The opinion of the court was delivered by: PLATT
By an order to show cause with an affidavit of the plaintiff and exhibits annexed, plaintiff moves pursuant to Rule 65 of the Federal Rules of Civil Procedure for an order (i) enjoining each of the defendants from taking any action which would in any way interfere with (a) plaintiff's selling the 14,000 shares of CopyTele, Inc. stock that he owns, and (b) the transfer of the registered ownership of any of the 14,000 shares of CopyTele, Inc. stock owned by plaintiff to a third party; or, alternatively, (ii) permitting plaintiff to sell his 14,000 shares of CopyTele, Inc. stock and to place the proceeds of such sale in an interest-bearing account subject to the further order of this Court.
After the parties appeared on April 1 and 2, 1985, to argue the merits of t plaintiff's motions, an evidentiary hearing was held on April 12, 15, and 16, 1985. Plaintiff testified in his own behalf and was also called as a witness. No other witnesses were called by the plaintiff or the defendants.
Plaintiff said that he was a "manufacturing engineer" without an engineering degree; that he had worked over the years for companies such as Burroughs, Sperry, Litton, and Kollsman; and that he decided in 1979 that he wished to come back to Long Island and called the defendant Frank DiSanto with respect to the availability of a job; that as a result of such call in 1980 he went to work for Visual Sciences and that in August 1982 he started to work for the defendant CopyTele, Inc.; that in November 1982 he purchased 14,000 shares of CopyTele stock at 10 cents a share which was part of a sale of 390,000 shares of such stock to 17 individuals at such price; that the only restriction of which he was aware when he purchased the stock was that it was not "registered" under the Federal securities laws; that in October 1983 CopyTele had a public offering of its shares pursuant to a registration statement; that as a result of this public offering it became possible for his to utilize the provisions of Rule 144 promulgated under the Securities Act of 1933 to sell his CopyTele stock after he had held it for two years; that in December of 1984 three other individuals, G. Thomas Catherines, Allen J. Hammer and Georgia State Senator Haskew Brantley tried to sell their stock in CopyTele, and when the defendants refused to permit them to do so brought suit in this Court for an order permitting them so to do; and that in December 1984, pursuant to a subpoena, he testified at a hearing in connection with that suit that there was no agreement which prohibited the sale of the stock sold to the various individuals such as himself in the Fall of 1982 at 10 cents a share.
At the outset of the hearing in the case at bar, the attorneys for the defendants stipulated that they would not contest in this hearing the findings and conclusions in such prior hearing which are set forth in this Court's Memorandum and Order dated February 14, 1985, Catherines, et al. CopyTele, Inc., et al., F. Supp. (E.D.N.Y. 1985), and that the only issue for this Court's determination was whether the plaintiff at this juncture is an insider who was cognizant of facts "which are essentially extraordinary in nature and which are reasonably certain to have a substantial effect on the market price of the security if [the extraordinary facts are] disclosed." Securities Exchange Commission v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir. 1968).
On his return to work at CopyTele after testifying in the Catherines case before this Court, the defendants reduced plaintiff's salary, deprived him of the use of a company car and moved his office from the engineering and work areas to the executive and administration area, apparently in order to be sure that he would not directly or indirectly have access to any such facts or information of a sensitive, proprietary and confidential nature intended to be available only to the corporation and not the public. In addition, plaintiff was deprived of a telephone and the locks and combinations permitting access to the engineering and work areas where changed so that he might not walk into the same without a proper escort.
On April 1, 1985, plaintiff resigned his position with CopyTele and is no longer an employee thereof.
Plaintiff has testified, and his testimony is uncontradicted, that he had no access to or knowledge of any information which is not already in the public domain.
CopyTele's product, still in the research and development stage, which allegedly contains material information which precludes its present and former employees, including plaintiff, from trading in its stock, is a flat-panel display which will "have a built-in memory in the sense that the images created by the display do not have to be refreshed as do images produced by cathode ray tubes ('CRTs') and other commonly used display devices." Plaintiff's Exhibit 11, CopyTele's Form 10K for Fiscal Year ended 10/31/84 dated January 28, 1985. It was stipulated in the course of the hearing that no prototype of this system (Called the CT-100 system) has yet been produced. The fact that no prototype has been produced has been noted in several recent publications which plaintiff introduced as exhibits, not for the truth asserted in them, but to confirm information asserted to be in the public domain. Kindel, et al., "Flat-Panel Display Remembers Images When It's Turned Off," Popular Science, August 1984 at 58 (Ex. 1) (a copy is annexed to this Memorandum and Order); Petre, "The Mystifying Business Behind a Magical Stock," Fortune, June 11, 1984 at 55 (Ex. 2); Andrew, "Heard on the Street: CopyTele's Stock Performs Like a Champion, Considering Firm Hasn't Closed a Single Sale," Wall St. J., Nov. 1, 1984 at 63 (Ex. 3); Dorfman, "SEC is Probing CopyTele," N.Y. Daily News, Nov. 7, 1984 (Ex. 4); Marcial, "The Year's Most Overpriced Stock?," Business Week, April 15, 1985 at 144 (Ex. 12); and Benway, "Magnificent Obsession? Don McShane Has a Thing for CopyTele," Barron's, April 15, 1985 at 13 (Ex. 13).
In defendants' aforesaid Form 10K it is stated that :
"The company has been developing a suspension consisting of submicron particles of suitable color pigments suspended in solvents. Each of these particles is surrounded by a charge control and a wetting agent which essentially coat the particle and enable it to retain an electrical charge and remain in suspension. The company has been mainly using a yellow pigment which is suspended in a dark dye solution. The company has used various fluids in its test panels and is continuing its efforts to im- prove the characteristics of the fluid, including other color combinations.
"Additional development of the structure, chip carrier drive system and fluid is required in con- nection with the completion of the flat-panel display. Upon completion of these efforts, if successful, the flat-panel display must be tested and modified as re- quired prior to manufacturing."
The key men in the company and the co-inventors of the system are the defendants Krusos and DiSanto, the latter of whom was interviewed by Popular Science magazine writers in preparation for an article on the system which appeared in the August 1984 edition. Pl. Ex. 1. Mr. DiSanto is quoted in that article as saying, ...