From: Black Unicorn <unicorn@schloss.li>
Date: Thu, 26 Sep 1996 11:44:52 +0800
To: cypherpunks@toad.com
Subject: Insider Trading - What constitutes "Disclosure" ?
Message-ID: <Pine.SUN.3.94.960925203523.2802A-100000@polaris>
MIME-Version: 1.0
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This is not legal advice.  You got it for free.

Often the choice faced by the investor who has material non-public
information is characterized as "disclose or abstain," meaning that the
investor may either trade after disclosing or abstain from trading on the
information.

A few people have asked me what constitutes disclosure.

I've not researched the latest cases, but the generally accepted "best
description" can be found in SEC v. Texas Gulf Sulpher Co., 401 F.2d 833
(2d Cir.1968), cert. denied.

As to the defense's claim that their purchases of stock were not
proscribed because the news had effectively been disclosed, the court
offered:  (errors mine)

Crawford (defendant) telephoned his orders to his Chicago broker about
midnight on April 15 and again at 8:30 in the morning of the 16th, with
instructions to buy at the opening of the Midwest Stock Exchange.  The
trial court's finding that "he sought to, and did, 'beat the news,' 258
F.Supp. at 287, is well documented by the record..  The rumors of a major
ore strike which had been circulated in Canada and , to a lesser extent,
in New York, had been disclaimed by the TGS press release of April 12,
which significantly promised the public an official detailed announcement
when possibilities had ripened into actualities.  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 teh American financial press until after 10:00
AM.  Crawford's orders had been placed before that.  **Before insiders may
act upon material information, such information must have been effectively
disclosed in a manner sufficient to insure its availability to the
investing public.**  Particularly here, whre a formal announcement to the
entire financial news media had been promised in a prior official release
known to the media, all insider activity must await dissemination of the
promised official announcement.
Coates was absolved by the court below because his telephone order was
placed shortly before 10:20 AM on April 16, which was after the
announcement had been made public even though the news could not be
considered already a matter of public information.  258 F.Supp at 288.
This result seems to have been predicated upon a misinterpretation of
dicta in Cady, Roberts, where the SEC instructed insiders to "keep out of
the market until the estlablished procedures for public release of the
information are carried out instead of hastening to execute transactions
in advance of, and in frustration of, the objectives of the release," 40
S.E.C. at 915.  The reading of a news release, which promoted Coates into
action, is merely the first step in the process of dissemination required
for compliance with the regulatory objective of providing all investors
with an equal opportuinity to make informed investment judgements.
Assuming that the contents of the official release could have been
instantaneously be acted upon, at the minimum Coates should have waited
until the news could reasonably have been expcted to appear over the media
of widest circulation, the Dow Jones broad tape, rather than hastening to
insure an advantage to himself and his broker son-in-law.

--
I hate lightning - finger for public key - Vote Monarchist
unicorn@schloss.li