Court Opinion

ID: 8879570
Source: CourtListenerOpinion
Date Created: 2022-11-26 20:07:15.506364+00
Date Added: 2024-06-11T17:06:34.219282
License: Public Domain

MOORE, Circuit Judge
(dissenting) (with whom Chief Judge LUMBARD concurs):
In their opinion, the majority have become so involved in usurping the function of the trial court, in selecting the witnesses they (at variance with the trial court) choose to believe, in forming their own factual conclusions from the evidence (in disregard of Rule 52 (a)), in deciding with, of course, the benefit of the wisdom of hindsight, how they, had they been executives of Texas Gulf Sulphur Company (TGS), would have handled the publicity attendant to the exploration of the Timmins property, in determining (to their own satisfaction) the motives which prompted each of the individual defendants to buy TGS stock and in becoming mining engineering experts in their own right, that I find it desirable — in fact, essential —to state my opinion as to the fundamental jurisdiction of the Court of Appeals and the issues properly before us. Primarily, our task should be to review errors of law. Conversely, we are not a jury of nine with no requirement of a unanimous verdict.
If the facts are to be reappraised by an appellate court, they should be measured mutatis mutandis in accordance with the standard set for himself by an experienced and learned trial judge who stated his approach in a case charging directors with wrongdoing, as follows:
“The Court has endeavored * * to judge the transactions in issue in this case by the applicable legal standards but without the benefit of hindsight as to the facts.” (Herlands, D. J., in Marco, etc. v. Bank of New York, 272 F.Supp. 636, 639 (S.D.N.Y., 1967).)
More, specifically, the Court in Marco said:
“The Court is asked by plaintiff, in effect, to substitute its judgment for that of the directors with respect to transactions affecting the internal affairs of the corporation in question. * * * As directors they were, of course, required to perform their duties in accordance with the high standards of fidelity, honesty and prudence applicable to fiduciaries.” (p. 639)
The Securities and Exchange Commission (referred to as the “SEC” and “Commission”), as an agency of government, has the responsibility of prosecuting persons who, and corporations which, in its judgment have violated laws which the Congress has enacted for the praiseworthy purpose of protecting the public from securities frauds. However, as such an enforcement agency, where it assumes a plaintiff’s role it must bear the evidentiary fair preponderance burden of all litigants and be subject to the rule that the determination of what evidence is “credible” is ■for the trial judge.

The Issues

The case logically and chronologically can be divided into two parts: (1) the purchase of TGS stock by individual defendants and stock options issued to them between November 12, 1963 and April 9, 1964, and (2) the TGS press release of April 12, 1964. The stock purchases by Clayton, Crawford and Coates on April 16, 1964, are considered later.
(1) In resolving the stock purchase issue, the primary factual inquiry must be concentrated on (a) the nature and extent of the knowledge possessed by, or available to, the purchaser on the date of purchase, and (b) the position of the purchaser in relation to TGS. The primary legal issue in substance is what duty, if any, rested upon the purchasers to disclose the knowledge they possessed at the time of purchase. The Commission argues that there was a failure to disclose material information. The trial court based its opinion largely *871upon the lack of materiality of such exploration results as were known between November 12, 1963 and April 9, 1964.
(2) Was the TGS press release of April 12, 1964, false, misleading or deceptive within the meaning of Section 10(b) and Rule 10b-5 in the light of TGS’ then knowledge and the then existing factual situation.

