phrase "in connection with the purchase or sale of any security." I do not agree on the remand of the issue with respect to Stephens and Fogarty as recipients of stock options. 1962); Kohler v. Kohler Co., 208 F.Supp. The trial court, accepting the Commission's experts' version, fixed 7:00 p.m. on April 9, 1964 as the time when TGS had material information which "if disclosed, would have had a substantial impact on the market price of TGS stock" but also found that "the drilling results up to 7:00 p.m. on April 9th did not provide such material information." Finally, a major factor in determining whether the K-55-1 discovery was a material fact is the importance attached to the drilling results by those who knew about it. It stated in part: The majority offer suggestions for improving the press release, but, as their editorial skills and present appraisal of the then mining situation were not available when it was drafted, the relevant issue is whether the District Court was in error in determining that the release was accurate and not misleading. Of course there would be but one answer: It could not. Rep. 7327. Otherwise, insiders would be able to "beat the news," cf. 258 F.Supp. In all of the above cases the defendants, unlike the defendant here, were clearly participants in a securities transaction and were guilty of or responsible for deceptive activities of which the securities transaction was an integral part. Absent much clearer language than is found in the 1934 Act, the entitlement of a plaintiff to an injunction thereunder remains subject to principles of equitable discretion. A rule requiring a minor officer to reject an option so tendered would not comport with the realities either of human nature or of corporate life. 1968) (en banc). 258 F. Supp. 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. Visual estimates revealed an average content of 0.82% copper and 4.2% zinc over a 525-foot section. 853 (1909), the Rule is based in policy on the justifiable expectation of the securities marketplace that all investors trading on impersonal exchanges have relatively equal access to material information, see Cary, Insider Trading in Stocks, 21 Bus.Law. As to Stephens and Fogarty, the majority decision places insider recipients of stock options in a difficult dilemma. contemporaneous assessments of early insider trading law include William Cary, Insider Trading in Stocks, 21 Bus. Mollison and Holyk expected it to be released over the airways at 11 P. M. on April 15th, but, for undisclosed reasons, it was not released until 9:40 A. M. on the 16th. 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. 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. In Dirks v. SEC, 463 U.S. 646, 662, 103 S.Ct. 78o(c) (5), 78s(a) (4)). Additional testimony revealed that the prices of stocks of other companies, albeit less diversified, smaller firms, had increased substantially solely on the basis of the discovery of good anomalies or even because of the proximity of their lands to the situs of a potentially major strike. What specific features of the information that she obtained make her case different 274 (S.D.N.Y. Holyk left for New York Saturday morning and arrived that same day. The District Court correctly found that "the issuance of the release produced no unusual market action." Fogarty, an executive vice president of Texas Gulf, knew that the company had discovered a rich mineral lode in Ontario that it could not publicize before concluding leases for mineral rights. Contrast such a statement with the April 12, 1964 release so criticized by the Commission. The classical insider trading scheme, in which an insider (officer or director) at a public company trades in his company's stock while in possession of material non-public information SEC v.. The majority disagree as to Kline, placing him in top management along with Stephens and Fogarty, and holding that he had sufficient knowledge that his non-disclosure violated Rule 10b-5. Before LUMBARD, Chief Judge, and WATERMAN, MOORE, FRIENDLY, SMITH, KAUFMAN, HAYS, ANDERSON and FEINBERG, Circuit Judges. However, this release was based on more information of significance than was available on April 10 at 7:00 p.m. 1009 (1965) and Arthur Fleischer, Jr., Securities Trading and Corporate Information Practices: The Implications of the Texas Gulf Sulphur Proceeding, 51 Va. L. Rev. 1097 (1950): No more is it for this court to make an independent essay of the evidence or of the core. (Ibid.) The foregoing discussion demonstrates that Congress intended to protect the investing public in connection with their purchases or sales on Exchanges from being misled by misleading statements promulgated for or on behalf of corporations irrespective of whether [861] the insiders contemporaneously trade in the securities of that corporation and irrespective of whether the corporation or its management have an ulterior purpose or purposes in making an official public release. The drilling done to date has not been conclusive but the statements made by many outside quarters are unreliable." All of these statements were inaccurate and a matter of concern to Fogarty and Stephens. 