Insider Trading Prohibition Act
Bill: S.3990 | Sponsor: Sen. Reed, Jack (D-RI)
Policy area: Finance and Financial Sector

Summary:
Insider Trading Prohibition Act
This bill generally provides statutory authority for the prohibition against securities trading, as well as related communications to others, by a person who has access to material, nonpublic information and is aware or recklessly disregards that the information is material and nonpublic. Further, that person must either be aware or recklessly disregards that the information has been obtained wrongfully or that the trading would be wrongful.
The bill also provides, for purposes of establishing a violation of this prohibition, that it is not necessary for such a person to know specifically how such information was obtained or whether a personal benefit was paid or promised.

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

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

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 inserting after section 16 (15 U.S.C. 78p) the 
following:

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

    ``(a) Prohibition Against Trading Securities While Aware 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 if that person, at the time the person 
takes such an action--
            ``(1) has access to information relating to such security, 
        security-based swap, or security-based swap agreement that is 
        material and nonpublic and is aware (including if the person 
        consciously avoids being aware), or recklessly disregards, that 
        such information is material and nonpublic; and
            ``(2) is aware (including if the person consciously avoids 
        being aware), or recklessly disregards, that--
                    ``(A) the information described in paragraph (1) 
                has been obtained wrongfully; or
                    ``(B) the purchase, sale, or entry would constitute 
                wrongful trading on the information described in 
                paragraph (1).
    ``(b) Prohibition Against the Wrongful Communication of Certain 
Material, Nonpublic Information.--It shall be unlawful for any person, 
the purchase or sale of a security or security-based swap (or entry 
into a security-based swap agreement) by which would violate subsection 
(a), to wrongfully communicate material, nonpublic information relating 
to that security, security-based swap, or security-based swap agreement 
to any other person, if--
            ``(1) the person communicating the information, at the time 
        the person communicates the information, is aware (including if 
        the person consciously avoids being aware), or recklessly 
        disregards, that such communication would result in such a 
        purchase, sale, or entry; and
            ``(2) any recipient of the wrongfully communicated 
        information 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, based on 
        that communication.
    ``(c) Standard and Knowledge Requirement.--
            ``(1) Standard.--For purposes of this section, trading 
        while aware 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 the communication or trading on the information 
        would constitute, directly or indirectly--
                    ``(A) theft, conversion, bribery, 
                misrepresentation, espionage (through electronic or 
                other means), or other unauthorized access of the 
                information;
                    ``(B) a violation of any Federal law protecting--
                            ``(i) computer data; or
                            ``(ii) the intellectual property or privacy 
                        of computer users;
                    ``(C) misappropriation from a source of the 
                information; or
                    ``(D) a breach of any fiduciary duty to 
                shareholders of an issuer for a direct or indirect 
                personal benefit, including--
                            ``(i) an existing or future pecuniary gain 
                        or reputational benefit; or
                            ``(ii) a gift of confidential information 
                        to a relative or friend.
            ``(2) Knowledge requirement.--It shall not be necessary 
        that a person trading while aware of information in violation 
        of subsection (a), or making a communication in violation of 
        subsection (b), knows the specific means by which the 
        information was obtained or communicated or traded on, or the 
        specific benefit described in paragraph (1)(D) that was 
        received, paid, or promised by or to any person in the chain of 
        communication, if the person trading while aware of the 
        information or making the communication, as applicable, at the 
        time the person makes the trade or communicates the 
        information, is aware (including if the person consciously 
        avoids being aware), or recklessly disregards, that the 
        information was wrongfully obtained, wrongfully traded on, or 
        wrongfully communicated.
    ``(d) Affirmative Defenses.--
            ``(1) In general.--The Commission may, by rule or by order, 
        exempt any person, security, or transaction, or any class of 
        persons, securities, or transactions, from any or all of the 
        provisions of this section, upon such terms and conditions as 
        the Commission considers necessary or appropriate in 
        furtherance of the purposes of this title.
            ``(2) Rule 10b5-1 compliant transactions.--The prohibitions 
        of this section shall not apply to any transaction that 
        satisfies the requirements of section 240.10b5-1 of title 17, 
        Code of Federal Regulations, or any successor regulation.
    ``(e) Rule of Construction.--The rights and remedies provided by 
this section shall be in addition to any and all other rights and 
remedies that may exist at law or in equity (without regard to whether 
such a right or remedy is provided under this Act) with respect to an 
action by a person to--
            ``(1) purchase, sell, or enter into a security, security-
        based swap, or security-based swap agreement while aware of 
        material, nonpublic information; or
            ``(2) communicate material, nonpublic information relating 
        to a security, security-based swap, or security-based swap 
        agreement.''.
    (b) Conforming Amendments.--The Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.) is amended--
            (1) in section 3(a)(78)(A) (15 U.S.C. 78c(a)(78)(A)), by 
        inserting ``16A,'' after ``16,'';
            (2) in section 21(d)(2) (15 U.S.C. 78u(d)(2)), by striking 
        ``or the rules or regulations thereunder'' and inserting ``, 
        section 16A of this title, or the rules or regulations under 
        either such section'';
            (3) in section 21A (15 U.S.C. 78u-1)--
                    (A) in subsection (g)(1), by striking ``section 
                10(b) and Rule 10b-5 thereunder'' and inserting 
                ``section 10(b), Rule 10b-5 thereunder, and section 
                16A''; and
                    (B) in subsection (h)(1), by striking ``section 
                10(b), and Rule 10b-5 thereunder'' and inserting 
                ``section 10(b), Rule 10b-5 thereunder, and section 
                16A''; and
            (4) in section 21C(f) (15 U.S.C. 78u-3(f)), by striking 
        ``or the rules or regulations thereunder'' and inserting ``, 
        section 16A, or the rules or regulations under either such 
        section''.
                                 <all>