The Facts

By-passing momentarily the general knowledge possessed by the officers of TGS as to the far-flung nature of the company’s operations, its heavy concentration in the sulphur field, its non-engagement in the field of copper mining, the adverse effect which low sul-phur prices had had for many years on the company’s earnings despite substantial sales and focusing attention solely upon the Timmins property, the participants in that exploration and the knowledge available to them, I find no factual disputes of importance.
On November 8, 1963, TGS, selecting the most promising area of the one-quarter section then controlled by it, referred to as Kidd 55, drilled an exploratory hole, 1% inches in diameter. All the information that was available upon the completion of the drilling, November 12, 1963, was contained in a core (denominated K-55-1) which was visually examined by Dr. Walter Holyk, Chief Geologist for TGS, and by Kenneth H. Darke, a TGS geologist. This core was unusually good in mineral content. The President, Claude 0. Stephens, the Executive Vice-President, Charles F. Fogarty, and the Exploration Vice President, Richard D. Mollison, were notified, and Fogarty and Mollison flew to the drill site.
In order to acquire the other three-quarters of the K-55 segment, further drilling was discontinued except for one hole drilled to produce a barren core and the site was camouflaged. Thus, but for a chemicial assay made in December 1963 of contents of this same core, no other knowledge of the nature and possible extent of the area was available during the acquisition program.
Rule 52(a) should be given particular weight where expert testimony must of necessity play an important role. Here the trial court had an opportunity not only to hear the qualifications of the experts but also from their demeanor and responses to form its opinion as to their credibility. The importance of this opportunity to observe where technical or scientific problems are before the court, as here, has been succinctly stated by the Supreme Court in Graver Tank & Mfg. Co. v. Linde Air Prods. Co., 339 U.S. 605, 70 S.Ct. 854, 94 L.Ed. 1097 (1950):
“Like any other issue of fact, final determination requires a balancing of credibility, persuasiveness ■ and weight of evidence. It is to be decided by the trial court and that court’s decision, under general principles of appellate review, should not be disturbed unless clearly erroneous. Particularly is this so in a field where so much depends upon familiarity with specific scientific problems and principles not usually contained in the general storehouse of knowledge and experience.” (pp. 609-610, 70 S.Ct. p 857) ******
“It is not for this Court [the Supreme Court] to even essay an independent evaluation of this evidence. This is the function of the trial court. And, as we have heretofore observed, ‘To no type of case is this * * * more appropriately applicable than to the one before us, where the evidence is largely the testimony of experts as to which a trial court may be enlightened by scientific demonstrations. * * *’ 336 U.S. 271, 274-5.” (p. 611, 70 S.Ct. p. 857)
No more is it for this court to make an independent essay of the evidence or of the core. Wanting the knowledge requisite to making our own appraisal of the significance of the core, we must depend upon the experts. A correct decision in this case may well hang upon *872their testimony and its credibility because what these observers knew or should have known between November 12, 1963 and April 9, 1964 is basic to a determination of what, .if anything, should have been disclosed or whether it was “material.”
For the defendants, Dean Forrester, Dean of the College of Mines of the University of Arizona and Director of the Arizona Bureau of Mines, said that “one hole is evidence of what you encounter only in that hole” and that even after K-55-3 was drilled in April 1964, it was “much more likely that the materials exposed in those two holes will extend for, let’s say two feet outside the limits of the hole than it is likely that it will extend 25 feet or that it will extend 50 feet.”
Dr. Park, former Dean of the School of Earth Sciences at Stanford, admitted that K-55-1 was “an interesting one, a good one” but that there was not “any evidence at all for any discussion of extent, from one drill hole.” Dr. Lacy, head of the mining department of the University of Arizona, was of the opinion that “There is no basis for making any sort of prediction out from the hole.”
Wiles, a consulting mining engineer, conceded that K-55-1 was a remarkable drill hole but that he could not estimate therefrom the probabilities of finding a commercially mineable body of ore, adding that he had had “the misfortune of having found a very attractive first hole and after drilling 52 around it got no more ore.” Walkey, the manager of the Kamkotia, a mine some 12 miles distant from the Timmins property, testified that the geological composition of the Kamkotia and TGS areas was similar but that he could neither estimate nor say the chances were good of proving a substantial body of ore as a result of K-55-1.
Even the Commission’s experts, Adel-stein and Pennebaker, would not estimate what ore, if any, might lie beyond the iy¡ inch core.
Adelstein:
“I think assay value given for a drill hole, standing by itself without surrounding information, cannot be interpreted by itself as to what it really means.”
Pennebaker:
Q. You certainly couldn’t compute any tonnage from that single hole, could you? A. No sir.
Q. Nor could you compute any grade of ore beyond what was in the core itself? A. You are confined to what is in the core, sir.
[This witness did say that it was “inconceivable to expect the ore would quit immediately outside the drill hole, but you have no way of measuring how far it is going to go except the favorable implication of the anomaly.”]
From this testimony, the trial court found:
“However, all the experts agreed that one drill core does not establish an ore body, much less a .mine. Defendants’ experts unanimously concluded that there is. no way even to estimate the probabilities that one drill core will lead to the discovery of an ore body.” 258 F.Supp. at 282.
Despite the experts’ virtually uncon-tradieted testimony, despite Rule 52(a) and despite the Supreme Court’s statement of the law, the majority choose to reject the trial court’s findings as to the results of the first drill core, K-55-1, and to substitute their own expertise in the mining engineering field by holding that “knowledge of the possibility which surely was more than marginal of the existence of a mine of the vast magnitude indicated by the remarkably rich drill core located rather close to the surface (suggesting mineability by the less expenseive open-pit method) within the confines of a large anomaly (suggesting an extensive region of mineralization) might well have affected the price of TGS stock and would certainly have been an important fact to a reasonable, *873if speculative, investor in deciding whether he should buy, sell or hold.”
Indeed, any such conclusions from a first drill core, if so announced by TGS, would undoubtedly have had a substantial effect on the market price of TGS stock and would have immediately brought forth both the wrath of, and injunction papers from, the Commission charging TGS with issuing false, misleading and unsupported statements to boost the price of the stock.
Factually, the premise posed by the majority is "clearly erroneous.” There was no knowledge of the existence of a “mine.” Even to the majority in their self-assumed fact-finding role, the “mine” was only a more than marginal “possibility.” The testimony was unanimous that no estimate of “magnitude” could be made.' The “large anomaly” did not suggest “an extensive region of mineralization” and furthermore TGS did not own or control it in any event. Its area was then limited to its one-quarter segment.
The majority read the record as conclusively establishing “that knowledge of the results of the discovery hole, K-55-1, would have been important to a reasonable investor and might have affected the price of the stock.” But disclosure of the “results”, namely, preliminary visual inspection of the contents, would have violated the Commission’s own rules and standards. The Commission has specifically declared (Sch. I, Form 1-A, Reg. A offerings under the 1933 Act):
“No claim shall be made as to the existence of a body of ore unless it has been sufficiently tested to be properly classified as ‘proven’ or ‘probable’ ore, as defined below. If the work done has not established the existence of proven or probable ore, a statement shall be made that no body of commercial ore is known to exist on the property.”
Item 8(A) (b), 1 CCH Fed.Sec. L.Rep. ,n 7327.
The Commission has carefully defined the scope of sampling required to justify even estimates, as follows:
“The term ‘proven ore’ means a body of ore so extensively sampled that the risk of failure in continuity of the ore in such body is reduced to a minimum. The term ‘probable ore’ means ore as to which the risk of failure in continuity is greater than • for proven ore, but as to which there is sufficient warrant for assuming continuity of the ore.”
Id., Item 8(A) (c), 1 CCH Fed.See.L. Rep. H 7327.
Thus under the Commission’s own standards, TGS, if it revealed any information during the November 1963-April 1964 period, would have had to announce to the public in substance “TGS has drilled a 1¡4" core on a one-quarter section owned by it in Timmins, Canada. Although the core appears to have excellent mineral content ‘no body of commercial ore is known to exist on the property.’ ” Contrast such a statement with the April 12, 1964 release so criticized by the Commission. Further contrast it with a hypothetical November 1963 press release implicitly suggested by the majority “TGS as a result of drilling on its property in Canada has knowledge of the more than marginal possibility of a mine of magnitude over an extensive region of remarkably rich mineralization.” — a statement which under the circumstances and then known facts would have been the height of recklessness.
In fact, the Commission itself indulges in the very speculation it condemns for, after conceding that “the trial court correctly stated that one drill hole does not establish the existence of a commercially mineable mineral deposit,” it straightway contends that the information which arose after the drilling of this first and only (for 4% months) drill hole revealed such “chances of imminent success, viewed in the light of the magnitude of the potential economic benefit to Texas Gulf” as to require disclosure by insiders desiring to buy TGS securities.
*874The Commission’s position, consistent with its rules and regulations to protect the public from premature announcements which might well arouse speculative fervor are well expressed in its argument before this Court in its brief on appeal in Securities and Exchange Commission v. Great American Industries, Inc., et al., 259 F.Supp. 99, (S.D.N.Y.1966), where it said:
“Neither the Commission, the sellers nor anyone else knew or could establish the value of the [mining] properties since they had not been explored except in a very preliminary way. No one can prove the value of a largely unexplored mining prospect.” (p. 19)
The conservative (and in my opinion proper) approach of the Commission in Great American is reflected in its statement that “The ore content of a property is never ‘known’ until the ore has been completely removed and the minerals separated.” This is probably an overstatement because by the time of the TGS April 16, 1964 press release, exploration had advanced to a point where an estimate of the extent of the tonnage might have been rather accurately made. The Commission in that case also stated two truisms (1) that “it is extremely important that all facts relevant to an estimate of the value of such property be disclosed,” and (2) that “the judgment of the ‘value’ of this property is dependent upon the results of exploratory work * * (Great American brief, pp. 22, 23)
