Insider Trading Prohibition Act

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Insider Trading Prohibition Act''.

SEC. 2. PROHIBITION ON INSIDER TRADING.

    (a) In General.--The Securities Exchange Act of 1934 (15 U.S.C. 78a 
et seq.) is amended by adding after section 16 the following new 
section:

``SEC. 16A. PROHIBITION ON INSIDER TRADING.

    ``(a) Prohibition Against Trading Securities While in Possession of 
Material, Nonpublic Information.--It shall be unlawful for any person, 
directly or indirectly, to purchase, sell, or enter into, or cause the 
purchase or sale of or entry into, any security, security-based swap, 
or security-based swap agreement, while in possession of material, 
nonpublic information relating to such security, security-based swap, 
or security-based swap agreement, or relating to the market for such 
security, security-based swap, or security-based swap agreement, if 
such person knows, or recklessly disregards, that such information has 
been obtained wrongfully, or that such purchase, sale, or entry would 
constitute a wrongful use of such information.
    ``(b) Prohibition Against the Wrongful Communication of Certain 
Material, Nonpublic Information.--It shall be unlawful for any person 
whose own purchase or sale of a security, security-based swap, or entry 
into a security-based swap agreement would violate subsection (a) 
(referred to in this subsection as the `communicating person'), 
wrongfully to communicate material, nonpublic information relating to 
such security, security-based swap, or security-based swap agreement, 
or relating to the market for such security, security-based swap, or 
security-based swap agreement, to any other person if--
            ``(1) the other person--
                    ``(A) purchases, sells, or causes the purchase or 
                sale of, any security or security-based swap or enters 
                into or causes the entry into any security-based swap 
                agreement, to which such communication relates; or
                    ``(B) communicates the information to another 
                person who makes or causes such a purchase, sale, or 
                entry while in possession of such information; and
            ``(2) such a purchase, sale, or entry while in possession 
        of such information is reasonably foreseeable.
    ``(c) Standard and Knowledge Requirement.--
            ``(1) Standard.--For purposes of this section, trading 
        while in possession of material, nonpublic information under 
        subsection (a) or communicating material nonpublic information 
        under subsection (b) is wrongful only if the information has 
        been obtained by, or its communication or use would constitute, 
        directly or indirectly--
                    ``(A) theft, bribery, misrepresentation, or 
                espionage (through electronic or other means);
                    ``(B) a violation of any Federal law protecting 
                computer data or the intellectual property or privacy 
                of computer users; or
                    ``(C) 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.
            ``(2) Knowledge requirement.--It shall not be necessary 
        that the person trading while in possession of such information 
        (as proscribed by subsection (a)), or making the communication 
        (as proscribed by subsection (b)), know the specific means by 
        which the information was obtained or communicated, or whether 
        any personal benefit was paid or promised by or to any person 
        in the chain of communication, so long as the person trading 
        while in possession of such information or making the 
        communication, as the case may be, was aware, or recklessly 
        disregarded that such information was wrongfully obtained or 
        communicated.
    ``(d) Derivative Liability.--Except as provided in section 20(a), 
no person shall be liable under this section solely by reason of the 
fact that such person controls or employs a person who has violated 
this section, if such controlling person or employer did not 
participate in, profit from, or directly or indirectly induce the acts 
constituting the violation of this section.
    ``(e) Exempted Transactions.--The Commission may, by rule, exempt 
any person, security, or transaction, or any class persons securities, 
or transactions, from any or all of the provisions of this section, 
upon such terms and conditions as it considers necessary or 
appropriate, if the Commission determines that such action is not 
inconsistent with the purposes of this section. The prohibitions of 
this section shall not apply to any person who acts at the specific 
direction of, and solely for the account of, a person whose own 
securities trading, or communications of material, nonpublic 
information, would be lawful under this section.''.
    (b) Conforming Amendments.--The Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.) is further amended--
            (1) in section 21(d)(2), by inserting ``or section 16A,'' 
        after ``section 10(b) of this title'';
            (2) in section 21A--
                    (A) in subsection (g)(1), by inserting ``and 
                section 16A,'' after ``thereunder,''; and
                    (B) in subsection (h)(1), by inserting ``and 
                section 16A,'' after ``thereunder,''; and
            (3) in section 21C(f), by inserting ``or section 16A,'' 
        after ``section 10(b)''.

Summary: Insider Trading Prohibition Act This bill amends the Securities Exchange Act of 1934 to prohibit any person from trading securities or effectuating such trades while in possession of related material, nonpublic information, or while either knowing or recklessly disregarding that the information has been obtained wrongfully, or that the transactions would constitute a wrongful use of such information. It shall also be unlawful for any person whose own securities transactions violate this Act to communicate wrongfully to another person material, nonpublic information relating to either those transactions or the market for them if the other person: purchases, sells, or causes the purchase or sale of, any security or security-based swap or enters into or causes the entry into any security-based swap agreement, to which such communication relates. Or communicates the information to another person who makes or causes such a transaction while in possession of such information. The other person's ensuing purchase, sale, or entry while in possession of such information must also be reasonably foreseeable. A standard and a knowledge requirement are prescribed for acts constituting unlawful trading in securities. A person who has neither participated in, profited from, nor induced violations of this Act is shielded from liability even though that person controls or employs the violator. The Securities and Exchange Commission is authorized to exempt from this Act persons, securities, or transactions, subject to any necessary or appropriate terms and conditions, if it determines that the exemption is not inconsistent with the purposes of this Act.