Crying on the Inside

An "insider," by Wall Street terminology -- and by the legally enforced standards of the U.S. Securities and Exchange Commission--is anyone who, by reason of being an officer, director or major stockholder of a corporation, can get advance information that might affect the firm's stocks. Thus insiders are required to file regular reports of their stock purchases with the SEC; the commission closely scrutinizes such reports to make sure that the insiders have not profited by information unavailable to outsiders, meaning the general public.

This seems eminently reasonable. But last week the SEC made a move to stretch its "insider" regulation well beyond previous bounds.

There was much background to the SEC move. Last year the commission lodged charges against 13 officers, directors and key employees of Texas Gulf Sulphur Co. for taking profitable advantage of advance word about the discovery of a huge Ontario ore field of copper, lead, zinc and silver. Among those charged was Thomas S. Lament, now 67, a retired vice chairman of Morgan Guaranty Trust Co. and a director of Texas Gulf Sulphur.

Last week, in a Manhattan federal court, the SEC amended its complaint against Lament, who had previously been accused of tipping the find to Morgan officers handling customer accounts. In essence, the amended complaint said that on that day of April 16, 1964, Lament had also bought 3,000 new shares of Texas Gulf Sulphur himself. This was more than two hours after a company-sponsored press conference had announced the news of the new field. The word had already been carried on Dow-Jones tickers. Brokers' representatives had attended the press conference and phoned the information to their offices. Rumors of the find and reports of heavy rigging equipment moving through the nearby town of Timmins, Ont., had been carried in newspapers for two weeks; on the morning of the Texas Gulf Sulphur press conference, Ontario's minister of mines made a jubilant official announcement of his province's bonanza. By the time Lament placed his 3,000-share order, the price of Texas Gulf Sulphur had jumped from an opening 301 to 341. It closed the week at 401.

Despite all that, the SEC last week insisted that an insider must give the public a fair amount of time to "absorb" such information. How much time is fair? A matter of hours, days or weeks? The SEC didn't say.

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