On November 12, 1963 drilling of K-55-1 was terminated at 655 feet. The core of the drill hole contained relatively high percentages of copper and zinc and some silver, although the percentages at any given point fluctuated widely. This result undoubtedly “excited the interest” of the TGS exploration team. TGS decided to acquire the surrounding plots in the Kidd 55 area to enable it fully to investigate the anomaly. The attempt to acquire the adjoining properties at reasonable prices (ultimately $52,500) and the strictures on secrecy are customary in the mining industry, especially when dealing with land of a highly uncertain value. After all, TGS had prior experience in exploration where initially promising situations turned out to be “duds.” For example, the company had spent some $7,000,000 to purchase an underwater dome off the coast of Texas and an additional $1,000,000 to drill 21 holes before concluding that there was not enough sulphur in the dome to be of commercial interest.
However, until drilling was resumed, nothing further was learned about the ore content of the property other than as revealed in November and December 1963 from the analysis of K-55-1. The trial court’s finding as to this fact is unassailable:
“The most that can be said of the individual defendants’ knowledge after the drilling of K-55-1 is that they had ‘hopes, perhaps with some reason,’ that it would lead to a mine. James Blackstone Mem. Lib. Ass’n v. Gulf, M. & O. R. Co., 264 F.2d 445, 450 (7th Cir. 1959). The results of K-55-1 were too ‘remote’ when considered in light of the size of TGS, the scope of its activities, and the number of its outstanding shares, to have had any significant impact on the market, i. e., to be deemed material.” 258 F.Supp. at 283.
This conclusion is amply supported by the record. Kidd 55 was only one of several thousand anomalies (areas where there is unusual variation in the electrical conductivity of rocks) that TGS detected in its aerial exploration of the Canadian shield. Several hundred of these were considered worthy of further study and options on the land around them were acquired. The District Court found that “TGS had previously drilled 65 equally promising anomalies, but most of them had revealed either barren pyrite or graphite, while a few had shown marginal mineral deposits in insufficient quantities to be commercially mined.” (258 F.Supp. at 271).
Against this factual background, what position should have been taken by those few officers and employees of TGS *875after they knew of the core, K-55-1, and the reports thereon made after visual inspection and analysis ? There were several choices. Knowing that the nature and extent of this prospect could not be measured until further exploration was conducted and that further exploration had to await additional land acquisition they could have made no announcement as was the case here.
Turning now to the hypothesis of disclosure: As previously stated, any announcement of the discovery of a remarkable mine would have been both false and misleading. The Commission, however, impliedly suggests for affirmative answer the question: “Whether the chances of imminent success, viewed in the light of the magnitude of the potential economic benefit to Texas Gulf” did not require disclosure by insiders of the status of the drilling [then only the first hole, K-55-1] ? In the field of speculation, it would be interesting to know the position the Commission would have taken if TGS had announced that K-55-1 was “one of the most impressive drill holes completed in modern times” and that it “is just beyond your wildest imagination” (SEG Brief, p. 25). It requires no imagination to venture that such announcements might well have had the “wildest” impact on the market price of TGS stock.
Assuming the majority’s and the Commission’s full disclosure theory, would the facts as then developed have given the buying or selling public the so-called advantages possessed by the insiders? TGS could have announced by November 15, 1963 that it had completed a first exploratory hole, the core of which by visual examination revealed over a length of 599 of 655 feet drilled, an average copper content of 1.15%, zinc 8.64% or, had TGS waited until mid-December, by chemical analysis 1.18% copper, 8.26% zinc and 2.94% ounces of silver per ton; that TGS would try to acquire the other three-quarters of the segment unless the announcement boosted prices to unwarranted heights; that if the property could be acquired further exploratory holes would be drilled to ascertain the nature and extent, if any, of the ore body; that reports of developments would be made from time to time but that the SEC had indicated that TGS should advise its stockholders and the public that there was no proof as yet that a body of commercial ore exists on the property. Such an announcement would, of course, have been of no value to anyone except possibly a few graduates of Institutes of Technology and they, as the expert witnesses here, would have recognized that one drill hole does not reveal a commercially profitable mine.
The final question to be answered is: were these officers and employees disqualified as the result of possessing information gleaned by the first drill core from purchasing TGS stock? The number of possibilities for Congressional legislation and Commission rulings are legion. They extend over a gamut between definite extremes. At one extreme is a rule that no officer or employee or any member of their families shall own stock of the company for which they work or purchase stock if he possesses “material” inside information. This assumption raises the question of what is material and who is to make such a determination. Materiality must depend upon the facts and their resolution is for the fact-finder, court or jury. The majority state that the K-55-1 drilling results were material because they “might well have affected the price of TGS stock.” But such a statement could be made of almost any fact related to TGS. If a labor strike had kept its plants idle for months, encouraging news of a possible settlement hoped for by the TGS labor negotiators might cause the negotiators to buy. Their belief that the strike would be protracted might cause them to sell. Either announcement might well have affected the market and would to those who bought or sold have seemed misleading and deceptive if the anticipated event did not come to pass. Yet the requirement of hourly bulletins to the press from the conference room would not be compatible with common *876sense. Scores of day by day intra-company situations come to mind which in the individual opinions of company officers or employees might well affect the price of TGS stock, each individual reacting according to his own judgment. tt . , . ,. , However, companies listed on a national , , , , , . ,, exchange can scarcely broadcast to the nation on a daily basis their hopes and/or expectations from the developments in, for example, their research departments. An even more striking illustration would be found within the structure of a large pharmaceutical company where discov- - i , ^ enes of panaceas to cure human disease occupies the workdays of thousands of scientists. Premature announcements of important discoveries would be branded as false and misleading if unfulfilled „ . ,, , , , , , . ,, and all stock purchases made during the course of the research, if ultimately suecessful would be said to have been made with the advantage of inside information. At the other extreme is an equally easy-to-resolve Cady, Roberts1 situation where a definite fact (the reduction of ,, ,v i , ■ ., the dividend) was known by an insider, who participated in the meeting where the decision had already been made, whose knowledge of the probable reaction , ,, , , , of the market to such an announcement, n +• i ,, r,n ... namely, a substantial sell-off, caused him , „ +1, , , - to leave the meeting ahead of everyone , . , j, ,, , , • , , else and before the potential buyers learned of the bad news to foist his selling orders on the market and his stock on uninformed purchasers. Between these extremes there should be a rule of reason
Faced with this problem, the trial court selected a period from November 12,1963 (the first information) to some date after drilling was resumed when it might reasonably be said that a body of com-mereially mineable ore might exist. The trial court, accepting the Commission’s experts’ version, fixed 7:00 p.m. on April 9, 1964 as the time when TGS had material information which “if disclosed, would have had a substantial impact on the market price of TGS stock” but also found that “the drilling results up to 7:00 p.m. on April 9th did not provide such material information.” These findings are clearly supported by the proof upon which the court relied.
_ ,. .. m ... ,. Practically all TGS stock m question , J , .. , here was purchased between November „„„„ , . .... , ’ ,. _ . . , ’ „ . the, m°^ves bfhmd eacb. °I.the purchas; es? ?b™asly’ a subjective approach presents difficulties. A myriad of reasons W°uld ^ /iven-hope that a cornmercially profitable mine would be found if further exploration proved the ore to _ . . ,, r T7- ~~ - b"as Promising as he core of K-55-1 (November 12, 1963); the development f a ph°spb^e prc°^ct and potasb mm" (November 15, 1963); the prediction of security analysts that there would be a , , . „ , , , , turnabout m the price of sulphur stocks; tbe acqaislt*°n of Canadian oil properties (December 16 1963); the new high level ^ ^ee world sulphur use and output (December 30, 1963); the launching of tbe wor?d s If iqU¿d Sulphur tanker (December 30,1963); the entry into ser- . „ . ,’ ™e °!.a ge ^idsulphur domestic shipments (January 18, 1964); tbe falphur expanfo0a program m Canada (February 8, 1964); the new four- , . , . , year high in sales reached m 1963 (Feb- , ,, , . ruary 20,1964) ; and the $2 per ton price . ’ , . increase for sulphur (April 1, 1964).
There can be little doubt but that those familiar with the results of K-55-1 were influenced thereby in making their purchases- The conclusion of the majority 1S based Primarily on this assumption. They call it “a major factor in determining whether the K-55-1 discovery was a material fact” and say that this “virtually compels the inference that the insiders were influenced by the drilling results.” To them, completely disregarding the trial court’s findings and substituting themselves as a jury, these purchases are “the only truly objective evidence of the materiality of the K-55-1 discovery.” In so holding, they confuse the inducing motive of the individual purchaser "with knowledge of material *877facts which ought to be revealed to the public at large. The inconsistency of the majority’s position is immediately apparent. Those who purchased were apparently willing on the basis of the inconclusive first hole and other information to risk a certain amount of their funds in TGS stock, hopeful that future developments would be favorable. Their motive for purchase does not establish the materiality of the facts which influenced them. However, the importance of this case to the corporate and financial community centers around the news release, its timing and its content. It is unfortunate that the atmosphere surrounding this important issue has been so colored and in the collective mind of the majority so contaminated by the comparatively insignificant stock purchase •gsue
The resolution, if such be possible, of the many problems presented in this field should be by rule, as definite as possible, formulated in the light of reality and not retroactive in effect as here, I understand that the Commission has conducted, or is conducting, hearings to enable it to learn the views of the many persons and corporations affected. Presumably the Commission will make recommendations to the Congress to give that body an opportunity to accept or reject after thoughtful debate such' pro-posáis as may be made. The companies, the securities of which are listed on exchanges, their employees and investing public alike should have some knowledge of the rules which will govern their actions. They should not be forced, despite an exercise of the best judgment, to act at their peril or refrain in terrorem from acting. As to a waiting period after the information regarded as “material” has been disclosed, any such time period should be specifically fixed by Congressional or Commission rule not retroactive in application. There is no proof here that the purchases of the defendants, even if motivated by hopes not then solidly grounded, raised or lowered the market or were manipulative, misleading, deceptive or were accomplished by false or fraudulent devices. The trial court after hearing and seeing the witnesses has resolved these factual issues and in my opinion its decision should be sustained.

