401 F.2d 833 (2d Cir. 1968)
Securities and Exchange Commission v. Texas Gulf Sulphur Co.
Did corporate insiders violate securities laws by trading on material nonpublic information, and was Texas Gulf Sulphur Co. liable for misleading public disclosures?
Insider trading contravenes Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, which prohibits any act or practice in connection with the purchase or sale of any security that involves fraud, deceit, or the making of untrue statements of material fact.
The Second Circuit held that the TGS insiders violated securities laws by trading on nonpublic information. It declared that all persons before purchasing or selling securities, while in possession of material nonpublic information, must either disclose the information publicly or abstain from trading.
This case has lasting significance in securities law and continues to be cited as a pivotal precedent concerning the treatment of insider trading and disclosure obligations. Texas Gulf Sulphur stands for the broad interpretation of what constitutes material nonpublic information and encapsulates the critical duty to either disclose such information or abstain from trading. It also developed the standards for determining when information is considered public, which significantly affects how legal practitioners advise clients on disclosure obligations and compliance with securities law.