The dominant congressional purposes underlying the Securities Exchange Act of 1934 were to promote free and open public securities markets and to protect the investing public from suffering inequities in trading, including, specifically, inequities that follow from trading that has been stimulated by the publication of false or misleading corporate information releases. 78j(b). While drilling activity ensued to completion, TGC officials were taking steps toward ultimate disclosure of the discovery. The Act and the Rule apply to the transactions here, all of which were consummated on exchanges. 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. 258 F. Supp. 258 F.Supp. The Commission also seeks court orders upon certain of the individual defendants that are essentially remedies of a private, rather than of a regulatory nature, court orders designed to have those individual defendants disgorge any profits they enjoyed from TGS stock transactions they or their "tippees" engaged in from November 12, 1963 to April 17, 1964. 56-7 (1944); 8 SEC Ann.Rep. By morning of April 13, in K-55-5, the fifth drill hole, substantial copper mineralization had been encountered to the 580 foot mark, and the hole was subsequently drilled to a length of 757 feet without further results. Implied . H. L. Green Co. v. Childree, 185 F.Supp. Insider trading is trading of a corporation's stock or other securities (e.g. Also by 7:00 A. M. on April 13, K-55-6 had found mineralization to the 946-foot mark. Kline had known since November 1962 that K-55-1 had been drilled, that the drilling had intersected a sulphide body containing copper and zinc, and that TGS desired to acquire adjacent property. 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. How does her case differ from the insiders at Texas Gulf Sulphur or from other outsiders who have been convicted of insider trading? 1961). The evidence as to the effect of this release on the investing public was equivocal and less than abundant. The hole was concealed and a barren core was intentionally drilled off the anomaly. In these particulars we have followed the lead of the court below. Texas Gulf Sulphur Co. (1966), a federal circuit court stated ,that anyone in the possession of inside information must either disclose information or . denied, 382 U.S. 811, 86 S.Ct. 99, (S.D. My concurrence in the disposition of the press release issue assumes that such consideration is permitted. 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. 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. Co., 259 F.Supp. The High Powered Committee on Stock Exchange Reforms, 1986 (Ch. After all, this first drill core was "unusually good and * * excited the interest and speculation of those who knew about it." 261 (S.D.N.Y. What were the motives behind each of the purchases? 16. 1968). 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." Bellemore, Investments: Principles, Practices and Analysis 4 (2d ed.1962). The Commission can suspend trading for successive periods of 10 days in any security which it feels is being affected by misleading press releases ( 15 (c) (5), 19(a) (4), 15 U.S.C. in connection with the purchase or sale of any security. It had reached a price of 26 by March 31, after the land acquisition program had been completed and drilling had been resumed, and continued to ascend to 30 1/8 by the close of trading on April 10, at which time the drilling progress up to then was evaluated for the April 12th press release. From this testimony, the trial court found: Despite the experts' virtually uncontradicted testimony, despite Rule 52(a) and despite the Supreme Court's statement of the law, the majority choose to reject the trial court's findings as to the results of the first drill core, K-55-1, and to substitute their own expertise in the mining engineering field by holding that "knowledge of the possibility which surely was more than marginal of the existence of a mine of the vast magnitude indicated 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, [873] if speculative, investor in deciding whether he should buy, sell or hold.". 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. Crawford ordered 300 shares at midnight on the 15th and another 300 shares at 8:30 A. M. the next day, and these orders were executed over the Midwest Exchange in Chicago at its opening on April 16. 1963) (Defendant Exchange and its officers allegedly aided and abetted an illegal distribution of stock by its failure to take necessary disciplinary actions against abusive conduct and practices of its employees of which they knew or should have known. The trial court did not find it necessary to decide whether TGS exercised such diligence and has not yet attempted to resolve this issue. 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. Conversely, we are not a jury of nine with no requirement of a unanimous verdict. Faberge, Inc., 45 S.E.C. Moreover, it would have obviously been better to have specifically described the known drilling progress as of April 10 by stating the basic facts. 115 (1934). The importance of this opportunity to observe where technical or scientific problems are before the court, as here, has been succinctly stated by the Supreme Court in Graver Tank & Mfg. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1961). Insider Trading If you decide to report an employer to a governmental entity for violating the law, you are a (n) ________. Therefore, in a case where disclosure to the grantors of an option would seriously jeopardize corporate security, it could well be desirable, in order to protect a corporation from selling securities to insiders who are in a position to appreciate their true worth at a price which may not accurately reflect the true value of the securities and at the same time to preserve when necessary the secrecy of corporate activity, not to require that an insider possessed of undisclosed material information reject the offer of a stock option, but only to require that he abstain from exercising it until such time as there shall have been a full disclosure and, after the full disclosure, a ratification such as was voted here. 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. 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. Id. ); Meisel v. North Jersey Trust Co., 218 F.Supp. c. bribery. Texas Gulf Sulphur [TGS] Co. In view of our conclusion as to materiality we hold that Stephens and Fogarty violated the Rule by accepting them. Held: sufficient allegation of fraud under 10b-5); Brennan v. Midwestern United Life Ins. 2. 258 F.Supp. Of these, only Kline was unaware of the detailed results of K-55-1, but he, too, knew that a hole containing favorable bodies of copper and zinc ore had been drilled in Timmins. 258 F. Supp. Here, a valuable corporate purpose was served by delaying the publication of the K-55-1 discovery. The Commission argues that there was a failure to disclose material information. Visual estimates revealed an average content of 0.82% copper and 4.2% zinc over a 525-foot section. No.1383. This is unfortunate because it has resulted in 10(b) being given a construction and significance which, in my opinion, Congress did not foresee and did not intend. The majority remand for a determination of the effect of the April 12 release on a reasonable investor because "they cannot `definitively conclude that it was deceptive or misleading to the reasonable investor, or that he would have been misled by it.'" 78ff) provisions. 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. 3230 (May 21, 1942) ("The new rule closes a loophole in the protection against fraud administered by the Commission by prohibiting individuals or companies from buying securities if they engage in fraud in their purchase. 78j(b) and Rule 10b-5, and remand, pursuant to the agreement by all the parties, for a determination of the appropriate remedy. [4]The purchases made by "tippees" during this period were: In this connection, we point out that, though several of the Holyk purchases of shares and calls made between November 29, 1963 and March 30, 1964 were in the name of Mrs. Holyk or were in the names of both spouses, we have treated these purchases as if made in the name of defendant Holyk alone. 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. cases. 26 (SD NY 1964); but see, e. g., Weber v. C. M. P. Corp., 242 F.Supp. However, the fact remains that 10(b) of the Securities Exchange Act was not passed to protect investors from the former type of injury, but leaves liability for such misrepresentation up to state law, which is well equipped to handle any such situation. Since the issue of negligence is open to full review, Mamiye Bros v. Barber SS. 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. Here the trial court had an opportunity not only to hear the qualifications of the experts but also from their demeanor and responses to form its opinion as to their credibility. 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. Insider Trading in India-an Analysis of Yesterday, Today and Tomorrow United States of America was the first country who introduced the laws on insider trading, immediately after their market crashed during the Great Depression. 1963); Note, 32 U.Chi. The price went up and the shareholders were impressed with this indication of the opinion of the financial community as to the proposed merger. The only provision in either the 1933 or the 1934 Act that can be read to impose liability for damages for negligent misrepresentation without restrictions as to the kinds of plaintiffs, due diligence defenses, a short statute of limitations, or an undertaking for costs that were insisted on by the investment community, is 17(a) (2) of the Act of 1933 the source of Rule 10b-5(2). 168 (1953), that cannot be done without an appreciation of the illegality of the conduct proposed to be excused, cf. Such an explicit disclosure would have permitted the investing public to evaluate the "prospect" of a mine at Timmins without having to read between the lines to understand that preliminary indications were favorable in itself an understatement. This, of course, encompasses any fact "* * * which in reasonable and objective contemplation might affect the value of the corporation's stock or securities * * *." [31] But there is unanimity among the commentators, including some who were in a peculiarly good position to know, that 17(a) (2) of the 1933 Act indeed the whole of 17 was intended only to afford a basis for injunctive relief and, on a proper showing, for criminal liability, and was never believed to supplement the actions for damages provided by 11 and 12. [38] In two cases, on motions to dismiss, two courts have permitted 10b-5 actions to continue where defendants were not alleged to be intimately connected with a purchase or sale of securities. (Emphasis supplied.) No facts whatsoever were adduced which would have justified a finding that the release was issued for a fraudulent or manipulative purpose. I concur in Judge Waterman's reasoned and thorough opinion and in the court's disposition of the instant appeal. 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). 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.
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