Insider Trading and Securities Fraud Enforcement Act of 1988
PL 100-704 (H.R.5133), enacted 11/19/1988

PUBLIC LAW 100-704—NOV. 19, 1988 
102 STAT. 4677 
Public Law 100-
100th Congress 
•704 
An Act 
To improve the procedures and remedies for the prevention of insider trading, 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 and Securities 
Fraud Enforcement Act of 1988". 
SEC. 2. FINDINGS. 
The Congress finds that— 
(1) the rules and r^ulations of the Securities and Exchange 
Commission under the Securities Exchange Act of 1934 govern-
ing trading while in possession of material, nonpublic informa-
tion are, as required by such Act, necessary and appropriate in 
the public interest and for the protection of investors; 
(2) the Commission has, within the limits of accepted adminis-
trative and judicial construction of such rules and regulations, 
enforced such rules and regulations vigorously, effectively, and 
fairly; and 
(3) nonetheless, additional methods are appropriate to deter 
and prosecute violations of such rules and regulations. 
SEC. 3. CIVIL PENALTIES OF CONTROLLING PERSONS FOR ILLEGAL 
INSIDER TRADING BY CONTROLLED PERSONS. 
(a) AMENDMENT.—The Securities Exchange Act of 1934 (15 U.S.C. 
78a et seq.) is amended— 
(1) in section 21(d)— 
(A) by striking out paragraph (2); and 
(B) by redesignating subsection (dXD as subsection (d); 
and 
(2) by inserting after section 21 the following new section: 
"CIVIL PENALTIES 
"SEC. 21A. (a) AUTHORITY TO IMPOSE CIVIL PENALTIES.— 
"(1) JUDICIAL ACTIONS BY COMMISSION AUTHORIZED.—Whenever 
it shall appear to the Commission that any person has violated 
any provision of this title or the rules or regulations thereunder 
by purchasing or selling a security while in possession of mate-
rial, nonpublic information in, or has violated any such provi-
sion by communicating such information in connection with, a 
transaction on or through the facilities of a national securities 
exchange or from or through a broker or dealer, and which is 
not part of a public offering by an issuer of securities other than 
standardized options, the (Commission— 
"(A) may bring an action in a United States district court 
to seek, and the court shall have jurisdiction to impose, a 
Nov. 19, 1988 
[H.R. 5133] 
Insider Trading 
and Securities 
Fraud 
Enforcement 
Act of 1988. 
15 u s e 78a note. 
15 u s e 78u-l 
note. 
15 u s e 78u. 
15 u s e 78u-l. 
eourts, U.S. 
102 STAT. 4678 
PUBLIC LAW 100-704—NOV. 19, 1988 
civil penally to be paid by the person who committed such 
violation; and 
Courts, us. • 
"(B) may, subject to subsection (bXD, bring an action in a 
United States district court to seek, and the court shall 
have jurisdiction to impose, a civil penalty to be paid by a 
person who, at the time of the violation, directly or 
indirectly controlled the person who committed such 
violation. 
"(2) AMOUNT OF PRNALTT FOR PERSON WHO COMMITTED VIOLA-
TION.—^The amount of the penalty which may be imposed on the 
person who committed such violation shall be determined by 
the court in light of the facts and circumstances, but shall not 
exceed three tunes the profit gained or loss avoided as a result 
of such unlawfid purchase, sale, or communication. 
"(3) AMOUNT OF PENALTY FOR CONTROLLING PERSON.—The 
amount of tlie penalty which may be imposed on any person 
who, at the time of the violation, directly or indirectly con-
trolled the person who committed such violation, shall be deter-
mined by the court in light of the facts and circumstances, but 
shall not exceed the greater of $1,000,000, or three times the 
amount of the profit gained or loss avoided as a result of such 
controlled person's violation. If such controlled person's viola-
tion was a violation by communication, the profit gained or loss 
avoided as a result of the violation shall, for purposes of this 
paragraph only, be deemed to be limited to the profit gained or 
loss avoided by the person or persons to whom the controlled 
person directed such communication. 
