From Texas Gulf Sulphur to Chiarella: A Tale of Two Duties

Abstract

This short essay is for a “celebration” of the fiftieth anniversary of the Second Circuit’s decision in SEC v. Texas Gulf Sulphur Inc. It tells of two distinct doctrinal journeys begun in TGS — one dealing with insider trading, the other with corporate liability for false corporate publicity. The first involves the “equal access” principle planted therein and then harshly discarded by the Supreme Court twelve years later in Chiarella v. United States. My claim is that marketplace egalitarianism never had much traction in the period from TGS to Chiarella, and was largely dead by the time the Court officially extinguished it. By that time, it played mainly a boogeyman role. The second journey had a different fate: the flourishing of the fraud-on-the-market cause of action. But an important back story also takes us from TGS to Chiarella in the truncation of the corporation’s affirmative duty to disclose, which was collateral damage from the Court’s insider trading ruling. Though now mostly forgotten because of all that was swept away in Chiarella’s wake, landmarks along the way can be pieced together into an interesting story of legal archeology, with some contemporary relevance.