, Research Paper
Created in the post-Depression era, the Securities and Exchange Commission (SEC) acts to protect investors by regulating financial speech. The U.S. Supreme Court has ruled, in instances such as the TGS case, that this regulation is not unfair censorship, even though it means some speech is compelled. Rule 10b-5 is one such SEC regulation, which compels speech by prohibiting “fraudulent or misleading corporate communications in any context relevant to investors,” according to Zelezny (334).
In the decision in the TGS case, [Securities and Exchange Commission v. Texas Gulf Sulphur Co., (1968)], The U.S. Court of Appeal for the Second Circuit set a precedent on Rule 10b-5. Texan Gulf Sulphur (TGS) had been drilling for copper and zinc in eastern Canada. Top people in the company knew of these attempts, and their potentially lucrative results. The company moved ahead with drilling and land acquisition, but did not release reports to the public. After rumors of a strike were publicized in national papers, TGS circulated a press release stating the project had not yielded definite results yet. The SEC prosecuted a complaint regarding Rule 10b-5 and the failure of TGS to release information to stockholders and the general public.
The court ruled that company insiders were trading stock unfairly because they had access to information which allowed them to make more informed decisions than the rest of the public. Also, it was decided that the press release circulated by TGS was misleading in a way that would cause a reasonable investor to believe the ore strike was less significant than it was. Though TGS contended that ruling a10b-5 violation for its negligence in the release was against its First Amendment rights, the court disagreed. In ruling that corporate reports are a kind of speech, a precedent was set. In denying the appeal, the court held that both stockholders and the investing public must be kept informed of information that could impact their decision to invest or sell shares in a timely and accurate manner.
Additional restrictions have been placed on corporate political speech. Corporations are composed of multiple individuals who, though they share business interests, do not necessarily hold the same moral convictions or political aspirations. Therefore, a corporation is limited in what forms of speech it may support, and further limited in where the monetary resources it spends originate. According to Zelezny, one of the greatest concerns regarding corporate political speech is the large sums of money a company is able to amass and donate either directly to candidates through political contributions or indirectly in ads or campaigning not coordinated with a politician through independent expenditures.
The Federal Election Campaign Act (FECA) of 1971 is legislation passed to try to limit corruption in the relationship between businesses and politicians. Two of the first cases to challenge FECA regulations were Buckley v. Valeo (1976) and Austin v. Michigan Chamber of Commerce (1990). The Buckley case involved contribution and expenditure limitations on the individual level, while Austin explored them on a corporate level.