"
O
S
) LfliaTATIONS O
N LlABIUTY.— 
"(1) LIABILITY OF CONTROLLING PERSONS.—No controlling 
person shall be subject to a penalty under subsection (aXlXB) 
unless the Ck)mmission establishes that— 
"(A) such controlling person knew or recklessly dis-
r^arded the fact that such controlled person was likely to 
engage in the act or acts constituting the violation and 
failed to take appropriate steps to prevent such act or acts 
before they occurred; or 
"(B) such controlling i)erson knowingly or recklessly 
failed to establish, maintain, or enforce any policy or proce-
dure required under section 15(f) of this title or section 
204A of the Investment Advisers Act of 1940 and such 
failure substantially contributed to or permitted the occur-
rence of the act or acts constituting the violation. 
"(2) ADDITIONAL RESTRICTIONS ON LIABILITY.—No person shall 
be subject to a penalty under subsection (a) solely by reason of 
emplojdng another person who is subject to a penalty under 
such subsection, unless such emplojdng person is liable as a 
controlling person under paragraph (1) of this subsection. Sec-
tion 20(a) of this title shall not apply to actions under subsection 
(a) of this section. 
'(c) AUTHORITY OF COMMISSION.—The (Dommission, by such rules, 
regulations, and orders as it considers necessary or appropriate in 
the public interest or for the protection of investors, may exempt, in 
whole or in part, either unconditionally or upon specific terms and 
conditions, any person or transaction or class of persons or trans-
actions from this section. 
"(d) PROCEDURES FOR Ck)LLEcnoN.— 
PUBLIC LAW 100-704—NOV. 19, 1988 
102 STAT. 4679 
"CD PAYMENT OF PENALTY TO TREASUBY.—A penalty imposed 
under this section shall (subject to subsection (e)) be payable 
into the Treasury of the United States. 
"(2) COLLECTION OF PENALTIES.—If a person upon whom such a 
penalty is imposed shall fail to pay such penalty within the time 
prescribed in the court's order, the Commission may refer the 
matter to the Attorney General who shall recover such penalty 
by action in the appropriate United States district court. 
"(3) REMEDY NOT EXCLUSIVE.—^The actions authorized by this 
section may be brought in addition to any other actions that the 
Commission or the Attorney General are entitled to bring. 
"(4) JURISDICTION AND VENUE.—For purposes of section 27 of 
this title, actions under this section shall be actions to enforce a 
liability or a duty created by this title. 
"(5) STATUTE OF LIMITATIONS.—No action may be brought 
under this section more than 5 years after the date of the 
purchase or ^ e . This section shall not be construed to bsur or 
Umit in any manner any action by the Commission or the 
Attorney General under any other provision of this title, nor 
shall it bar or limit in any manner any action to recover 
penalties, or to seek any other order r^arding penalties, 
imposed in an action commenced within 5 years of such 
transaction. 
"(e) AUTHORITY To AWARD BOUNTIES TO INFORMANTS.—Notwith-
standing the provisions of subsection (dXD. there shall be paid from 
amounts imposed as a penalty under this section and recovered by 
the Commission or the Attorney (General, such sums, not to exceed 
10 percent of such amounts, as the Commission deems appropriate, 
to the person or persons who provide information leading to the 
imposition of such penalty. Any determinations under this subsec-
tion, including whether, to whom, or in what amount to make 
payments, shall be in the sole discretion of the Commission, except 
that no such payment shall be made to any member, officer, or 
employee of any appropriate regulatoiy agency, the Department of 
Justice, or a self-r^ulatory organization. Any such determination 
shall be final and not subject to judicial review. 
"(f) DEFINITION.—For purposes of this section, 'profit gained' or 
'loss avoided' is the difference between the purchase or sale price of 
t^e security and the value of that security as measured by the 
trading price of the security a reasonable period after public 
dissemination of the nonpublic information.", 
(b) AMENDMENTS CONCERNING SUPERVISION.— 
(1) BROKERS AND DEALERS.—Section 15 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78o) is amended by adding at the 
end tiiereof the following new subsection: 
"(f) Every registered broker or dealer shall establish, maintain. Classified 
and enforce written policies and procedures reasonably designed, information. 
taking into consideration the nature of such broker's or dealer's 
business, to prevent the misuse in violation of this title, or the rules 
or regulations thereunder, of material, nonpublic information by 
such broker or dealer or any person associated with such broker or 
dealer. The Commission, as it deems necessary or appropriate in the 
public interest or for the protection of investors, shall adopt rules or 
regulations to require specific policies or procedures reasonably 
designed to prevent misuse in violation of this title (or the rules or 
regulations thereunder) of material, nonpublic information.". 