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. 1383, 73rd Cong., 2d Sess. 26 (S.D. 695, 5 L.Ed.2d 693 (1961), apply criminal penalties to sellers only (Rule 10b-5 was promulgated to fill this gap in enforcement, SEC Ann.Rep. Texas Gulf Sulphur Co., a federal circuit court supported the SEC's ruling, stating that anyone who has inside . 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. 301 (SDNY 1966); Cochran v. Channing Corp., 211 F.Supp. Texas Gulf Sulphur Co. 1967. After a slight decline to 16 3/8 by Friday, November 22, the price rose to 20 7/8 by December 13, when the chemical assay results of K-55-1 were received, and closed at a high of 24 1/8 on February 21, the day after the stock options had been issued. 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." (1934). Once it had been established, however, that an aggrieved buyer has a private action under 10(b) of the 1934 Act, there seemed little practical point in denying the existence of such an action under 17 with the important proviso that fraud, as distinct from mere negligence, must be alleged. But disclosure of the "results", namely, preliminary visual inspection of the contents, would have violated the Commission's own rules and standards. 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. By-passing momentarily the general knowledge possessed by the officers of TGS as to the far-flung nature of the company's operations, its heavy concentration in the sulphur field, its non-engagement in the field of copper mining, the adverse effect which low sulphur prices had had for many years on the company's earnings despite substantial sales and focusing attention solely upon the Timmins property, the participants in that exploration and the knowledge available to them, I find no factual disputes of importance. It, too, was drilled at the anomaly's eastern edge. 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. The provisions of Sections 17(a) (2) and (3) of the Securities Act of 1933, 15 U.S.C. K-55-10 was drilled westerly at a 45 angle commencing April 14 and had encountered mineralization over 231 of its 249-foot length by the evening of April 15. With reference to Huntington, the trial court found that he "had no detailed knowledge as to the work" on the Kidd-55 segment, 258 F.Supp. at 293, the intent of the Securities Exchange Act of 1934 is the protection of investors against fraud. at 293. 854, 94 L.Ed. The next morning the 137 foot mark had been reached, fifty feet of which showed mineralization. 754 (1944). Despite rumors in the Canadian press that TGS had made a major discovery, Lamont had advised Stephens "that TGS should take no action unless the rumors reached the New York press or until TGS had sufficient information available to issue an appropriate press release." I concur in Judge Waterman's reasoned and thorough opinion and in the court's disposition of the instant appeal. 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. 99 (S.D.N.Y.1966), appeal pending; Heit v. Weitzen, 260 F.Supp. We have recently stated in a case involving a private suit under Rule 10b-5 in which damages and an injunction were sought, "`It is not necessary in a suit for equitable or prophylactic relief to establish all the elements required in a suit for monetary damages.'" Texas Gulf Sulphur Co. Such a fact is a material fact and must be effectively disclosed to the investing public prior to the commencement of insider trading in the corporation's securities. 258 F.Supp. SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. Thus, even if TGS or its insiders had not engaged in securities transactions, if there were evidence from which it could be inferred that the press release was intentionally issued to depress the price of the stock as part of some fraudulent scheme, a 10b-5 violation would have been stated. 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. Insider trading is trading of a corporation's stock or other securities (e.g. Accordingly, we remand this issue to the district court that took testimony and heard and saw the witnesses for a determination of the character of the release in the light of the facts existing at the time of the release, by applying the standard of whether the reasonable investor, in the exercise of due care, would have been misled by it. 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. These findings are clearly supported by the proof upon which the court relied. Rule 52(a) should be given particular weight where expert testimony must of necessity play an important role. H. L. Green Co. v. Childree, 185 F.Supp. A definite statement "to clarify" was promised in the future. The majority read the phrase as merely requiring that the allegedly misleading statement be issued by a publicly traded corporation. at 294. at 843-47. 