Stock Options

. _ , , ,. 0n February 20, 1964 the stock option committee, which was not informed of tha developments at Kidd 55, granted Stepkens’ Fougarty’ ^olll8on’ H°Iyk’ K1™ and a number of other top °fflcer/ TGS Smce only K-55-1 had been drilled at that point,^ the District ?°urt fleetly held that there was no duty of disclosure on the part of those rec,e™ tke options Assuming argu™do tha* the information was material, tkfe “ top management have no duty dl8close to directors informa, tion already reported to their own superiors since they may reasonably assume that the information has been conveyed to the directors on the stock option cornmittee. The District Court held that Holyk, Mollison and Kline were not in top management and that Kline was ignorant of the details of the drilling results, so as to them no violation of 10b-5 had been made out. The majority disagree as to Kline, placing him in top management along with Stephens and Fogarty, and holding that he had sufficient knowledge that his non-disclosure violated Rule 10b-5. Since the majority admit that Kline knew only that a hole containing favorable bodies of copper and zinc ore had been drilled in Timmins, it seems clear that he did not possess material information that had to be disclosed. That being the case, I find it unnecessary to decide whether or not Kline was in “top management.”
As to Stephens and Fogarty, the majority decision places insider recipients of stock options in a difficult dilemma, Under the majority’s decision, an insider must perform the uncommon act of refusing such an option, promoting speculation as to the reasons therefor, or accept the option and face possible 10b-5 liability. The objective of protecting a corporation from selling securities to insiders at a price below their true worth *878is fully served by requiring nondisclosing insiders to abstain, not from accepting the stock options, but merely from exercising them — an event likely to occur after the inside information has become public. In any case, the failure to exercise an option is less likely to suggest that the insider possessed material information than the failure to accept such an option. Since the option granted to Kline had not been exercised prior to its ratification by the Texas Gulf directors on July 15, 1965, after full disclosure, there can be no 10b-5 violation as to him, and rescission of the option he received should not be ordered. As Stephens and Fogarty have surrendered the options and the corporation has canceled them, there has certainly been no violation of 10b-5 by them with respect to those options.

