In SEC v. Texas Gulf Sulphur, the Second Circuit declared that all investors trading on impersonal exchanges should have equal access to material information, and therefore anyone who possesses material inside information must either turn it over to the investing public or not trade. The broad reach of that insider trading prohibition sent shock waves throughout the financial markets and encountered significant judicial resistance from the Supreme Court.
Although the Supreme Court initially rejected the insider trading prohibition announced in Texas Gulf Sulphur, the fundamental equitable trading principles underlying that decision have endured. This article shows that TGS was more than a case about insider trading. It established the fundamental inequity and unfairness of misappropriating resources that are meant to be shared. This article will trace the evolution of those equitable principles from TGS to the Supreme Court’s current insider trading law. I also suggest that those principles have much in common with both the teachings of Pope Francis in Laudato Si’ and with the latest research regarding sustainable economic productivity within a robust capitalist system.
Michael J. Kaufman,
From Texas Gulf Sulphur to Laudato Si’: Mining Equitable Principles from Insider Trading Law,
SMU L. Rev.