19-194 O—91-Part 5 
22 : QL 3 
102 STAT. 4680 
PUBLIC LAW 100-704—NOV. 19, 1988 
(2) iNVEsniENT ADVBEBS.—The Investment Advisers Act of 
1940 (15 U.S.C. 80b-l et seq.) is amended by adding after section 
204 the following new section: 
"PBEVENnON OF MISUSE OF NONPUBUC INFORMATION 
15 use 80b-4a. 
"SBC. 204A. Eveiy investment adviser subject to section 204 of this 
title shall establish, maintain, and enforce written policies and 
procedures reasonably designed, taking into consideration the 
nature of such investment adviser's business, to prevent the misuse 
in violation of this Act or the Securities Exchange Act of 1934, or the 
rules or r^ulations thereunder, of material, nonpublic information 
by such investment adviser or any person associated with such 
investment adviser. The Commission, as it deems necessary or 
appropriate in the public interest or for the protection of investors, 
shall adopt rules or r^ulations to require specific policies or proce-
dures reasonably designed to prevent misuse in violation of this Act 
or the Securities Exchange Act of 1934 (or the rules or regulations 
thereunder) of material, nonpublic information.". 
15 use 78u-i 
(c) COMMISSION RECX)MMBNDATIONS FOR ADDITIONAL CIVIL PENALTY 
" 
AUTHORITY REQUIRED.—The Securities and Exchange Commission 
shall, within 60 days after the date of enactment of this Act, submit 
to each House of the 0)ngress any recommendations the Commis-
sion considers appropriate with respect to the extension of the 
Commission's authority to seek civil penalties or impose administra-
tive fines for violations other than those described in section 21A of 
the Securities Exchange Act of 1934 (as added by this section). 
SEC. 
4
. 
INCREASES 
IN 
CRIMINAL 
PENALTIES. 
Section 32(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78ff(a)) is amended— 
(1) by striking "$100,000" and inserting "$1,000,000"; 
(2) by striking "five years" and inserting "10 years"; 
(3) by striking "is an exchange" and inserting "is a person 
other than a natural person"; and 
(4) by striking out "$500,000" and inserting "$2,500,000". 
SEC 5. LIABILITY TO CONTEMPORANEOUS TRADERS FOR INSIDER 
TRADING. 
The Securities Exchange Act of 1934 is amended by inserting after 
section 20 the following new section: 
"LIABILITY TO CONTEMPORANEOUS TRADERS FOR INSIDER TRADING 
eiassified 
"SEC. 20A. (a) PRIVATE RIGHTS OF ACTION BASED ON CONTEMPORA-
i'i^TTS?*^^^" 
NEOUS TRADING.—Any person who violates any provision of this title 
15 use 78t-i. 
Qj. ^jjg rules or regulations thereunder by purchasing or selling a 
security while in possession of material, nonpublic information shall 
be liable in an action in any court of competent jurisdiction to any 
person who, contemporaneously with the purchase or sale of securi-
ties that is the subject of such violation, has purchased (where such 
violation is based on a sale of securities) or sold (where such 
violation is based on a purchase of securities) securities of the same 
class. 
"(b) LIMITATIONS ON LIABILITY.— 
"(1) CONTEMPORANEOUS TRADING ACTIONS LIMITED TO PROFIT 
GAINED OR LOSS AVOIDED,—The total amount of damages im-
posed under subsection (a) shall not exceed the profit gained or 
PUBLIC LAW 100-704—NOV. 19, 1988 
102 STAT. 4681 
loss avoided in the transaction or transactions that are the 
subject of the violation. 
"(2) OFFSETTING DISGORGEMENTS AGAINST LIABILITY.—The total 
amount of damages imposed against any person under subsec-
tion (a) shall be diminished by the amounts, if any, that such 
person may be required to di^orge, pursuant to a court order 
obtained at the instance of the Commission, in a proceeding 
brought under section 21(d) of this title relating to the same 
transaction or transactions. 
"(3) CoNTROLUNG P
E
R
S
O
N LIABILITY.—No person shall be 
liable under this section solely by reason of employing another 
person who is liable under this section, but the liability of a 
controlling person under this section shall be subject to section 
20(a) of this title. 
