The experts which the trial court credited were of the opinion that Kidd 55 was accurately portrayed as a prospect which required further exploration. Co., 259 F.Supp. Freed v. Szabo Food Serv., Inc., CCH FED.SEC.L.REP. 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. 1966); Mamiye Bros. v. Barber S.S. Lines, Inc., 360 F. 2d 774, 776-778 (2 Cir. Moreover, noting that the "in connection" clause has been broadly construed, the District Court did not require that stock purchases by TGS or insiders be shown. 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. [28]Examined in retrospect, the situation in Timmins at the time the release was prepared seems to offer good reason for optimism. The Commission offered no proof that anyone was misled by the release e. g. testimony tending to show that most investors thought the release meant that TGS had no hopes of making an ore discovery. 670 (S.D.N.Y. 10 (1942). LEB Ch 28 Flashcards | Quizlet 9 It even raised in- triguing issues about the legality of an insider accepting stock options while in possession of material nonpublic information.' This, of course, encompasses any fact "* * * which in reasonable and objective contemplation might affect the value of the corporation's stock or securities * * *." ), cert. 80, 17 L.Ed. It was obviously thought that sections outlawing devices that had been shown at great length to be deleterious did not require any lengthy explication. 78m, to be kept "reasonably current" by periodic and other reports filed with the Commission and the stock exchanges. 754 (1944). Feb. 8, 1968); Puharich v. Borders Electronics Co., Inc., 1968 Fed.Sec.L.Rep. 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. 180 (S.D.N.Y. The case was tried at length before Judge Bonsal of the Southern District of New York, sitting without a jury. 1271, 1278-80 (1965). FROM Gulf Sulphur autumn (TGS) of 1963 through bought their - JSTOR 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. At the other extreme is an equally easy-to-resolve Cady, Roberts[33] situation where a definite fact (the reduction of the dividend) was known by an insider, who participated in the meeting where the decision had already been made, whose knowledge of the probable reaction of the market to such an announcement, namely, a substantial sell-off, caused him to leave the meeting ahead of everyone else and before the potential buyers learned of the bad news to foist his selling orders on the market and his stock on uninformed purchasers. Dasho v. Susquehanna Corp., 380 F.2d 262 (7 Cir. 757, 772 (D.Colo.1964), has been expanded from recklessness, see Prosser, Torts, 102, pp. at 295 (emphasis supplied), that the draftsmen "exercised reasonable business judgment under the circumstances," 258 F.Supp. Rule 10b-5 remains a potent method of proceeding against fraudulent schemes which involve securities transactions for both the Commission and private investors. 258 F. Supp. ); cf. (1934); H.R.Rep.No. Co., 339 U.S. 605, 70 S.Ct. Although the authority for the Rule comes from 10(b) of the Securities and Exchange Act of 1934, the draftsmen turned their backs on the language of that section and borrowed the words of 17 of the Securities Act of 1933, simply broadening these to include frauds on the seller as well as on the buyer. cit. Mollison had been advised by Holyk as to the drilling results up to 7:00 p.m. on April 10th. In order to acquire the other three-quarters of the K-55 segment, further drilling was discontinued except for one hole drilled to produce a barren core and the site was camouflaged. He is, to the best of his ability, taking calculated risks." 1951) is preserved. 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. 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. Visual estimates of K-55-3 revealed an average mineral content of 1.12% copper and 7.93% zinc over 641 of the hole's 876-foot length. 1965), appeal pending; Gann v. BernzOmatic, 262 F.Supp. [17] The effective protection of the public from insider exploitation of advance notice of material information requires that the time that an insider places an order, rather than the time of its ultimate execution, be determinative for Rule 10b-5 purposes. [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. His awareness of the contents of the April 12 release renders unreasonable any claim that he believed the news was truly public. 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. On Friday morning, April 10th, Mollison and Holyk visited the property and learned the results of the drilling up to that time. (1934); Comment, 74 Yale L.J. Securities and Exchange Commission v. Texas Gulf Sulphur Co 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. To them, completely disregarding the trial court's findings and substituting themselves as a jury, these purchases are "the only truly objective evidence of the materiality of the K-55-1 discovery." It is of course true, as the Commission points out, that the "in connection" clause has been given a broad construction by the courts in line with the remedial nature of securities legislation (see SEC v. Capital Gains Bureau, 375 U.S. 180, 195, 84 S.Ct. d. pay secrecy Feedback The correct answer is: insider trading. Holyk left for New York Saturday morning and arrived that same day. c. bribery. 1961); Royal Air Properties, Inc. v. Smith, 312 F.2d 210 (9 Cir. [37] Hearings before the House Committee on Interstate and Foreign Commerce on H.R. 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. A statement relative to the extent of the discovery, in substantial part drafted by Mollison, was given to the Ontario Minister of Mines for release to the Canadian media. Indeed, even the abbreviated version of the release reported by Merrill Lynch over its private wire did not appear until 10:29. 