1963); Note, 32 U.Chi. ); cf. Wilko v. Swan, 346 U.S. 427, 74 S.Ct. Faberge, Inc., 45 S.E.C. Huntington was involved in 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." at 283, knowledge of the possibility, which surely was more than marginal, of the existence of a mine of the vast magnitude indicated [850] by the remarkably rich drill core located rather close to the surface (suggesting mineability by the less expensive open-pit method) within the confines of a large anomaly (suggesting an extensive region of mineralization) might well have affected the price of TGS stock and would certainly have been an important fact to a reasonable, if speculative, investor in deciding whether he should buy, sell, or hold. Restatement, Torts 538(2) (a); accord Prosser, Torts 554-55; I Harper & James, Torts 565-66." The primary legal issue in substance is what duty, if any, rested upon the purchasers to disclose the knowledge they possessed at the time of purchase. Foreign Corrupt Practices Act In 1968, Securities and Exchange Commission v. Texas Gulf Sulphur Co. implicated the employees of a Texas mining company and was the first famous case example of ________. unabridged 1960). It requires no imagination to venture that such announcements might well have had the "wildest" impact on the market price of TGS stock. The speculator then examines the facts to discover and evaluate the risks that are present. No. 33 (E.D.Pa.1964); Fischer v. Kletz, 266 F. Supp. [30] [866] Since that issue is not before us, I merely make the reservation of my position clear. Consequently, I agree with the majority in giving the Board's action no weight here. 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." (1934); S. Rep.No.1455, 73rd Cong., 2d Sess. When and how are promising results to be disclosed. Hindsight, however, is not the test. All of the foregoing defendants accepted the options granted them. 78o(c) (1), (2) provides that no broker or dealer shall (1) induce the purchase or sale of any security by means of any manipulative, deceptive or other fraudulent contrivance or (2) attempt to induce the purchase or sale of any security "in connection with which such broker or dealer engages in any fraudulent, deceptive, or manipulative act or practice * * *.". ", Dr. Park, former Dean of the School of Earth Sciences at Stanford, admitted that K-55-1 was "an interesting one, a good one" but that there was not "any evidence at all for any discussion of extent, from one drill hole." 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. The broad congressional purpose in passing the Securities Exchange Act of 1934 is set forth by Thomas G. Corcoran, one of the draftsmen of the bill that became the 1934 Act. On November 12, 1963 drilling of K-55-1 was terminated at 655 feet. Gediman v. Anheuser Busch, Inc., 299 F.2d 537, 545 (2 Cir. Gen. The "large anomaly" did not suggest "an extensive region of mineralization" and furthermore TGS did not own or control it in any event. 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. List v. Fashion Park, Inc., supra at 462, quoting from Kohler v. Kohler Co., 319 F.2d 634, 642, 7 A.L.R.3d 486 (7 Cir. In my opinion such a broad interpretation of the statute is unwarranted as a matter of statutory construction and unwise as a matter of policy. 10(b) and Rule 10b-5 and the SEC appeals from the remainder of the decision which dismissed the complaint against defendants TGS, Fogarty, Mollison, Holyk, Darke, Stephens, Kline, Murray, and Coates.[6]. This means you can view content but cannot create content. 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. 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. Although the problem of insider trading is not new, in recent years the extent of 77q(a) which is almost word for word the same except for the explicit requirement that any alleged fraud be associated with "the offer or sale of * * * securities." 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]. As to the sufficiency of the news release, the first issue would be what constitutes a "reasonable" investor. 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). 99, (S.D. 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. 