"(4) STATUTE OF UMITATIONS.—No action may be brought 
under this section more than 5 years after the date of the last 
transaction that is the subject of the violation. 
"(c) JOINT AND SEVERAL LIABILITY FOR COMMUNICATING.—Any Classified 
person who violates any provision of this title or the rules or information. 
regulations thereunder by communicating material, nonpublic 
information shall be jointly and severally liable under subsection (a) 
with, and to the same extent as, any person or persons liable under 
subsection (a) to whom the communication was directed. 
"(d) AUTHORITY NOT TO RESTRICT OTHER EXPRESS OR IMPUED 
RIGHTS OF ACTION.—Nothing in this section shall be construed to 
limit or condition the right of any person to bring an action to 
enforce a requirement of this title or the availability of any cause of 
action implied from a provision of this title. 
"(e) PROVISIONS NOT TO AFFECT PUBUC PROSECUTIONS.—This sec-
tion shall not be construed to bar or limit in any manner any action 
by the Commission or the Attorney General imder any other provi-
sion of this title, nor shall it bar or limit in any manner any 
action to recover penalties, or to seek any other order regarding 
penalties.". 
SEC. 6. INVESTIGATORY 
ASSISTANCE 
TO 
FOREIGN 
SECURITIES 
AUTHORITIES. 
(a) DEFINITION OF FOREIGN SECURITIES AUTHORITY.—Section 3(a) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by 
adding at the end thereof the following: 
"(50) The term 'foreign securities authority* means any for-
eign government, or any governmental body or regulatory 
organization empowered by a foreign government to administer 
or enforce its laws as they relate to securities matters.". 
(b) AUTHORITY TO PROVIDE ASSISTANCE TO FOREIGN SECURITIES 
AUTHORITIES.—Section 21(a) of such Act (15 U.S.C. 78u(a)) is 
amended— 
(1) by redesignating subsection (a) as subsection (aXD; and 
(2) by adding at the end thereof the following: 
"(2) On request from a foreign securities authority, the Commis-
sion may provide assistance in accordance with this paragraph if the 
requesting authority states that the requesting authority is conduct-
ing an investigation which it deems nec^sary to determine whether 
any person has violated, is violating, or is about to violate any laws 
or rules relating to securities matters that the requesting authority 
administers or enforces. The Commission may, in its discretion, 
conduct such investigation as the Commission deems necessary to 
102 STAT. 4682 
PUBLIC LAW 100-704—NOV. 19, 1988 
collect information and evidence pertinent to the request for assist-
ance. Such assist£uice may be provided without r^ard to whether 
the facts stated in the request would also constitute a violation of 
the laws of the United States. In deciding whether to provide such 
assistance, the Commission shall consider whether (A) the request-
ing authority has agreed to provide reciprocal assistance in securi-
ties matters to the Commission; and (B) compliance with the request 
would prejudice the public interest of the United States.". 
15 use 78b note. 
SEC. 7. SECURITIES LAWS STUDY. 
(a) FINDINGS.—The Congress finds that— 
(1) recent disclosures of securities fraud and insider trading 
have caused public concern about the adequacy of Feder^ 
securities laws, rules, and regulations; 
(2) Federal securities laws, rules, and regulations have not 
undergone a comprehensive and exhaustive review since the 
advent of the modem intemationed, institutionalized securities 
market; 
(3) since that review, the volume of securities transactions 
and the nature of the securities industry have changed dramati-
cally; and 
(4) there is an important national interest in maintaining fair 
and orderly securities trading, assuring the fairness of securi-
ties transactions and markets and protecting investors. 
(b) STUDY AND INVESTIGATION REQUIRED.— 
(1) GENERAL REQUIREMENT.—^The Securities and Exchange 
Commission shall, subject to the availability of funds appro-
priated pursuant to subsection (d), make a study and investiga-
tion of the adequacy of the Federal securities laws and rules and 
r^ulations thereunder for the protection of the public interest 
and the interests of investors. 