The April 12, 1964 Press Release

The majority suggest with, in my opinion, most remarkable business naivete that, instead of the April 12, 1964 press release which the trial court had found as a matter of fact had been issued in the exercise of “reasonable business judgment under the circumstances,” in their 1968 judgment “it would have obviously been better to have specifically described the known drilling progress as of April 10th by stating the basic facts.” They also suggest that “[s]uch an explicit disclosure would have permitted the investing public to evaluate the ‘prospect’ of a mine at Timmins without having to read between the lines to understand that preliminary indications were favorable— in itself an understatement.” Had TGS followed this ex post facto directive, it first would have had to find some news medium capable of reaching the nation’s potential investing public and willing to publish a mass of metallurgical reports disclosing the “basic facts.” Any such procedure would have invited the initial question on cross-examination of TGS officials: How could any such “explicit disclosure” have permitted the investing public to evaluate the prospect of a mine, without the necessity of transmitting it for expert opinion to some School of Mines? Of course there would be but one answer: It could not.
The facts as established between the date of the resumption of drilling and the drafting of the release are as follows:
On March 31, 1964 TGS nwved four drill rigs onto the property, and by April 10th all were in operation. On Friday morning, April 10th, Mollison and Holyk visited the property and learned the results of the drilling up to that time. Mollison left for New York that evening, arriving on Saturday morning. Holyk left for New York Saturday morning and arrived that same day. Until Saturday morning TGS did not intend to issue a press release on the progress of the exploration.
Despite rumors in the Canadian press that TGS had made a major discovery, Lamont had advised Stephens “that TGS should take no action unless the rumors reached the New York press or until TGS had sufficient information available to issue an appropriate press release.” 258 F.Supp. at 293. On Saturday morning, April 11th, both the New York Herald Tribune and the New York Times prominently reported a major ore discovery. In a front page article carrying the title “Canada’s Copper Rush” the Herald Tribune stated “The biggest ore strike since gold was discovered more than 60 years ago in Canada has stampeded speculators to the snowbound old mining city of Timmins * * The article also stated that the richness of the copper was so great that the core was flown out of the country to be assayed and that four more drill rigs were scheduled to start working the following week. All of these statements were inaccurate and a matter of concern to Fogarty and Stephens.2 Stephens advised Fogarty *879that TGS should issue a press release to clarify the rumors that Fogarty therefore contacted Mollison who had just returned from Timmins.
Mollison had been advised by Holyk as to the drilling results up to 7:00 p.m. on April 10th. On the basis of this information he, as an experienced mining engineer, did not feel that there was sufficient information to draw conclusions as to size and grade of ore, and he advised Fogarty accordingly.
The District Court held:
“In seeking the advice of Mollison, the head of TGS’s exploration group, in consulting with TGS’s public relations firm, and in clearing the release with one of TGS’s lawyers, Stephens and Fogarty exercised reasonable business judgment under the circumstances.” 258 F.Supp. at 296.
The press release was drawn up with the aid of the above-mentioned persons on Saturday and Sunday morning, and was delivered to the press on Sunday for publication in the Monday papers, It stated in part:
“Reeent drilling on one ore property near Timmins has led to preliminary indications that more drilling would be required for proper evaluation of this prospect. The drilling done to date has not been conclusive, but the statements made by many outside quarters are unreliable and include information and figures that are not available to TGS.
“The work done to date has not been sufficient to reach definite conclusions and any statement as to size and grade of ore would be premature and possibly misleading. When we have progressed to the point where reasonable and logical conclusions can be made, TGS will issue a definite statement to its stockholders and to the public in order to clarify the Timmins project.”
The majority offer suggestions for improving the press release, but, as their editorial skills and present appraisal of the then mining situation were not available when it was drafted, the relevant issue is whether the District Court was in error in determining that the release was accurate and not misleading,
By 7:00 p.m., April 10, the following data was available:
l. geologists’ logs of visual estimate and chemical assay of the results of K-55-1,
2. preliminary estimates of 757 feet of K-55-3 and unrecorded visual estimates of 569 feet of K-55-6, both drilled on the same line as K-55-1 (2400 S),
3, unrecorded visual appraisals of 476 feet of K-55-4, drilled 200 feet to the south of K-55-1, and
4_ unrecorded visual appraisals of only 97 feet of K_55_5) drmed 200 feet to the north of K-55-1.
Thg Commission’s experts testified that because copper and zinc had been found jn these five holes (although in varying percentages) it could reasonably be con-eluded that the mineralization was continuous between holes 400 feet apart and also 100, feet byond in each direction and to a depth of 600 feet, one hundred feet below the deepest hole. However, the District Court found.that:
“TGS’s experts were unanimously of the opinion that at 7:00 p m_ on April 10 the gidd 55 segment was stM a prospect and that no estimates as to proven or probable ore could be made. They all agreed that the April 12 press release accurately set forth the situation as it was known at the time. None thought that TGS could have estimated proven ore, and the Commission’s expert, Pennebaker, agreed that this was a matter on which there could be differences of opinion. Defendants’ .experts testified that on the basis of the drilling to that time there was no assurance of continuity in the mineral-ized zone and that, without further *880drilling, the results of one hole could not be correlated with the results of others.” 258 F.Supp. at 295.
The April 12 release therefore correctly described Kidd 55 as a “prospect.” While that term is a word of art in the mining trade used to describe “a property where there is no assurance, from the information known, that a commercially mineable ore body exists” [Penne-baker], its technical definition is no different from the definition in common use. See Webster’s New International Dictionary (2d ed. unabridged 1960). Nor is there any inconsistency between the release and the District Court finding that as of April 9, 1964, “there was real evidence that a body of commercially mineable ore might exist.” 258 F.Supp. at 282 (emphasis added). The District Court characterized the press release as an accurate portrayal of the situation as it was known at that time. The inference is therefore inescapable that the Court felt that a reasonable investor would not be misled by it. The Commission’s whole argument appears to be that the release should have been more optimistic (if conclusions were to be used at all), and that it should have referred to Kidd 55 as having “proven” or “probable” ore. But such a press release would have been highly misleading since the information necessary to draw such conclusions was not available on April 10 — according to the TGS witnesses whom the District Court chose to believe.
As evidence that the April 12 release was probably inaccurate, the majority point to the fact that only three days later TGS prepared the April 16 release which announced a major mineral discovery. However, this release was based on more information of significance than was available on April 10 at 7:00 p.m. Between April 12 and April 15 five additional holes had been drilled, K-55-5, 6, 7, 8 and 10 and by April 15 at 7:00 p. m. 5198 feet of core had been drilled compared with 2776 feet on April 10. Furthermore, the location of drilling holes is critical in determining continuity. Most of the footage drilled by April 10 had been in a single plane (2400 S), but by April 15 drilling had established mineralization in a number of additional planes. There is therefore no inconsistency in the statements made and the conclusions reached in the two releases.
The majority remand for a determination of the effect of the April 12 release on a reasonable investor because “they cannot ‘definitively conclude that it was deceptive or misleading to the reasonable investor, or that he would have been misled by it.’ ” The evidence of the actual effect of the release on investors was at best inconclusive. The Commission offered no proof that anyone was misled by the release — e. g. testimony tending to show that most investors thought the release meant that TGS had no hopes of making an ore discovery. Those that had been advised by the broker Roche to purchase stock did not sell upon reading the April 12 release. Several brokers testified that they interpreted the release as affirmative and encouraging. The market opened at 30% on the 13th (when the release became public) and closed at 30% —scarcely a sign of public pessimism. The next day the market closed at 30%. The District Court correctly found that “the issuance of the release produced no unusual market action.” 258 F.Supp. at 294. Nor did he find the release to be “gloomy.” His statement was that: “While, in retrospect, the press release may appear gloomy or incomplete, this does not make it misleading or deceptive on the basis of the facts then known.” 258 F.Supp. at 296. With the aid of hindsight the release may indeed seem gloomy, but that is because it is now known that a very substantial tonnage of ore exists. Hindsight, however, is not the test. Furthermore, even if some investors considered the release to be discouraging compared to the rumors afloat, if the facts and conclusions presented were accurate (as they were) and if they were not presented in a manner that would mislead a reasonable investor (which they were not) then there can be no violation of 10b-5.
