Insider Trading Prohibition Act

Bill: 117-s-3990
Sponsor: full_name: Sen. Reed, Jack [D-RI]
Introduced: 2022-04-04
Policy area: Finance and Financial Sector
Subjects: Fraud offenses and financial crimes

Government information and archives

Securities
Latest action: action_date: 2022-07-28
text: Committee on Banking, Housing, and Urban Affairs. Hearings held.

Summaries:
action_date: 2022-04-04
action_desc: Introduced in Senate
text: <p><strong>Insider Trading Prohibition Act </strong></p> <p>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. </p> <p>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.</p>

tv_txt: II 117th CONGRESS 2d Session S. 3990 IN THE SENATE OF THE UNITED STATES April 4 (legislative day, March 31), 2022 Mr. Reed (for himself and Mr. Menendez ) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL 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.

1. Short title This Act may be cited as the Insider Trading Prohibition Act . 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: 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 .