[Pages H2460-H2463]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    INSIDER TRADING PROHIBITION ACT

  Mr. CLEAVER. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 2655) to amend the Securities Exchange Act of 1934 to 
prohibit certain securities trading and related communications by those 
who possess material, nonpublic information, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 2655

         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 
     the following new section:

     ``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, while aware of material, nonpublic information 
     relating to such security, security-based swap, or security-
     based swap agreement, or any nonpublic information, from 
     whatever source, that has, or would reasonably be expected to 
     have, a material effect on the market price of any 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 or sale 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), wrongfully to 
     communicate material, nonpublic information relating to such 
     security, security-based swap, or security-based swap 
     agreement, or any nonpublic information, from whatever 
     source, that has, or would reasonably be expected to have, a 
     material effect on the market price of any 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 aware 
     of such information; and
         ``(2) such a purchase, sale, or entry while aware of such 
     information is reasonably foreseeable.
         ``(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 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;
         ``(C) conversion, misappropriation, or other unauthorized 
     and deceptive taking of such information; or
         ``(D) a breach of any fiduciary duty, a breach of a 
     confidentiality agreement, a breach of contract, a breach of 
     any code of conduct or ethics policy, or a breach of any 
     other personal or other relationship of trust and confidence 
     for a direct or indirect personal benefit (including 
     pecuniary gain, reputational benefit, or a gift of 
     confidential information to a trading relative or friend).
         ``(2) Knowledge requirement.--It shall not be necessary 
     that the person trading while aware of such information (as 
     proscribed by subsection (a)), or making the communication 
     (as proscribed by subsection (b)), knows 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 aware of such information or making the 
     communication, as the case may be, was aware, consciously 
     avoided being aware, or recklessly disregarded that such 
     information was wrongfully obtained, improperly used, or 
     wrongfully 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, or 
     directly or indirectly induce the acts constituting a 
     violation of this section.
         ``(e) 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 it considers necessary or appropriate in 
     furtherance of the purposes of this title.
         ``(2) Directed trading.--The prohibitions of this section 
     shall not apply to any person who acts at the specific 
     direction of, and solely for the account of another person 
     whose own securities trading, or communications of material, 
     nonpublic information, would be lawful under this section.
         ``(3) Rule 10b-5-1 compliant transactions.--The 
     prohibitions of this section shall not apply to any 
     transaction that satisfies the requirements of Rule 10b-5-1 
     (17 CFR 240.10b5-1), or any successor regulation.''.
         (b) Commission Review of Rule 10b-5-1.--Not later than 
     180 days after the date of the enactment of this Act, the 
     Securities and Exchange Commission shall review Rule 10b-5-1 
     (17 CFR 240.10b5-1) and make any modifications the Securities 
     and Exchange Commission determines necessary or appropriate 
     because of the amendment to the Securities Exchange Act of 
     1934 made by this Act.
         (c) 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 ``, section 16A of 
     this title'' 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)''.

     SEC. 3. DETERMINATION OF BUDGETARY EFFECTS.

         The budgetary effects of this Act, for the purpose of 
     complying with the Statutory Pay-As-You-Go Act of 2010, shall 
     be determined by reference to the latest statement titled 
     ``Budgetary Effects of PAYGO Legislation'' for this Act, 
     submitted for printing in the Congressional Record by the 
     Chairman of the House Budget Committee, provided that such 
     statement has been submitted prior to the vote on passage.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Missouri (Mr. Cleaver) and the gentleman from Arkansas (Mr. Hill) each 
will control 20 minutes.
  The Chair recognizes the gentleman from Missouri.


                             General Leave

  Mr. CLEAVER. Mr. Speaker, I ask unanimous consent that all Members 
may have 5 legislative days within which to revise and extend their 
remarks on this legislation and to insert any extraneous materials 
thereon.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Missouri?
  There was no objection.
  Mr. CLEAVER. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise in strong support of H.R. 2655, the Insider 
Trading Prohibition Act, which was introduced by my colleague, Mr. 
Himes.

