Brooks recounts the 1960s Texas Gulf Sulphur case, which became a landmark test of how federal securities law applies to insider trading. In March 1959, Texas Gulf began aerial geophysical surveys over the Canadian Shield, eventually leading to the drilling of a test hole at a site called Kidd-55—a one-square-mile area near Timmins, Ontario—in November 1963. The first core appeared to contain exceptionally high concentrations of copper and zinc; a later laboratory assay confirmed these estimates and also identified silver.

Recognizing that the first core indicated a potentially valuable discovery, key company executives and geologists—including Charles F. Fogarty, Richard D. Mollison, and Kenneth Darke—began to quietly purchase Texas Gulf stock and “calls,” options that allowed buyers to purchase shares later at a fixed price. Texas Gulf removed the drill rig, disguised the site, drilled a barren decoy hole, and restricted knowledge of the discovery while it sought mineral rights to the rest of Kidd-55. Darke and others also passed tips to friends and family, known as “tippees,” who purchased shares and calls.

As drilling resumed in April 1964 and confirmed the enormous scale of the ore body, rumors of a major strike began to circulate in the Canadian press. In response to the growing speculation, on April 12, Texas Gulf issued a cautious press release, calling the reports “exaggerated.” The district court later found it “gloomy” and “incomplete” but declined to find it deliberately deceptive; the Appeals Court found it “ambiguous and perhaps misleading” (165). On April 15, knowing that a major positive announcement was scheduled for the next day, insider Richard H. Clayton purchased stock, and company secretary David M. Crawford placed an initial order that day and then doubled it with a second call to his broker early on the morning of April 16. On April 16, the company held a press conference and formally announced the “major discovery,” although reports from Canada were already circulating among investors. In the minutes after the press conference began but before the announcement appeared on the Dow Jones broad tape, director Francis G. Coates bought 2,000 shares, and director Thomas S. Lamont called Longstreet Hinton, executive vice president of Morgan Guaranty Trust Company, telling him that good news was out or shortly coming on the ticker; Hinton promptly bought shares for Nassau Hospital and Morgan Guaranty pension funds, while Lamont made his own personal purchase nearly two hours later.

The Securities and Exchange Commission subsequently filed a civil suit against the company and 13 employees and directors, accusing them of violating securities law (specifically Rule 10B-5, which prohibits any act of fraud or the omission of material facts in connection with stock trading) through illegal insider trading and by issuing a deceptive press release. In the initial district court trial, the defendants were largely exonerated; the judge ruled that the information wasn’t legally “material” in the early stages and that the insiders were making legal “educated guesses.” However, he found that Clayton and Crawford had violated Rule 10B-5 by trading after the information had become material and before it had been publicly disclosed. In August 1968, the US Court of Appeals reversed most of the district court’s ruling, finding that the initial discovery was indeed material information, that the press release was ambiguous and perhaps misleading, and that insiders including Fogarty, Mollison, Darke, and Holyk who had traded since November 1963 were in violation of the law. Lamont—charges against whom were dropped following his death after the lower court decision—and office manager John Murray remained exonerated. The Appeals Court’s decision significantly expanded the application of Rule 10B-5 by treating the early drilling results as material information and finding that Coates had traded before the discovery had been adequately disseminated to the investing public. The broader question of precisely how long insiders must wait after disclosure, however, remained unresolved.