The dispute centered on the actions of a dozen employees of the Texas Gulf Sulphur Co. (TGS) following the discovery of major mineral deposits in Canada.

[9] Judge Waterman wrote the majority opinion, which included holdings on a number of legal issues related to insider trading and false or misleading statements.

[14] On the issue of tipper-tippee liability, the court held that by sharing material information with corporate outsiders who then bought TGS stock, an employee violated Rule 10b-5.

[17] The court rejected this argument, holding that specific intent to defraud is not necessary to establish 10b-5 liability; a defendant's negligence suffices.

[18] As to receiving stock options from TGS, the court held that members of top management had a duty to disclose any material information before doing so.

[19] TGS argued that its first public statement was not unlawful because it was not issued "in connection with the purchase or sale of any security", as required by Rule 10b-5.

[20] The court rejected these arguments and held that the "in connection with" prong only requires a false or misleading statement be made "in a manner reasonably calculated to influence [investors].

[23] Judge Friendly wrote a separate concurring opinion expressing his concern about the possibility of private suits for large money damages based only on negligently prepared press releases.

Judge Moore objected to the majority's standard for materiality, arguing that relying on the potential impact that information might have on stock price would sweep in almost any fact related to a company.

[29] As to the proper meaning of "in connection with", the dissent called for a requirement that the defendant either have acted with a fraudulent purpose or have made trades.

[31] The majority drew heavily on what it viewed as the core policy behind Rule 10b-5, that "all investors trading on impersonal exchanges [should] have relatively equal access to material information.

[2] The SEC in Cady, Roberts & Co. (1961) had extensively treated insider trading and set out the "disclose or abstain rule", but as an agency opinion, it did not have precedential value in federal courts.

In Chiarella v. United States (1980), the Court rejected the rule that anyone with material inside information must disclose or abstain from trading.

[43] In addition, the Court endorsed Texas Gulf Sulphur's "probability-magnitude test" as a factor for determining materiality in Basic, Inc. v. Levinson (1988).