## Facts

- Texas Gulf Sulphur Co. (TGS) conducted mineral exploration near Timmins, Ontario (Kidd 55) and obtained drilling and assay results indicating ore-grade mineralization, with additional favorable information arriving shortly before April 12, 1964.
- Major newspapers reported a significant strike on April 11, 1964, increasing market attention to the Timmins discovery.
- On April 12, 1964 (published April 13), TGS issued an official press release addressing the discovery that relied on earlier data and did not reflect more favorable, newly received information.
- The trial court found the April 12/13 release materially inaccurate and misleading, and found TGS failed to disclose material drilling information between April 12 and April 16, 1964.
- The plaintiffs, long-time TGS shareholders, read the April 12/13 release and sold their shares after it and before fuller disclosure.
- On April 16, 1964, information released with TGS’s permission disclosed the successful drilling and major ore body, after which TGS’s stock price rose sharply.
- Plaintiffs sued TGS and executive vice-president Charles A. Fogarty under § 10(b) and Rule 10b-5; the district court found liability and awarded damages using a “highest price within 20 trading days after disclosure” approach.

## Issues

1. Whether TGS and Fogarty violated § 10(b) and Rule 10b-5 by issuing a materially misleading press release and by failing to disclose material drilling results during the period before corrective disclosure.
2. Whether the plaintiffs proved reliance and loss causation in selling during the period affected by the alleged misstatements and omissions.
3. What measure of damages applies in a private Rule 10b-5 action by sellers: a highest-intermediate-value method or a compensatory out-of-pocket measure.
4. Whether plaintiffs were entitled to restitutionary recovery based on unjust enrichment or to expanded relief on a class-wide basis.

## Decision

- The Tenth Circuit affirmed the finding of liability under § 10(b) and Rule 10b-5 against TGS and Fogarty.
- The court accepted findings that the April 12/13 press release was materially misleading and that the nondisclosure of material drilling information was actionable once the company chose to speak.
- The court affirmed findings of reliance and proximate causation: plaintiffs read the release, sold because of it, and suffered loss when the market price rose after fuller disclosure.
- The court modified the damages award, rejecting the district court’s “highest price within 20 trading days” measure as improper for a private compensatory action.
- The court declined to award restitution/disgorgement as the primary measure of recovery and declined to broaden the case into a class action on appeal.

## Legal Principles

- When an issuer speaks publicly on a matter of market significance, it must make the disclosure complete and accurate; half-truths and omissions that render a statement misleading can violate Rule 10b-5.
- Materiality turns on whether a reasonable investor would consider the omitted or misstated information important in deciding to trade.
- A plaintiff may prove reliance and causation where a misleading corporate release affects trading decisions in an open market and the plaintiff trades in reliance on that information.
- In private Rule 10b-5 damages actions, recovery is generally compensatory and measured by out-of-pocket loss; methods designed to strip gains (such as highest-intermediate-value measures) are disfavored when they produce a windfall untethered to actual loss.
- Restitutionary or unjust-enrichment recovery is not the default measure in private § 10(b)/Rule 10b-5 suits absent a basis to depart from compensatory limits.

## Conclusion

The Tenth Circuit held that TGS and its executive violated Rule 10b-5 through a materially misleading press release and related nondisclosure, causing selling shareholders’ losses, but it limited recovery to a compensatory damages measure rather than a post-disclosure peak-price or restitution-based award.


Mitchell v. Tex. Gulf Sulphur Co., 446 F.2d 90 (10th Cir. 1971)