SEC Enforcement of the Rule I0b-5 Duty to Disclose Material Information-Remedies and the Texas Gulf Sulphur Case
On April 16, 1964, the Texas Gulf Sulphur Company announced one of the most significant mineral discoveries of the twentieth century-a major copper and zinc deposit near Timmins, Ontario, found by means of geophysical exploration and exploratory drilling. Unusual market activity prior to this announcement prompted a Securities Exchange Commission (SEC) investigation of insider stock transactions. In April 1965, the SEC brought suit against a group of Texas Gulf insiders, alleging that their purchase of stock on national exchanges before the disclosure of the information concerning the Timmins strike constituted a violation of section 10(b) of the Securities Exchange Act of 1934, as implemented by rule 10b-5. The SEC sought relief under section 21(e) of the act, which provides for the issuance of an injunction against future violation and, in addition, requested rescission and restitution on behalf of the private parties who had sold shares of Texas Gulf to the defendants or to parties who purchased on the advice of defendants. However, the Securities Exchange Act’s remedial provisions do not specifically authorize an SEC action for a monetary recovery6 and, since this is the first time that the Commission has asserted this prerogative, it may be timely to examine the SEC’s authority to seek such remedies. The first part of this Comment will focus on the two possible bases for an SEC suit for rescission and restitution or for other new enforcement measures. Assuming that the courts are authorized to give such relief, two questions remain to be discussed in the second part of the Comment: (1) What are the relevant criteria for developing a new enforcement scheme for violations of section 10(b) of the Securities Exchange Act; and (2) What specific enforcement measures should the courts create in order to further the purposes of that act?