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house Bill H.R. 2534

Should Insider Trading Be Defined & Prohibited at the Federal Level?

Argument in favor

Although most people agree that insider trading is unfair and gives those who engage in it an unfair advantage in the stock market, the lack of a codified definition for it makes it difficult to prosecute it as a crime. Defining insider trading at the federal level will clarify what it is, make it easier for federal prosecutors to punish those who engage in it, and help ensure that everyone works off of the same definition of this crime.

jimK's Opinion
···
last Thursday
Yes, make it definitely illegal. Make it apply to everyone, especially including congresspersons who have a history of enriching themselves from solicited or gifted insider tips. I would hope that someone is investigating the strange massive purchases of completely profitable naked (very risky) puts and takes of S&P futures minutes before several of trump’s market swinging tweets, in one exchange taking up a full quarter of the day’s trading volume- and taking in hundreds of millions of dollars from all of the other traders in each instance. Some traders complained about what looked like a coordinated rip-off but the exchanges have been very quiet and have offered little public comment or demonstrated attempt to investigate. This is something that certainly should get public attention. I wonder what the mathematical odds that this could occur by random chance: that these strategically timed and massive transactions as 100% accurate winning ‘bets’ on market moves could occur several times just moments before trump’s market swinging surprise tweets? I think the odds would be impossibly high and that makes this all incredibly suspicious- and clearly points to insider information.
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Tony's Opinion
···
last Sunday
Well, seeing as most of the INSIDER TRADING is being done by the POLITICIANS, I highly doubt any VOTE or action from Congress or the Senate will be forthcoming on any legislation regarding "insider trading." Pelosi, Obama, Nadler, Waters, on one side then we have McConnell, Sessions, Paul Ryan and of course "ole" Mitt Romney on the other. ALL of them and many more have their ears to the ground towards Wall Street. It's a joke really. They get away with it and the plain ole guy on the street, who got a tip from someone working for a company that is about to go public, buys a few hundred shares to pay for his kids college education and ends up in front of a Federal Judge.
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···
last Thursday
INSIDER TRADING- “the illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.” Notice how it says “...through having access to confidential information.” No one should have access to confidential information for their own personal gain. It makes the stock market completely unfair for others. This isn’t about keeping a free market, this is about prohibiting something potentially dangerous and outright corrupt. Politicians especially are known for corruption and having access to classified info. Define it and stop it before it can become a major source of corruption.
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Argument opposed

This bill is too ambiguous and potentially broad-reaching, to the point where it could inadvertently ban or deter legitimate financial communications and information-sharing that are needed to make the market work. Certain ambiguous phrases in this bill could also be too open to judicial interpretation, running the risk that judges — not lawmakers — will have the final say on how it’s implemented.

operaman's Opinion
···
last Thursday
Isn't this already a law? It looks like another Democrat seeking adulation. I read frequently about the SEC filing charged for insider trading. Oh my, did Trump violate the SEC? Democrats digging under rocks?
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JTJ's Opinion
···
last Thursday
Insider trading is already illegal. This gives the SEC broad power of picking winners and losers at its own political whims.
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Kathy's Opinion
···
last Thursday
This bill is too ambiguous and potentially broad-reaching, to the point where it could inadvertently ban or deter legitimate financial communications and information-sharing that are needed to make the market work. Certain ambiguous phrases in this bill could also be too open to judicial interpretation, running the risk that judges — not lawmakers — will have the final say on how it’s implemented. Insider trading is already illegal.
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bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
  • The house Passed December 5th, 2019
    Roll Call Vote 410 Yea / 13 Nay
      house Committees
      Committee on Financial Services
    IntroducedMay 7th, 2019

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What is House Bill H.R. 2534?

This bill — the Insider Trading Prohibition Act — would define and prohibit illegal insider trading at the federal level, making it a federal crime. It would also prohibit people who wrongfully obtain material nonpublic information (MNPI) from communicating that information to others for the purposes of securities trading, regardless of whether or not a payment or a promised personal benefit was involved. 

For the purposes of this bill, “wrongful” would be defined as information obtained: 

  • Through theft, bribery, misrepresentation or espionage;
  • In violation of any federal law protecting computer data, intellectual property, or the privacy of computer users;
  • The conversion, misappropriation or other unauthorized and deceptive taking of computer data or intellectual property; or 
  • Through a breach of any fiduciary duty or any other personal or other relationship of trust and confidence.