*881The District Court aptly pointed out that in quelling the rumors TGS had to proceed with caution:
“If they said too much, they would have been open to criticism and possible liability if it turned out that TGS had not discovered a commercial mine. If they said too little and later announced a mine, they subjected themselves to the charge that their press release was misleading or deceptive— and, indeed, this is what has happened.” 258 F.Supp. at 296.
While it thus might have been “safer” for TGS to have issued a sheaf of drilling results and mineral analyses (which the press would probably have declined to print), “they would have [thereby] encouraged the rumor mill which they were seeking to allay.” (Ibid.) Stephens and Fogarty decided that the best course was to give their evaluation of the situation— a reasonable business judgment that should not incur 10b-5 liability unless their evaluation was either false or misleading. The experts which the trial court credited were of the opinion that Kidd 55 was accurately portrayed as a prospect which required further exploration. The trial court found that the release was not “misleading or deceptive on the basis of the facts then known,” and the majority state that from the record they cannot “definitively conclude that it was deceptive or misleading to the reasonable investor.” It would therefore appear that the Commission has failed in its burden of proof, unless it can be said that TGS was negligent in not obtaining later data from Timmins before issuing the release.3
Of necessity the April 12 press release had to be issued on the basis of the drilling results through 7:00 p. m., April 10, and it seems clear that the trial court determined that it would not be reasonable to charge TGS with knowledge of later information. While additional drilling was done on Saturday and Sunday, April 11 and 12, the cores had not been seen by the geologists advising management, and there was no way of communicating with the drill site even if someone had been available there to give a reliable appraisal. Mollison and Holyk were in New York for the weekend, and there was no telephone at the site — the only way to communicate with the site was to go there. The decision to issue a press release was not made until Saturday, at which point Fogarty testified it “would just be very difficult for us to try to find anyone in Timmins.” The statement was released Sunday afternoon and Mollison and Holyk were asked “to return to Tim-mins as promptly as possible and to move things along.” It therefore cannot be said that TGS was negligent in not obtaining more current data, and it is certainly not negligent simply because it decided to issue the statement when it did. A remand on this point is therefore not justified.
The “in connection with” Clause Precludes the Imposition of § 10(b) Liability on TGS.
In any event, the Commission still has the problem of showing that the other requirement of the statute and rule is met, namely that the release was issued “in connection with” a securities transaction on the part of TGS. This requirement is explicit in § 10(b) of the Act (15 U.S.C. § 78j) which provides:
It shall be unlawful for any person * * #
(b) To use, or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
*882Pursuant to this authority the Commission in 1942 promulgated Rule 10b-5 (17 C.F.R. § 240.10b-5) which states:
Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person * * *
(a) to employ any device, scheme, or artifice to defraud,
(b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
In determining whether the requisite “connection” to a securities transaction was present in this case, the District Court found:
“From the foregoing, it is apparent that the purpose of the April 12 press release was an attempt to, meet the rumors which were circulating with respect to the Kidd 55 segment. There is no evidence that TGS derived any direct benefit from the issuance of the press release or that any of the defendants who participated in its preparation used it to their personal advantage. The issuance of the release produced no unusual market action. In the absence of a showing that the purpose of the April 12 press release was to affect the market price of TGS stock to the advantage of TGS or its insiders, the issuance of the press release did not constitute a violation of Section 10(b) or Rule 10b-5 since it was not issued ‘in connection with the purchase or sale of any security.’ ” 258 F.Supp. at 294.
The District Court held that if TGS or its insiders had purchased TGS stock after issuing the allegedly misleading press release, the inference could be drawn that it was issued to reduce the price of the stock to facilitate purchases at bargain prices. Such a deceptive or manipulative practice would be prohibited by 10(b) and Rule 10b-5. See Gann v. Bernz-Omatic, 262 F.Supp. 301 (SDNY 1966); Cochran v. Channing Corp., 211 F.Supp. 239 (SDNY 1962). Moreover, noting that the “in connection” clause has been broadly construed, the District Court did not require that stock purchases by TGS or insiders be shown. Instead, the court held that “the issuance of a false and misleading press release may constitute a violation of Section 10(b) and Rule 10b-5 if its purpose is to affect the market price of the company’s stock to the advantage of the company or its insiders. Freed v. Szabo Food Serv., Inc., CCH FED.SEC.L.REP. f 91,317 (N.D.Ill. 1964).” 258 F.Supp. at 293. Thus, even if TGS or its insiders had not engaged in securities transactions, if there were evidence from which it could be inferred that the press release was intentionally issued to depress the price of the stock as part of some fraudulent scheme, a 10b-5 violation would have been stated.4 But in this case the only purpose of the press release was to quell the extravagant rumors circulating about the Canadian exploration project. No facts whatsoever were adduced which would have justified a finding that the release was issued for a fraudulent or manipulative purpose. To hold that such a statement incurs 10b-5 liability is contrary to the intent of Congress in passing § 10(b) and settled judicial construction. Furthermore, such a holding might well have the unfortunate result of deterring the dissemination of corporate news despite the strong policy underlying all securities legislation of encouraging disclosure of information useful to present and potential investors. If press releases have to read like prospectuses to guard against possible 10b-5 liability, it is safe to predict that they will quickly fall out of favor with corporate management.
The Commission advances the argument (successful with the majority) that *883the “in connection” requirement is satisfied by the mere fact that the public is purchasing and selling securities on the open market. Thus any statement issued by a publicly listed company is made “in connection” with the purchase or sale of securities. The majority approve of this interpretation because “the investing public may be injured as much by one’s misleading statement containing inaccuracies caused by negligence as by a misleading statement published intentionally to further a wrongful purpose.” However, the fact remains that § 10(b) of the Securities Exchange Act was not passed to protect investors from the former type of injury, but leaves liability for such misrepresentation up to state law, which is well equipped to' handle any such situation. See, e. g., Note, Accountant’s Liabilities for False and Misleading Statements, 67 Colum.L.Rev. 1437 (1967). Section 10(b) was certainly not intended to be a mandate to the Commission to erect a comprehensive regulatory system policing all corporate publicity, as the majority now contend. The legislative history clearly reveals that the statute was passed to prohibit deceptive and manipulative devices used in connection with securities transactions, and that the “connection” between the complained of conduct and the securities transactions must be a closer one than the majority now sanctions. See S.Rep.No.792, 73rd Cong., 2d Sess. (1934); H.R.Rep.No. 1383, 73rd Cong., 2d Sess. (1934); S.Rep.N0.1455, 73rd Cong., 2d Sess. (1934); Comment, 74 Yale L.J. 658, 681— 82 (1965).
The broad congressional purpose in passing the Securities Exchange Act of 1934 is set forth by Thomas G. Cor-coran, one of the draftsmen of the bill that became the 1934 Act. He stated at a 1934 House hearing that “this bill has at bottom five ideas in it, and all 36 pages tie in around the five ideas.” According to Corcoran these five ideas were (1) control on the amount of credit, (2) control of manipulations, (3) control of insider trading [§ 16(b)], (4) elimination of abuses in the market machinery, and (5) the establishment of the Securities Exchange Commission to administer the Act. As to manipulation, he testified that:
“As I will point out later, there are only a very few real battlegrounds in this act. Manipulation is not one of them. The provisons of this bill, as to •manipulations upon stock exchanges, are agreed to practically everywhere, * * * Matched orders, washed sales, pools, options — all of the rest of them are out. So, control of manipulative practices is really not something your committee has to thrash out around this table.”5
It is therefore not surprising that there is little discussion in the legislative history as to the meaning of the language in the anti-manipulation provisions. It was obviously thought that sections outlawing devices that had been shown at great length to be deleterious did not require any lengthy explication. This is unfortunate because it has resulted in § 10(b) being given a construction and significance which, in my opinion, Congress did not foresee and did not intend.
This conclusion is fortified by the provisions of the Act dealing with manipulation since the more specific prohibitions make it clear what evils Congress intended to eradicate by § 10(b). Section 9, 15 U.S.C. § 78i provides that it shall be unlawful for any broker, dealer or other person to create a false or misleading appearance of activity in the market for a stock or to attempt to affect the price of a stock by certain specific manipulative devices.
Section 10(a), 15 U.S.C. § 78j provides :
Manipulative and Deceptive Devices It shall be unlawful for any person
♦X- -X- ♦X*
(a) To effect a short sale, or to use or employ any stop-loss order in eon-*884neetion with the purchase or sale, of any security registered on a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