78j(b) and Rule 10b-5. L.Rev. (2) As to Murray, we affirm the dismissal of the complaint. [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. No. The only difference of substance between 17(a) and Rule 10b-5 is that the latter applies to purchasers as well as sellers. See Schedules 14A-14C, 17 C.F.R. 91,317 (N.D.Ill.1964); Stockwell v. Reynolds & Co., 252 F.Supp. In these particulars we have followed the lead of the court below. Some witnesses who testified at the hearing stated that they found the release encouraging. Practically all TGS stock in question here was purchased between November 12, 1963 and April 8, 1964. In view of our conclusion as to materiality we hold that Stephens and Fogarty violated the Rule by accepting them. Nor did he find the release to be "gloomy." But this must be recorded as one of the most impressive drill holes completed in modern times. H.R.Rep.No. ), cert. And finally there is the sardonic anomaly that the very members of society which Congress has charged the SEC with protecting, i. e., the stockholders, will be the real victims of its misdirected zeal. at 296. Nor is it any justification that such an explicit disclosure of the truth might have "encouraged the rumor mill which they were seeking to allay." If there is no such connection, investors are relegated to 18 or state law to recover their losses and the Commission must use its other remedies, discussed infra. Wiles, a consulting mining engineer, conceded that K-55-1 was a remarkable drill hole but that he could not estimate therefrom the probabilities of finding a commercially mineable body of ore, adding that he had had "the misfortune of having found a very attractive first hole and after drilling 52 around it got no more ore." Walkey, the manager of the Kamkotia, a mine some 12 miles distant from the Timmins property, testified that the geological composition of the Kamkotia and TGS areas was similar but that he could neither estimate nor say the chances were good of proving a substantial body of ore as a result of K-55-1. The approach has led, in many cases, to doctrinal uncertainty, a result that is reflected in the recent decisions in . Read in context it seems clear that 10 (b) was only meant to be a supplement to the specific prohibitions contained in 9 and 10(a). . During the course of that project, the courts developed a complex, fraud-based approach to determining the scope of liability. There is therefore no inconsistency in the statements made and the conclusions reached in the two releases. at 1115 (citing SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir.1968)). Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. Texas Gulf Sulphur has chalked up a brilliant exploration success in its field program north of the Porcupine area. 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. See id. 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. We will shortly be exploring this issue in the in banc consideration of Schoenbaum v. Firstbrook, 2 Cir., 405 F.2d 215. The geologist Darke possessed undisclosed material information and traded in TGS securities. Instead he acted on the view, erroneous in the court's belief, that no violation of the Rule had occurred and he was thus without power to enjoin, 258 F.Supp. 21(e) of the Securities Exchange Act of 1934 (the Act), 15 U.S.C. 275, 11 L.Ed.2d 237 (1963). Jan. 24, 1968); Howard v. Levine, 262 F.Supp. He added, however, that it "is a natural thing to buy more stock once they give you the first drill hole." As to a waiting period after the information regarded as "material" has been disclosed, any such time period should be specifically fixed by Congressional or Commission rule not retroactive in application. at 295 (emphasis supplied), that the draftsmen "exercised reasonable business judgment under the circumstances," 258 F.Supp. Implied . [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. 6 . at 291. In any event if the Commission feels that its arsenal should be augmented, Congress not the courts is the proper forum for its arguments. 1968), where corporate insiders bought stock BEFORE the company announced the discovery of the largest silver ore deposit in North America. 1965); Myzel v. Fields, 386 F.2d 718 (8 Cir. There were several choices. Even if, however, we were to disregard the teaching of Judge Frank in Fischman v. Raytheon Mfg. Those who purchased were apparently willing on the basis of the inconclusive first hole and other information to risk a certain amount of their funds in TGS stock, hopeful that future developments would be favorable. SEC v. Texas Gulf Sulphur, in which officers of Texas Gulf Sulphur learned of their company's rich ore strike in Canada and traded on this information before the news became public. 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. The insiders here were not trading on an equal footing with the outside investors. Insider trading takes place legally every day, when corporate insiders. 252 F.Supp. The term "insider trading" describes the illegal use of con-fidential, material' information by an individual for personal profit in the stock market. 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. Trading by an insider of a company in the shares of a company is not per se a violation of law.
Indigo Female Traits,
Marriott Marble Arch Email Address,
Vulcanizadora De Llantas Cerca De Mi,
I Bought My Husband A Dress,
Desert Tiger Staff Vs Raven Staff,
Articles T