The Missing Link Between Insider Trading and Securities Fraud

It has been nearly 40 years since the Second Circuit
handed down its landmark opinion in SEC v. Texas
Gulf Sulfur Company. In that case, Texas Gulf Sulfur
(TGS) had found an unusually rich deposit of ores
near Timmins, Ontario. When rumors of the strike
began to circulate, the company downplayed the
event by issuing a pessimistic press release. In the
meantime, several directors and officers purchased stock and
call options. Several others received stock options as compensation.
When the company issued a corrective press release,
the price of TGS stock rose dramatically and the insiders who
had acquired stock and options enjoyed a handsome profit.