Washington, DC— Yesterday, the Financial Services Committee unanimously passed HR 2534, Congressman Jim Himes’s (CT-04) Insider Trading Prohibition Act. The bill would make it a federal crime to trade a security based on material, nonpublic information that was wrongfully obtained, ending decades of ambiguity for a crime that has never been clearly defined by law.
“I’m grateful to Chairwoman Maxine Waters and Ranking Member Patrick McHenry as well as Subcommittee on Investor Protection, Entrepreneurship and Capital Markets Chairwoman Carolyn Maloney and Ranking Member Bill Huizenga for their support in producing this bipartisan piece of legislation,” said Himes. “It is unfair to Americans and harmful to the markets when individuals trade on material, non-public information. But, inexplicably, to this point there has not been legislation codifying the law in this area. Today we took a big step forward to solving that problem.”
“Congressman Himes you’ve engaged in this legislative process in a very constructive way,” said Ranking Member McHenry during the markup. “I do want to thank you for reaching out to Committee Republicans. We all agree there’s no place for insider trading. And I want to work with you to ensure that the bill moves to the floor and accomplishes just that.”
The Insider Trading Prohibition Act:
- Makes it unlawful for a person to trade on material, nonpublic information when the information was wrongfully obtained, or when the use of such information to make a trade would be deemed wrongful;
- Makes it unlawful for a person who wrongfully obtains material, nonpublic information to communicate that “tip” to another person when it is reasonably foreseeable that the person is likely to trade on that information;
- The bill defines "wrongful” as information that has been obtained through “theft, bribery, misrepresentation or espionage, a violation of any federal law protecting computer data or the intellectual property or privacy of computer users, conversion, misappropriation or other unauthorized and deceptive taking of such information, or a breach of any fiduciary duty or any other personal or other relationship of trust and confidence.”
- Removes the requirement outlined in Newman that a person who receives a “tip” (a “tippee”) and trades on that information have any knowledge that the “tipper” received a personal benefit, so long as the tippee was aware, or recklessly disregarded, that the information was wrongfully obtained or communicated.
- Authorizes the SEC to exempt any person or transaction from liability under this bill at the Commission’s discretion.
“I believe that the best laws come from working in a constructive, bipartisan fashion,” continued Himes. “Today we were able to work out an agreement that will bring a strong bill to the floor and I look forward to continued work with my colleagues on both sides of the aisle and stakeholders as we move toward final passage.”