[[Page H2461]]

  This long-overdue bill creates a clear definition of illegal insider 
trading under the securities laws so that there is a codified, 
consistent standard for courts and market participants. This bill will 
help to better protect the hard-earned savings of millions of Americans 
and bring legal and regulatory certainty to U.S. securities markets.
  For nearly 80 years, the Securities and Exchange Commission has 
sought to hold corporate insiders accountable for insider trading 
through general statutory antifraud provisions and rules it has 
promulgated under those provisions. This has resulted in a web of court 
decisions that generally prohibit insiders with a duty of trust and 
confidence to a corporation from secretly trading on material, 
nonpublic corporate information for their own personal gain.
  These insiders are also generally prohibited from tipping outsiders, 
known as tippees, who then trade on the information themselves, even 
though they knew it was wrongly obtained. But because there isn't a 
statutory definition of insider trading, there is uncertainty around 
who is subject to insider trading prohibitions.
  Further, with various court decisions, liability for this type of 
violation has shifted. For example, in 2014, an appeals court added a 
brand-new requirement that the tippee must not just know that 
information was wrongfully disclosed but must also know about the 
specific personal benefit that the insider received. This decision has 
severely hampered the SEC's ability to prosecute insider trading cases.
  According to Preet Bharara, the former U.S. attorney for the Southern 
District of New York, this decision ``provides a virtual roadmap for 
savvy hedge-fund managers to insulate themselves from tippee liability 
by knowingly placing themselves at the end of a chain of insider 
information and avoiding learning details about the sources of obvious 
confidential and improperly disclosed information.''
  I am pleased that this bill codifies existing case law and overturns 
this new controversial requirement, creating a clear, consistent 
standard for the SEC, the courts, and market participants to follow.
  Last Congress, the House of Representatives passed this commonsense 
bipartisan bill with an overwhelmingly bipartisan vote of 410-13.
  Mr. Speaker, I urge my colleagues to once again support this 
important bill, and I reserve the balance of my time.
  Mr. HILL. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, stopping and punishing bad actors for illegal insider 
trading is a top priority for House Republicans. This illegal activity 
hurts everyday Main Street investors as well as the integrity and 
efficiency of our markets. Trading on material insider information in 
breach of fiduciary duty is currently prohibited by court-made law 
under the antifraud provisions of the Federal securities laws.
  The Securities and Exchange Commission, the SEC, and the Department 
of Justice have the power to bring insider trading cases, and both 
agencies regularly exercise this power.
  One body of insider trading law that has been developed is through 
the courts. Decades of judicial precedent are in place to protect 
investors and markets by punishing bad actors who illegally trade on 
insider information.
  Codifying nuanced case law and regulations that have been developed 
over the decades into a single statute prohibiting insider trading is a 
serious undertaking, and the gentleman from Connecticut (Mr. Himes) has 
tackled this challenging task.
  To be explicitly clear, this legislation's intent is to codify, and 
neither expand nor contract, insider trading law as it is currently 
understood and interpreted by the Federal courts.
  Again, there should not be a single cause of action available under 
this law that would not otherwise be available to Federal prosecutors 
or SEC enforcement attorneys under the already existing securities 
laws. I underscore this point because both Republican and Democratic 
SEC Commissioners have expressed concerns about Congress drafting a 
statute that accurately captures this expansive body of law without 
expanding it.
  I agree with them. I think it would be tough to draft a perfect 
insider trading law. But with that said, I appreciate the gentleman 
from Connecticut's intentions not to expand the scope of current 
insider trading enforcement and his willingness to work with us in a 
bipartisan manner last Congress and again in this Congress.
  Specifically, Ranking Member Patrick McHenry's amendment last 
Congress, included in the base text of this year's provision, provides 
the needed changes to align the explicit personal benefit test more 
closely with Supreme Court precedent. It also clarifies ambiguous 
wording to ensure that judges and prosecutors know that this bill is 
not intended to expand or create new insider trading liability.
  Republicans will continue to speak out and support efforts to combat 
illegal insider trading. We look forward to working with our colleagues 
on the House Financial Services Committee and in the Senate, and 
I reserve the balance of my time.

  Mr. CLEAVER. Mr. Speaker, I yield 2 minutes to the gentleman from 
Connecticut (Mr. Himes), who is also a sponsor of this legislation.
  Mr. HIMES. Mr. Speaker, I thank Mr. Emanuel Cleaver for yielding, and 
I thank my subcommittee ranking member, Mr. Hill, for a very good 
characterization of the project we are undertaking here.
  I will emphasize two things.
  Number one, at a moment when we are working hard to find ways to work 
in a bipartisan fashion in the public interest, this is landmark 
legislation. As Mr. Hill pointed out, we passed it in the last Congress 
with a vote of 410-13, and that was the result of a very comprehensive 
and fairly technical negotiation around the fine points of insider 
trading.
  The second thing I would point out is that everyone in this Chamber 
should agree that law is to be made in this Chamber, not in the 
chambers of unelected judges throughout the land. While Mr. Hill is 
correct that there has been a vast body of court-made law around 
insider trading developed over the generations, that is far from ideal 
and, frankly, an abrogation of the legislative responsibilities of the 
United States Congress. So, we are where we are.
  We have attempted to make clear and clear up a great deal of the 
uncertainty, the reversed convictions, the activities in the Second 
Circuit that have overturned convictions and created uncertainty in the 
law. This is an effort to make clear what I think everyone understands, 
which is that if you trade on information that you know to have been 
wrongly obtained or that you wrongly obtained or that you recklessly 
disregard was wrongly obtained, you are doing something wrong. In this 
case, with the passage of this legislation, it will be clear that you 
have violated the law.
  I am excited for the passage of this legislation because I am a 
believer that it is, in fact, the elected legislators of this country 
and not the judges, as important as their role may be, who should 
determine what we consider wrong in statute and what we punish people 
for doing.
  Finally, of course, it is essential that everyone out there have 
confidence in our markets. Every time there is another headline about 
an insider trader or a reversed conviction of insider trading, that 
confidence is damaged. So, I applaud the bringing of this bill to the 
floor.

