Securities And Exchange Commission v. Texas Gulf Sulfur Co.

401 F.2d 833 (en banc)


Texas Gulf Sulphur (D) made a large discovery of mineral deposits. A test core revealed a higher percentage of metals (copper, zinc, and silver) than D’s geologists had even seen before. From November until February of 1964, D stopped drilling to keep its find confidential so it could obtain leases on additional nearby acreage. While concealing the magnitude of the find, certain corporate employees purchased large amounts of D's stock. This included four members of the geological team, the president, the executive vice president, the general counsel, and a director bought stock and calls. D also issued stock options to high-level employees including five who knew of the find. The board that issued the options did not know about the find. When drilling resumed in March 1964, it immediately produced great results. A misleading, ambiguous press release was issued on April 12 to suppress the effect of rumors of the discovery. It stated that the rumors exaggerate the scale of operations. It stated that the work done has not been sufficient to reach definite conclusions, and any statement as to the size and grade of ore would be premature and possibly misleading. The evidence as to the effect of this release on the investing public was equivocal and less than abundant. On April 13, the New York Herald Tribune in an article head-noted 'Copper Rumor Deflated.' At that time, D had in fact discovered $150 million in ore. Some non-employees also bought D's stock just prior to the public release based on tips from insiders. The final press release on April 16 announced the discovery. In the four days between the releases, some of the employees of D continued to buy stock. The stock rose from $17 to $36 on the April 16th announcement. The SEC sued the employees who traded with knowledge of the strike. It sued D for issuing a misleading press release on April 12th.