This bill would also make the Securities and Exchange Commission (SEC) responsible for determining whether the new insider trading prohibitions also apply to automated security-trading transactions. The SEC would also have the authority to exempt any person or transaction under this bill at its discretion. 

Finally, this bill would remove a requirement under current law, established in U.S. v. Newman, that requires the person who receives a “tip” and trades on that information to have knowledge that the “tipper” received a personal benefit for providing the MNPI. Under this bill, all that’s needed to prove insider trading is the establishment of the fact that the tippee was aware of, or recklessly disregarded, the fact that the information was wrongfully obtained or communicated, and still traded on it.

Currently, the law prohibits the use of “any manipulative or deceptive device or contrivance'' when trading securities. Similarly, federal regulations prohibit people from engaging in “any act, practice, or course of business which operates . . . as a fraud or deceit'' in connection with securities trading. In the absence of a law specifically outlawing insider trading, the SEC has used those general anti-fraud provisions, informed by judicial decisions and case law, to prosecute instances of illegal insider trading.

Impact

Stock owners and traders; financial services employees; people with inside information on the stock market; insider trading; exchange of material non-public information; insider trading definition and laws; and the SEC.

Cost of House Bill H.R. 2534

$0.00
The CBO estimates that this bill’s incremental cost would be very small if the SEC increased fees to offset the costs associated with implementing it (which it’s allowed to do).

More Information

In-DepthSponsoring Rep. Jim Himes (D-CT) introduced this bill to establish an explicit statutory ban on insider trading and make it a federal crime

“The absence of a clear statutory prohibition on insider trading has left us with an amorphous body of case law instead of bright lines around what’s legal and what isn’t. This haziness opens the door to letting wrongdoers walk free, and provides uncertainty to those who are genuinely trying to operate within the bounds of the law. This isn’t a partisan issue - no one should profit from illegally obtained information. The need for a clear definition of insider trading is particularly important in an era in which complex trades and information literally move at the speed of light. This legislation explicitly defines insider trading and will help ensure that bad actors are held accountable, protect legitimate investors and strengthen confidence and safety in our markets.”

After this bill passed the House Financial Services Committee, Rep. Himes said

“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. 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. “I believe that the best laws come from working in a constructive, bipartisan fashion. 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.”

Columbia Law Professor John C. Coffee Jr. — who helped Rep. Himes draft this legislation — testified in favor of it, saying,“Courts are not in the business of representing the community and deciding what is criminal.” He further observed that a federal law prohibiting insider trading would mean “less possibility of people being surprised by new interpretations.’’ Coffee explained the logic behind ending the personal benefit test, as well. Due to the “norm of reciprocity” on Wall Street, which means payback is more likely to come in the form of a new insider tip later on, Coffee explained, the personal benefit test isn’t particularly useful as a means of defining insider trading.

House Financial Services Committee Republicans took issue with this bill, arguing that “[t]here is no one insider trading law,” but rather “judge-made law” using anti-fraud provisions that have been developed over decades. They argued that this bill doesn’t meet the stated goal of solving the ambiguity and uncertainty around insider trading law. Committee Republicans argued, “Without an exclusive and singular prohibition on insider trading, the door will be open for activist judges and overzealous prosecutors and, worse, private plaintiffs' counsel to cherry-pick from a menu of insider trading claim options, producing even more inconsistencies within insider trading law.”

In their minority views to this bill’s committee report, House Financial Services Committee Republicans specifically noted concerns with ambiguous wording throughout the bill, which they felt left too much in the bill open to judicial interpretation: 

“Committee Republicans unfortunately remain concerned about certain ambiguous wording throughout the bill that remains unchanged from prior versions. For example, the bill prohibits trading on information ‘relating to the market'’ for a security, security-based swap, or security-based swap agreement, which could be interpreted by an activist judge far more broadly than the drafters of the bill intend. The bill also does not explicitly provide a standard for the requisite personal benefit test, and thus runs the risk of being read more broadly by judges than the Supreme Court has allowed—or, worse, being read out of the law entirely, which is an overzealous insider trading prosecutor's or plaintiff lawyer's dream. Reading the personal benefit test out of the law would have real implications; for example, absent a personal benefit test, corporate insiders who share information with the full expectation of confidentiality could become subject to prosecution simply because that confidentiality was violated.”