                              {time}  1345

  Mr. HILL. Mr. Speaker, I thank my friend from Connecticut for his 
vigorous defense, always welcome on the House floor, of Article I power 
here in the Congress. Both sides of the aisle are grateful for that, as 
we defend it on a regular basis. We thank him for his work.
  Mr. Speaker, I yield 3 minutes to the gentleman from Michigan (Mr. 
Huizenga), the ranking member of the Subcommittee on Investor 
Protection, Entrepreneurship, and Capital Markets of the House 
Financial Services Committee to speak on the topic of this bill.
  Mr. HUIZENGA. Mr. Speaker, I rise with my friend and colleague from 
Arkansas to acknowledge the work that has been put in by our colleague 
from Connecticut. This has been a long discussion that we have had 
various points where we have debated, and this is a positive thing.

[[Page H2462]]

  Mr. Speaker, as you know, preventing fraud and abuse within our 
financial system and cracking down on bad actors for illegal insider 
trading is a nonpartisan priority. We all believe that this is a good 
thing. In fact, this kind of fraud and illegal activity hurts everyday 
Main Street investors. It also makes our capital markets less 
efficient, accurate, and fair to all investors.
  Now, current law prohibits trading on material insider information in 
breach of a fiduciary duty under the antifraud provisions of the 
Federal securities laws. Let me just repeat that. Current law prohibits 
those activities.
  The Securities and Exchange Commission and the Department of Justice 
are the Federal agencies tasked with enforcing insider trading laws. 
Both agencies regularly use their authority to bring insider trading 
cases against these bad actors who violate our insider trading laws.
  However, the bill we are discussing here today, H.R. 2655, is flawed 
and could potentially create even more confusion and uncertainty within 
the law of insider trading. It could expand liability for good-faith 
traders, which would weaken investor confidence, chill vital 
information-gathering, and hurt the efficiency of our markets.
  I believe it is important to note that, once again, the SEC is not 
asking for this bill or, frankly, any other legislative help on this 
issue. That is, the cop on the beat is not saying we need additional 
tools. Moreover, Democrats have not identified a problem within the 
current body of law that inhibits the prosecution of bad actors who 
illegally trade on material, nonpublic information. Again, the 
regulators have the tools that they need.
  Republican and Democrat SEC chairs alike, with vastly different 
approaches to enforcement matters, have expressed concerns over 
Congress codifying a prohibition on insider trading into one single 
statute, as we are doing. Specifically, they voiced concerns that 
Congress would write a law that would be both overly broad, yet too 
narrow. Now, that is an odd phrase.
  Former SEC Chair Mary Jo White, during 2015 testimony--by the way, 
she was President Obama's SEC chair--before our Financial Services 
Committee, when asked whether or not Congress should pursue an explicit 
statutory prohibition, stated: ``I think it is challenging to codify it 
clearly in a way that is both not too broad and retains the strength of 
the common law.''
  Additionally, former SEC Chair Jay Clayton voiced similar concerns 
that Congress could write an insider trading law that is both too broad 
and too narrow.
  I want to commend the gentleman from Connecticut for his dedicated 
work over the years on this issue, and I appreciate his efforts to try 
and codify a specific insider trading prohibition.
  The SPEAKER pro tempore. The time of the gentleman has expired.
  Mr. HILL. Mr. Speaker, I yield an additional 1 minute to the 
gentleman from Michigan.
  Mr. HUIZENGA. However, codifying very nuanced case law and 
regulations that have been developed over decades to prohibit insider 
trading is a significant task and undertaking. We all know that case 
law does oftentimes dictate the nuances. I fear that this bill could 
add more confusion and uncertainty around insider trading law with 
rogue judges and prosecutors using the language to expand the bounds of 
insider trading laws.
  It was mentioned that this bill passed this body 410-13, and I was 
one of the 13.
  We have to ask ourselves: Why was the bill ignored by the Senate?
  There isn't a compelling problem to solve is why it was ignored. This 
is a solution in search of a problem.
  I believe H.R. 2655, the Insider Trading Prohibition Act, which we 
are debating today, is both too broad and too narrow, just as former 
SEC Chair White warned was possible, and I continue to be opposed to 
the legislation.
  Mr. CLEAVER. Mr. Speaker, I yield 1 minute to the gentleman from 
Connecticut (Mr. Himes).
  Mr. HIMES. Mr. Speaker, I must say, as much respect as I have for Mr. 
Huizenga--I have been around here a little while--I think this may be 
the first time I have heard from my colleagues on the other side of the 
aisle that the regulators deserve deference on this, that the 
regulators are not asking us to make a statutory change. I have never 
heard that in this Chamber--this Chamber--which, under Article I of the 
Constitution, is charged with writing the laws of this country.
  Apparently, my Republican friends, who don't typically defer to 
regulators, are now saying the SEC is, at best, neutral on this law.
  Is there damage?
  I would urge anybody who wants to know about that to read the 
activities of the Second Circuit Court of Appeals in the overturning of 
conviction after conviction of hedge fund managers and others around 
points of technical complexity.
  We make the laws. We don't ask the regulators whether they would like 
us to, or whether they would cheer us on in making laws. We make the 
laws. If we are going to send people to jail, if we are going to stop 
the confusion of judge-made law, let's do our job and pass this 
legislation.