(2) REQUIRED SUBJECTS FOR STUDY AND INVESTIGATION.—Such 
study and investigation shall include an analysis o
f
— 
(A) the extent of improper trading while in possession of 
insider information, such as trading with advance knowl-
edge of tender offers or forthcoming announcements of 
material financial information; 
(B) the adequacy of surveillance methods and tech-
nologies of brokers, dealers, and self-regulatory organiza-
tions; 
(C) the adequacy of cooperation between the Federal, 
State, and foreign enforcement authorities concerning secu-
rities laws enforcement; and 
(D) impediments to the fairness and orderliness of the 
securities markets and to improvements in the breadth and 
depth of the capital available to the securities markets, and 
additional methods to promote those objectives. 
(3) CONDUCT OF STUDY AND INVESTIGATION.—In conducting 
the study and investigation required by this section, the 
Commission— 
(A) may exercise any existing authority to gather 
information, including all power and authority the Commis-
sion would have if such investigation were being conducted 
pursuant to section 21 of the Securities Exchange Act of 
1934; 
(B) may consult with and obtain such assistance and 
information from other agencies in the executive and legis-
PUBLIC LAW 100-704—NOV. 19, 1988 
102 STAT. 4683 
lative branches of the Government (including the Depart-
ment of Justice) as is necessary to enable the Commission to 
carry out this section; 
(C) may appoint, without regard to the civil service laws, 
rules, and regulations, such personnel as the Commission 
deems advisable to carry out such study and investigation 
and to fix their respective rates of compensation without 
regard to such laws, rules, and regulations, but no such rate 
shall exceed the rate payable pursuant to section 5314 of 
title 5, United States Code; and 
(D) may, on a reimbursable basis, use the services of 
personnel detailed to the Commission from any Federal 
agency. 
(4) SUPPORT FROM OTHER AGENCIES.—(A) The head of any 
Federal agency— 
(i) may detail employees to the Commission for the pur-
poses of this section; and 
(ii) shall provide to the Commission such information as it 
requires for the performance of its functions under this 
section, consistent with applicable law. 
(B) The Comptroller General and the Director of the Office of 
Technology Assessment are authorized to assist the Commission 
in the performance of its functions under this section. 
(c) REPORTS AND INFORMATION TO CONGRESS.— 
(1) GENERAL REPORT.—The Commission shall report to the 
Congress on the results of its study and investigation within 
18 months after the date funds to carry out this section are 
appropriated under subsection (d). Such report shall include the 
Commission's recommendations, including such recommenda-
tions for legislation as the Commission deems advisable. 
(2) INTERIM INFORMATION TO CONGRESS.—The Commission 
shall keep the Committee on Energy and Commerce of the 
House of Representatives and the Committee on Banking, Hous-
ing, and Urban Affairs of the Senate, and the members thereof, 
fully informed on the progress of, and any impediments to 
completing, the study and investigation required by this section. 
(d) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to 
be appropriated $5,000,000 to carry out the study and investigation 
required by this section. 
(e) DEFINITIONS.—As used in this section— 
(1) the term "Commission" means the Securities and Ex-
change Commission; and 
(2) the term "Federal securities laws" has the meaning given 
the term securities laws by section 3(aX47) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(aX47)). 
SEC. 8. COOPERATION 
WITH 
FOREIGN 
AUTHORITIES 
AND INTER-
NATIONAL ORGANIZATIONS IN ENFORCEMENT. 
Section 35 of the Securities Exchange Act of 1934 is amended by 15 use 78kk. 
adding at the end thereof the following new subsection: 
"(c) Funds appropriated pursuant to this section are authorized to 
be expended— 
"(1) for official reception and representation expenses, not to 
exceed $10,000 per year; and 
"(2) for the purpose of maintaining membership in and 
contributing to the operating expenses of the International 
102 STAT. 4684 
PUBLIC LAW 100-704—NOV. 19, 1988 
Oi^anization of Securities Commissions, not to exceed $10,000 
per year.". 
15 u s e 78o note. 
SEC. 9. EFFECTIVE DATE. 
The amendments made by this Act, except for section 6, shall not 
apply to any actions occurring before the date of enactment of this 
Act. 
Approved November 19, 1988. 
LEGISLATIVE HISTORY—H.R. 5133: 
HOUSE REPORTS: No. 100-910 (Comm. on Energy and Commerce). 
CONGRESSIONAL RECORD, Vol. 134 (1988): 
Sept. 13, 14, considered and passed House. 
Oct. 21, considered and p£issed Senate.