Sunday, November 24, 2013

Securities and Exchange Commission v. Texas Gulf Sulphur Co. case brief

Securities and Exchange Commission v. Texas Gulf Sulphur Co. case brief summary
401 F.2d 833 (2d Cir. 1969)

Plaintiff and defendants appealed the dismissal of a complaint against some defendants by the United States District Court for the Southern District of New York and the decision that some defendants violated the Securities Exchange Act of 1934, 15 U.S.C.S. §§ 78u(e), 78j(b), and 17 C.F.R. 240.10b-5.

Defendant employees of defendant mining company discovered large deposit of ores. Some defendants purchased stock in the company. The company released an ambiguous statement about drilling, then released a detailed statement a few days later, after which the price of the company's stock increased substantially.


  • The district court found some employees guilty of violating securities laws, but dismissed claims as to others and the company. 
  • The court found many defendants violated the law because the fact that the company forbade disclosure did not justify insider trading, and such information constituted material facts as it might have affected the price of the stock. 
  • Good faith was no defense as the law only required negligent conduct. 
  • The company's ambiguous statement may have violated the law because its makers did not have to make related security transaction, only a misleading statement that might have made reasonable investors rely on it.

The court affirmed that portion of the judgment finding certain employees liable; however, the court reversed that portion of the judgment dismissing the complaint against other employees and the company itself. The allegations against those employees and the company were remanded for further proceedings consistent with the court's opinion.

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