  Mr. HILL. Mr. Speaker, I yield 2 minutes to the gentleman from 
Michigan (Mr. Huizenga).
  Mr. HUIZENGA. Mr. Speaker, let me throw out one name--I guess it is 
actually, technically, two names: Dodd-Frank.
  My friends on the other side wrote a massively expansive bill that 
did turn over all of that authority to come up and promulgate rules out 
of whole cloth.
  What we are talking about here is a very key word: materiality.
  We are having this exact debate about the environmental, social, and 
governance issues, the ESG of the Securities and Exchange Commission, 
and the boundaries of those rules. This is the balance between making 
sure that the legislature and our constitutional powers do not 
contradict the powers that are given to those regulators.
  Yet, at the same time, we need to make sure that the regulators, 
based on case law, based on experience and the flexibility that they 
may need to go and do a law enforcement action, that they have those 
tools and that they are not pulled back from them.
  If the gentleman's sort of example was to hold true, then we would 
have to eliminate all corporate law and every single publicly traded 
company that incorporates in Delaware. Delaware's entire corporate 
structure is based on case law and what has gone on. It is widely 
accepted throughout the United States that it is solid and positive, 
and that is what we are trying to do here today.
  We are not trying to hand over more power to the bureaucrats. We are 
trying to make sure that the system that is in place, that everybody 
understands the rules of the road, that they then are going to be used 
to be enforced.
  Mr. CLEAVER. Mr. Speaker, I have no further speakers, I am prepared 
to close, and I reserve the balance of my time.
  Mr. HILL. Mr. Speaker, I yield myself the balance of my time.
  Mr. Speaker, I think this is a good debate. Again, I thank my friend 
from Michigan and my friend from Connecticut for the quality of that 
debate.
  Mr. Speaker, I urge my colleagues to support H.R. 2655, and I yield 
back the balance of my time.
  Mr. CLEAVER. Mr. Speaker, I yield myself the balance of my time.
  H.R. 2655, the Insider Trading Prohibition Act, is a long overdue 
piece of legislation that simply spells out the definition of illegal 
insider trading under the security laws. It creates clarity for 
participants in financial markets, and empowers the SEC to punish bad 
actors.
  This bill is supported by groups, including the Council of 
Institutional Investors, the California State Teachers' Retirement 
System, the North American Securities Administrators Association, and 
Public Citizen.
  Mr. Speaker, I urge all Members to vote ``yes'' on this important 
bill, and I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Missouri (Mr. Cleaver) that the House suspend the rules 
and pass the bill, H.R. 2655, as amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. HUIZENGA. Mr. Speaker, on that I demand the yeas and nays.

[[Page H2463]]

  The SPEAKER pro tempore. Pursuant to section 3(s) of House Resolution 
8, the yeas and nays are ordered.
  Pursuant to clause 8 of rule XX, further proceedings on this motion 
are postponed.

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