Read in context it seems clear that § 10 (b) was only meant to be a supplement to the specific prohibitions contained in § 9 and § 10(a). Commenting on the section that became § 10(b), Corcoran stated:
“Subsection [b] says, ‘Thou shalt not devise any other cunning devices.’ * * * Of course subsection [b] is a catch-all clause to prevent manipulative devices. I do not think there is any objection to that kind of a clause. The Commission should have the authority to deal with new manipulative devices.”
Since the manipulative devices outlawed by § 9 all involve fraudulent activities integrally related to securities transactions, the conclusion necessarily follows that the “other cunning devices” sought to be prohibited by § 10(b) and Rule 10b-5 are those which also involve securities transactions as an integral part of the fraud. The statute as enacted requires that the fraudulent scheme be “in connection with the purchase or sale of any security.” The expression “in connection” is used elsewhere in the Act, including § 9(b), as a shorthand method of indicating that the activity sought to be made illegal is that having a direct relation to securities transactions. The majority read the phrase as merely requiring that the allegedly misleading statement be issued by a publicly traded corporation. They argue that the “connection” that has to exist between a corporate statement and a security transaction is supplied by the theoretical argument that every “material” corporate statement presumably affects the market price of the issuer’s securities. In my opinion such a broad interpretation of the statute is unwarranted as a matter of statutory construction and unwise as a matter of policy.
Congress has made it clear in the other antifraud provisions of general application that its concern was not with allegedly misleading corporate publicity but rather with purposeful schemes to deceive and defraud the public by means of manipulative and deceptive devices which directly involve purchases or sales of securities. Thus § 12(a), 15 U.S.C. § 771 of the 1933 Act provides that any person who “offers or sells a security” by means of a prospectus or oral communication which includes a misstatement or omission of a material fact shall be civilly liable. Similarly § 17(a) of the 1933 Act, 15 U.S.C. § 77q(a), provides that it “shall be unlawful for any person in the offer or sale of any securities” to engage in fraudulent activity.
A further insight into the proper scope of 10b-5 can be gained by examining § 17 (a), 15 U.S.C. § 77q(a) which is almost word for word the same except for the explicit requirement that any alleged fraud be associated with “the offer or sale of * * * securities.” The only difference of substance between § 17(a) and Rule 10b-5 is that the latter applies to purchasers as well as sellers. Ellis v. Carter, 291 F.2d 270, 272-274 (9th Cir. 1961); SEC Sec.Exch.Act Rel. No. 3230 (May 21, 1942) (“The new rule closes a loophole in the protection against fraud administered by the Commission by prohibiting individuals or companies from buying securities if they engage in fraud in their purchase.”); Milton Cohen, “Truth in Securities Revisited,” 79 Harv.L.Rev. 1340, 1364 (1966).
Finally, § 15(c) (1), (2), 15 U.S.C. § 78o(c) (1), (2) provides that no broker or dealer shall (1) induce the purchase or sale of any security by means of any manipulative, deceptive or other fraudulent contrivance or (2) attempt to induce the purchase or sale of any security “in connection with which such broker or dealer engages in any fraudulent, deceptive, or manipulative act or practice * *
The majority argue that when compared with the above provisions the slight change of wording in § 10(b) — the insertion of the phrase “in connection with *885* * * ” — indicates that Congress intended a revolutionary change in the whole thrust of the securities laws. That is too slim a basis to support a judicial excursion over such uncharted seas. It is most doubtful that Congress intended such a result, and the merits of such a change are so unexplored that Congress should certainly be consulted before making it.
The majority support their action in part by a long quotation from H.R.Rep. No.1383. It should be noted that the discussion at that point of the report is not addressed to § 10(b) but to the reporting and disclosure provisions of Securities Exchange Act of 1934, specifically §§ 12-14, 16. Section 12 of the Act, 15 U.S.C. § 781, requires the registration of securities traded on a stock exchange and of certain other widely held securities. Detailed information similar to that required by the 1933 Act has to be filed with the Commission for such registered securities, and this information is required by § 13, 15 U.S.C. § 78m, to be kept “reasonably current” by periodic and other reports, filed with the Commission and the stock exchanges. In addition § 16(a), 15 U.S.C. § 78p(a), requires certain officers, directors and major shareholders to file reports with the Commission and the stock exchanges as to their initial holdings of stock and subsequent changes. Finally, pursuant to § 14, 15 U.S.C. § 78n, the Commission has promulgated proxy rules setting forth information that must be sent to shareholders prior to their annual or other meetings. See Schedules 14A-14C, 17 C.F.R. § 240.14a-l01 — 103.
To encourage compliance with these disclosure and reporting requirements, Congress enacted civil (§ 18, 15 U.S.C. § 78r) and criminal (§ 32, 15 U.S.C. § 78ff) provisions. A close reading of § 18 will demonstrate that a plaintiff proceeding under that section (as opposed to § 10(b)) does not have to show that the misleading statement was issued by a person [or corporation] who engaged or participated in a securities transaction or even that the misstatement was intended to influence securities transactions as part of some fraudulent scheme. Therefore, the statements in the legislative history applicable to the reporting and disclosure provisions have no bearing on the correct interpretation of § 10 (b). That section was not meant to be an auxiliary disclosure device or a provision to punish those who issue inaccurate statements in newspapers or documents filed with the Commission unless they are fraudulent acts integrally connected with securities transactions. If there is no such connection, investors are relegated to § 18 or state law to recover their losses and the Commission must use its other remedies, discussed infra.
In discussing Rule 10b-5 Cohen expressed concern which, as a result of the majority opinion, seems to have been well founded, that Rule 10b-5 would be given an “unwarranted” extension. In “Truth in Securities Revisited,” op. cit. supra, at 1366, he said:
“Nor is it clear that Rule 10b-5 will not be read as providing an alternative remedy (alternative to the considerably more limited express remedy of section 18) for false or misleading statements in filing under sections 12 and 13. One might regard these as surprising and even unwarranted extensions of Congress’s terse proscription of ‘any manipulative or deceptive device or contrivance’ in section 10(b) and yet not care to predict confidently that the momentum of decisions will not carry this far.”
***** *
“ * * * I firmly believe that whatever inadequacy is found in § 18, as the basic civil liability provision applicable to the continuous disclosure system, ought to be taken care of by direct amendment of the section itself, not by resorting to the broader, vaguer, but (in my view) otherwise directed provisions of Rule 10b-5. I believe that the problem of misrepresentation in a registrant’s (issuer’s) required filings is quite distinct from the problem of fraud or misrepresentation by a purchaser or seller of a security (even *886though the two areas sometimes overlap), and that more mischief than good is likely to come from confusing them or treating them as interchangeable.”
(Cohen, op. cit. supra at 1370, n. 89)
The majority opinion must also be considered in light of its overall impact before a decision can be reached as to its advisability (assuming that the power to interpret § 10(b) is as unlimited as the majority apparently believe). It should be realized that the construction given 10b-5 will turn it into a comprehensive regulatory provision applicable to all corporate and individual statements, but without any of the detailed standards necessary to implement such a program. The Commission is presently arguing that 10b-5 is applicable to all corporate statements disseminated to the public or filed with the Commission. See S. E. C. v. Great American Industries, Inc., 259 F.Supp. 99 (S.D.N.Y.1966), appeal pending; Heit v. Weitzen, 260 F.Supp. 598 (S.D.N.Y.1966), Howard v. Levine, 262 F.Supp. 643 (S.D.N.Y.1965), consolidated appeal pending sub nom. Heit v. Weitzen (.amicus curiae). The majority opinion appears to approve of the Commission’s position without reservation.
The Commission’s arsenal of weapons for fighting misleading statements has certainly not been shown to be insufficient for it to carry out the tasks that Congress assigned to it. Rule 10b-5 remains a potent method of proceeding against fraudulent schemes which involve securities transactions for both the Commission and private investors. The Commission can also obtain injunctions to enforce compliance with the disclosure and other provisions of the Securities Exchange Act (§ 21, 15 U.S.C. § 78u), and stiff criminal penalties are provided for failure to comply with the statute or rules promulgated thereunder (§ 32, U.S.C. § 78ff). The Commission can suspend trading for successive periods of 10 days in any security which it feels is being affected by misleading press releases (§§15 (c) (5), 19(a) (4), 15 U.S.C. §§ 78o(c) (5), 78s(a) (4)). For an example of the effective use of this latter power see SEC Sec.Exch.Act Rel. No. 7741 (Nov. 4,1965) relating to suspension in trading of Beloek Instrument Corporation, a defendant in Heit v. Weitzen, supra. Finally, when faced with the repeated issuance of misleading press releases, the courts can without more proof draw the inference that they were purposefully distributed to affect the price of the issuer’s securities, justifying injunctive relief under 10b-5 and possibly other remedies. See SEC v. Electrogen Industries, Inc., 68 Civ. 23 (E.D.N.Y. Feb. 26, 1968). In any event if the Commission feels that its arsenal should be augmented, Congress not the courts is the proper forum for its arguments.

