Texas Gulf Sulphur: A Case Study on Responding to Market Rumors

Abstract

This essay is included in the SMU Law Review symposium issue commemorating the 50th anniversary of SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968). This essay uses Texas Gulf Sulphur as a case study on an issue that companies continue to face today: whether, and how, to respond to market rumors. This essay analyzes the countervailing incentives that influence whether companies respond to market rumors, applies those pressures to the facts of Texas Gulf Sulphur, and concludes that counsel today would likely advise similarly situated companies to remain silent rather than respond to market rumors. Drawing therefrom, this essay argues that silence is not the socially optimal response and that the dueling pressures on companies should be adjusted to incentivize companies to respond to market rumors.

Keywords: Texas Gulf Sulphur, Securities Regulation, Market Rumors, Disclosure