10261 (1934). Scores of day by day intra-company situations come to mind which in the individual opinions of company officers or employees might well affect the price of TGS stock, each individual reacting according to his own judgment. 1968), cert. 321 (SDNY 1965); Thiele v. Shields, 131 F.Supp. Several other samples verified the findings. See Webster's New International Dictionary (2d ed. 91,317 (N.D.Ill. 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. (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. 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. July 28, 2022 David Bissinger 2023 The Texas Lawbook. 598 (S.D.N.Y.1966), Howard v. Levine, 262 F.Supp. The number of possibilities for Congressional legislation and Commission rulings are legion. The core of the drill hole contained relatively high percentages of copper and zinc and some silver, although the percentages at any given point fluctuated widely. (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance 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. 1945). Our survey of the facts found below conclusively establishes 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. 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. It, too, was drilled at the anomaly's eastern edge. SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. The Missing Link Between Insider Trading and Securities Fraud The insiders here were not trading on an equal footing with the outside investors. 2, supra, and persons listed in fn. There is therefore no inconsistency in the statements made and the conclusions reached in the two releases. at 296 (emphasis supplied) it applied an incorrect legal standard in appraising whether TGS should have issued its April 12 release on the basis of the facts known to its draftsmen at the time of its preparation, 258 F.Supp. Texas Gulf Sulphur Co.[6], a federal circuit court stated that anyone in possession of inside . Since the option granted to Kline had not been exercised prior to its ratification by the Texas Gulf directors on July 15, 1965, after full disclosure, there can be no 10b-5 violation as to him, and rescission of the option he received should not be ordered. 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. 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. The evidence as to the effect of this release on the investing public was equivocal and less than abundant. 1271 (1965), both of which are cited in TGS. #2- What is your assessment of the Texas Gulf Sulphur press release of April 12? 22, 23). 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. Hindsight, however, is not the test. United Hotels Co. v. Mealey, 147 F.2d 816, 819 (2 Cir. Their belief that the strike would be protracted might cause them to sell. ", The specific relief the SEC seeks is, pursuant to Section 21(e) of Securities Exchange Act of 1934, 15 U.S.C. in connection with the purchase or sale of any security. The press release was drawn up with the aid of the above-mentioned persons on Saturday and Sunday morning, and was delivered to the press on Sunday for publication in the Monday papers. It can, indeed, be argued that, even on this basis, Rule 10b-5(2), absent the reading in of a scienter requirement, goes beyond the authority granted by 10(b) of the 1934 Act. By May 15, TGS stock was selling at 58. 56-7 (1944); 8 SEC Ann.Rep. 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]. supra, at 1366, he said: The majority opinion must also be considered in light of its overall impact before a decision can be reached as to its advisability (assuming that the power to interpret 10(b) is as unlimited as the majority apparently believe). 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. How does her case differ from the insiders at Texas Gulf Sulphur or from other outsiders who have been convicted of insider trading? [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. 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. 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. Defendant Crawford ordered 300 shares about midnight on April 15 and 300 more shares the following morning, to be purchased for himself, and his wife, and these purchases are treated as having been made by the defendant Crawford. See United States v. Chiarella, 588 F.2d 1358, 1362 (2d Cir. 809, 830-33 (1968). 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. These results were so remarkable that neither Clayton, an experienced geophysicist, nor four other TGS expert witnesses, had ever seen or heard of a comparable initial exploratory drill hole in a base metal deposit. The draftsmen of the release had full knowledge of the discoveries up to 7:00 P.M. on Friday, April 10. 1009 (1965) and Arthur Fleischer, Jr., Securities Trading and Corporate Information Practices: The Implications of the Texas Gulf Sulphur Proceeding, 51 Va. L. Rev. 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. 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. An attempt has been made to understand how these Indigenous laws impact the Market and how they curtail these illegal activities from it. 643 (S.D.N.Y. An insider is not, of course, always foreclosed from investing in his own company merely because he may be more familiar with company operations than are outside investors. What Just Happened to SEC Insider Trading Disgorgement? - LinkedIn However, the "facts" disclosed relative to the Kidd-55 segment were: "Recent drilling on one property near Timmins has led to preliminary indications that more drilling would be required for proper evaluation of this prospect. As to the sufficiency of the news release, the first issue would be what constitutes a "reasonable" investor. 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.
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