Committee Republicans concluded that at best, this bill is ineffective; and at worst, it’s overbroad and would criminalize behavior that should be allowed: 

“At best, the overall wording of this bill does not substantively change the law of insider trading; at worst, it is overbroad and will criminalize beneficial trading activity as well as chill the productive flow of information within the marketplace. Committee Republicans are concerned that, were [this bill] to become law, judges interpreting [this bill] may misunderstand that the drafters of the bill intend to apply this law only to cases involving insider trading and do not intend to expand the scope of insider trading law beyond the  state of the law as of 2019.”

This legislation passed the House Financial Services Committee by voice vote with the support of two Democratic cosponsors.

This legislation was first introduced in the 114th Congress in 2015, when it had 31 bipartisan cosponsors, including 29 Democrats and two Republicans, and failed to advance out of committee.


Of NoteIn the absence of a federal insider trading law, the Securities and Exchange Commission (SEC) and Dept. of Justice (DOJ) have historically relied on general anti-fraud statutes and decades of case law subject to interpretation by individual judges. The case-by-case development of the law over time has resulted in legal standards that have become ambiguous and problematic. 

Paul Hastings LLP attorneys Thomas A. Zaccaro, Nick Morgan, and Lily Lysle agree that the current “judicial mess,” per Rep. Himes, of court decisions on insider trading necessitates legislation to clarify the issue. Writing in Lexology, they observe: 

“Th[e] ‘judicial mess’ exists, of course, because Congress has never adopted an explicit prohibition on insider trading, leaving it to the courts to interpret and develop the contours of an insider trading prohibition within the context of the existing anti-fraud provisions of the federal securities laws.”

Some observers also argue that the courts’ rooting of insider trading law in “deception” and breach of a duty fails to fully account for all forms of insider trading in the digital age. Others contend that the lack of a statute specifically defining “insider trading” has led to inconsistent interpretation and application by regulators and courts, particularly in the context of remote tippees, thus making it difficult for market participants to understand how to conform their conduct to the law.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / iQoncept)

AKA

Insider Trading Prohibition Act

Official Title

To amend the Securities Exchange Act of 1934 to prohibit certain securities trading and related communications by those who possess material, nonpublic information.