Other Judicial Interpretation

The construction given the “in connection” clause by the District Court has been followed in the many cases that have considered the point. See SEC v. North American Research & Development Corp., 280 F.Supp. 106 (S.D.N.Y. Feb. 8, 1968); Puharich v. Borders Electronics Co., Inc., 1968 Fed.Sec.L.Rep. If 92,141 (S.D.N.Y. Jan. 24, 1968); Howard v. Levine, 262 F.Supp. 643 (S.D.N.Y. 1965), appeal pending; Gann v. BernzOmatic, 262 F.Supp. 301 (S.D.N.Y. 1966) (dictum); Heit v. Weitzen, 260 F.Supp. 598 (S.D.N.Y. 1966), appeal pending.
It is of course true, as the Commission points out, that the “in connection” clause has been given a broad construction by the courts in line with the remedial nature of securities legislation (see SEC v. Capital Gains Bureau, 375 U.S. 180, 195, 84 S.Ct. 275, 11 L.Ed.2d 237 (1965); cf. Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967)), but no ease supports the Commission’s position that it is in effect meaningless. The cases to date have involved defendants who if not actually purchasing or selling securities at least participated in a direct manner in a securities fraud.6 Thus one who conspires with or aids and abets another in the *887fraudulent purchase or sale of securities may have the needed connection. See Pettit v. American Stock Exchange, 217 F.Supp. 21 (S.D.N.Y. 1963) (Defendant Exchange and its officers allegedly aided and abetted an illegal distribution of stock by its failure to take necessary disciplinary actions against abusive conduct and practices of its employees of which they knew or should have known. Held: su'fficient allegation of fraud under 10b-5); Brennan v. Midwestern United Life Ins. Co., 259 F.Supp. 673 (N.D.Indiana 1966) (Defendant corporation allegedly aided and abetted an alleged violation of 10b-5 by its brokerage firm because of its failure to report the improper activities of said firm to the proper authorities. Held: cause of action stated under 10b-5).
Similarly, corporate officers or directors may be liable for causing their corporation to engage in securities transactions. See Ruckle v. Roto American Corp., 339 F.2d 24 (2d Cir. 1964) (Corporation allegedly defrauded into issuing securities to its President through the failure or refusal of some of its directors fully to disclose to the remaining directors material facts concerning the transactions or the financial condition of the company); Bredehoeft v. Cornell, 260 F.Supp. 557 (D.Ore.1966) (Plaintiff induced to sell his stock to the corporation for less than its true value because the defendants, stockholders and directors of the company fraudulently concealed material facts); New Park Mining Co. v. Cranmer, 225 F.Supp. 261 (S.D.N.Y. 1963) (Defendants caused plaintiff corporations, of which they were officers, to issue stock for property which was worth much less than the stock); cf. H. L. Green Co. v. Childree, 185 F.Supp. 95 (S.D.N.Y. 1960) (Accountants allegedly induced corporation to go through with a merger (a securities transaction) by preparing false financial statements and making other misrepresentations).
A corporation may itself violate Rule 10b-5 if it engages in fraudulent aetivities in connection with a merger or other transaction involving securities. See Freed v. Szabo Food Service, Inc., ’61-’64 CCH Fed.Sec.L.Rep. f[ 91,317 (N.D.Ill. 1964) (Corporation, as part of a campaign to boost the value of its stock to achieve stockholder approval of a merger, deliberately issued statements misrepresenting future combined earnings. The price went up and the shareholders were impressed with this indication of the opinion of the financial community as to the proposed merger. The plaintiffs were held to have stated a cause of action under 10b-5 because they allegedly bought stock in the combined company on the strength of those misrepresentations.); cf. Vine v. Beneficial Finance 627 (2d Cir. 1967) (Corporation fraudulently arranged a merger so one c^ass °f shareholders would receive much less than the other class which was comprised of officers and directors. While^ the alleged fraudulent a^s were committed before plaintiff sold ^is stock (he had not at the time of suit), waf a^out to be forced to sell his part a fraudulent scheme.),
Another series of decisions involve a broker, dealer or financial institution which fraudulently induced plaintiff’s purchase or sale. See Stockwell v. Reynolds & Co., 252 F.Supp. 215 (S.D.N.Y. 1965) (Plaintiffs retained stock in a company solely because a broker misrepresented or failed to disclose certain material facts.); Glickman v. Schweickart & Co., 242 F.Supp. 670 (S.D.N.Y. 1965) (Broker induced plaintiff to purchase some stock and to finance the purchase through a factor without disclosing material facts concerning the risks of such a procedure.); Cooper v. North Jersey Trust Co., 226 F.Supp. 972 (S.D.N.Y. 1964) (Trust company alleged to be a participant in a fraudulent scheme whereby loans were made to plaintiff by *888a factor who converted the stock when it was pledged as collateral for the loan.); Meisel v. North Jersey Trust Co., 218 F.Supp. 274 (S.D.N.Y. 1963) (same); Lorenz v. Watson, 258 F.Supp. 724 (E.D.Pa.1966) (Brokerage house liable to plaintiff if it failed to supervise adequately one of its employees who allegedly was guilty of “churning” or excessive turnover in plaintiff’s account.). See also §§ 9(a) (4), 15(c) (1), (2), 15 U.S. C. §§ 78i(a) (4); 78o(c) (1), (2). In all of the above cases the defendants, unlike the defendant here, were clearly participants in a securities transaction and were guilty of or responsible for deceptive activities of which the securities transaction was an integral part.

The Injunction Remedy

The remedy of a permanent injunction against the company, its officers and agents, the issuance of which the majority leaves to the discretion of the trial court, would not only be inappropriate but would be destructive of fundamental rights — “inappropriate” because based upon one “too-gloomy” press release on April 12, 1964, with no proof of continuing gloominess thereafter. The issuance of any injunction over four years after the alleged violation would place a large company and its many executive employees under the possibility, without even a Miranda warning, that anything they say may be held against them and place them under the danger of criminal sanctions; “destructive of fundamental rights” because the restraint constitutes not “double” jeopardy but “perpetual” jeopardy. If, as the majority say, the test of the news release is its impact on the “reasonable” investor (although they indicate that the unreasonable speculator, too, comes under their solicitous wing) to avoid the danger of injunction violation it would be necessary to seek a declaratory judgment from the courts (both trial and appellate because following the majority, Rule 52(a) would no longer apply). As to the sufficiency of the news release, the first issue would be what constitutes a “reasonable” investor. After the court had made a preliminary finding of reasonableness, these investors could then testify as to the impact that the proposed release would have on them. Query, as to whether twelve witnesses (akin to a jury) should be required — and would a seven-to-five count be acceptable or would ten-to-two more accurately reflect public opinion? Other situations and problems of an equally reductio ad absurdum character can easily be conjured up. They would only point more directly to the conclusion that an injunction here would not only violate fundamental legal principles which for centuries have restricted the injunctive grant but would not be justified by any sufficient factual showing in this case. No clear and present danger, no continuing wrongful acts and no likelihood thereof are to be found in the record before this court.

Crawford, Clayton and Coates

Since I believe that the findings of the trial court are solidly founded and should be respected, I agree with its decision as to Crawford and Clayton. I agree with the majority as to Coates because for all practical purposes the information had not become public at the time of his purchase order.

Conclusion

In summary, the most disturbing aspect of the majority opinion is its utterly unrealistic approach to the problem of the corporate press release. If corporations were literally to follow its implications, every press release would have to have the same SEC clearance as a prospectus. Even this procedure would not suffice if future events should prove the facts to have been over or understated— or too gloomy or optimistic — because the courts will always be ready and available to substitute their judgment for that of the business executives responsible therefor. But vulnerable as the news release may be, what of the many daily developments in the Research and Development departments of giant corporations. When and how are promising results to be disclosed. If they are not disclosed, the corporation is concealing informa*889tion; if disclosed and hoped-for results do not materialize, there will always be those with the advantage of hindsight to brand them as false or misleading. Nor is it consonant with reality to suggest, as does the majority, that corporate executives may be motivated in accepting employment by the opportunity to make “secret corporate compensation * * * derived at the expense of the uninformed public.” Such thoughts can only arise from unfounded speculative imagination. And finally there is the sardonic anomaly that the very members of society which Congress has charged the SEC with protecting, i. e., the stockholders, will be the real victims of its misdirected zeal. May the Future, the Congress or possibly the SEC itself be able to bring some semblance of order by means of workable rules and regulations in this field so that the corporations and their stockholders may not be subjected to countless lawsuits at the whim of every purchaser, seller or potential purchaser who may claim he would have acted or refrained from acting had a news release been more comprehensive, less comprehensive or had it been adequately published in the news media of the 50 States.

. In re Cady, Roberts & Co., 40 SEC 907 (1961).

. The New York Stock Exchange Company Manual provides:
“Dealing with Rumors Affecting the Market: Occasions may also arise when rumors have been circulated which have no basis in fact or which require clarification or interpretation and which also result in unusual activity or price changes *879in a particular security.- Under such circumstances, the most effective procedure is the quick and speedy denial of such rumors through a release to the public Press * * * ”

. Of course, even if TGS were negligent in not obtaining later data, a determination must still be made that the press release was misleading in light of this later information,

. Whether the release had any such effect would, of course, be irrelevant.

. Hearings before the House Committee on Interstate and Foreign Commerce on H.R. 7852 and H.R. 8720, 73rd Cong., 2d Sess. (1934).

. In two cases, on motions to dismiss, two courts have permitted 10b-5 actions to continue where defendants were not alleged to be intimately connected with a *887purchase or sale of securities. Miller v. Bargain City, U. S. A., 229 F.Supp. 33 (E.D.Pa.1964); Fischer v. Kletz, 266 F.Supp. 180 (S.D.N.Y. 1967). But in both cases the courts recognized that further factual and legal development was necessary for the proper resolution of the issue.