    Yes, make it definitely illegal. Make it apply to everyone, especially including congresspersons who have a history of enriching themselves from solicited or gifted insider tips. I would hope that someone is investigating the strange massive purchases of completely profitable naked (very risky) puts and takes of S&P futures minutes before several of trump’s market swinging tweets, in one exchange taking up a full quarter of the day’s trading volume- and taking in hundreds of millions of dollars from all of the other traders in each instance. Some traders complained about what looked like a coordinated rip-off but the exchanges have been very quiet and have offered little public comment or demonstrated attempt to investigate. This is something that certainly should get public attention. I wonder what the mathematical odds that this could occur by random chance: that these strategically timed and massive transactions as 100% accurate winning ‘bets’ on market moves could occur several times just moments before trump’s market swinging surprise tweets? I think the odds would be impossibly high and that makes this all incredibly suspicious- and clearly points to insider information.
    Like (106)
    Follow
    Share
    Isn't this already a law? It looks like another Democrat seeking adulation. I read frequently about the SEC filing charged for insider trading. Oh my, did Trump violate the SEC? Democrats digging under rocks?
    Like (17)
    Follow
    Share
    Well, seeing as most of the INSIDER TRADING is being done by the POLITICIANS, I highly doubt any VOTE or action from Congress or the Senate will be forthcoming on any legislation regarding "insider trading." Pelosi, Obama, Nadler, Waters, on one side then we have McConnell, Sessions, Paul Ryan and of course "ole" Mitt Romney on the other. ALL of them and many more have their ears to the ground towards Wall Street. It's a joke really. They get away with it and the plain ole guy on the street, who got a tip from someone working for a company that is about to go public, buys a few hundred shares to pay for his kids college education and ends up in front of a Federal Judge.
    Like (31)
    Follow
    Share
    INSIDER TRADING- “the illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.” Notice how it says “...through having access to confidential information.” No one should have access to confidential information for their own personal gain. It makes the stock market completely unfair for others. This isn’t about keeping a free market, this is about prohibiting something potentially dangerous and outright corrupt. Politicians especially are known for corruption and having access to classified info. Define it and stop it before it can become a major source of corruption.
    Like (26)
    Follow
    Share
    Insider trading is immoral and illegal. It reflects the dark underbelly of our nation’s obsession with wealth and tolerance of financial dishonesty and greed. It is not commendable or cool. It. Is. Wrong. We have to attack this problem with a federal legal definition—and then prosecute these greedy creeps. Wall Street should back this legislation 100% if any fiduciary ethics still exist. YES on this one!
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    If this applies to Congress people I am all in
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    If you are asking if I have forgotten that the majority of the 2017 Tax Scam corporate tax refunds went towards stock buybacks and not towards wages or innovation. NO, I have not.
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    Yes, insider trading should be defined and banned. The richest 1% is controlling our country with machinations like Insider trading and ostensible charity contributions. We, the people, are paying for everyone and everything in this country including the perks of being very very rich. We need every legal help we can get.
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    FRENCH HILL YOU VOTED NO ON THIS?!?!? You utter idiot.
    Like (13)
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    Another good Dem bill that will never see the light of day. Turtle-face McConnell will NEVER ALLOW A VOTE. So how is this man not being removed for not doing his job? Is there no recourse for us? Kentucky, if you do not remove him, your State will be responsible for our loss of democracy! You will be vilified and hated in the history books. Is that really what you want? You can stop him! PLEASE DO!
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    Insider trading is already illegal. This gives the SEC broad power of picking winners and losers at its own political whims.
    Like (12)
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    Insider trading is just that and is illegal! Members of Congress and all Government employees as well should be punished! How does one come into congress say 30 years ago and just a modest personal worth and then 30 years later become a multi millionaire? It’s beyond me as their annual salary does not add up to anything close! We must drain the swamp all the way around! Plenty of republicans over the years have stuffed their pockets as well! Government must be held accountable! This President made his money on his own accord as a good business man and gives his presidential salary to charity! You won’t see that from Pelosi, Sanders the Rich Socialist or any other of those left wing scavengers!
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    A level playing field is beneficial to creating a competitive marketplace.
    Like (11)
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    Most people agree that insider trading is unfair and gives people an unfair advantage in the stock market, However the lack of a definition for it makes it difficult to prosecute. Defining what insider trading is at the federal level will clarify what it is, therefore making it easier for federal prosecutors to punish those who engage in it. This will ensure that everyone works off of the same definition of this crime. It only makes sense that a definition is a necessity especially in this era of a stock market that has been artificially elevated to keep the coming recession at bay.
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    Politicians should not be allowed to trade/invest based on any information that is not available to the public as a whole. Maybe if Washington wasn’t a avenue to wealth and insider trading weren’t legal for politicians they would be more interested in doing their jobs and less about squabbling with each other. Congress and the President should be constrained by the same laws that apply to the general citizens, should face the same penalties and being in office should be no bar to facing those charges.
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    Since obviously some politicians still have engaged in insider trading, as well as others, we need better laws and definitions on this crime. I support this.
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    I agree with this bill.
    Like (6)
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    This should exclude the Loop-Holes in Existing Laws that the current Congress uses to manipulate their earnings or steals.
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    Absolutely and way past damn time. If our elected officials want to prove that they represent all voters, then vote YES on this.
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    Thank you Congressman Banks, for your Yea vote on HR 2534. Additional Note: While the SEC isn’t really known as a sharp toothed paragon of virtue, I question this portion: “The SEC would also have the authority to exempt any person or transaction under this bill at its discretion.” If insider trading is the same as insider trading, regardless of who engages in it, why is there a need for exempting anyone on its face value? Wouldn’t this be a call made by prosecution with the goal of getting a bigger fish? I support HR 2534, the Insider Trading Prohibition Act. The criminal justice system is one of our most important tools and should be fully used to set the bar for what we as a nation accept and don’t accept as a part of who we are and should reflect the values of our citizens, not non-existent Wall Street or Washington values. YES, of course insider trading should be codified and fully defined as a federal crime, the burden of proof should be decreased, and the penalties should be significantly increased where proven insider trading is related to individuals in elected positions of public trust, including their families and anyone acting as straw buyers or sellers. Penalties should include mandatory federal prison time for any involvement. If the punishment is deliberately harsh and examples are set, the odds of my congressman, your senator, or a cabinet secretary participating in insider trading will noticeably drop.
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