Bill summaries are authored by CRS.

Shown Here:
Passed House amended (09/14/1988)

(Measure passed House, amended, roll call #314 (410-0))

Insider Trading and Securities Fraud Enforcement Act of 1988 - Amends the Securities Exchange Act of 1934 to revise the authority of the Securities and Exchange Commission (SEC) to seek civil penalties against persons who participate in illegal insider trading. Authorizes the SEC to seek to impose civil penalties upon any person who, at the time of the violation, directly or indirectly controlled the person who committed the illegal insider trading. Limits the civil liability of a controlled person to the greater of $1,000,000 or three times the amount of the profit gained or loss avoided as a result of the controlled person's violation. Specifies that a controlling person shall not be subject to civil penalties unless the SEC establishes that: (1) such controlling person knew or recklessly disregarded the fact that the controlled person was likely to engage in prohibited acts and failed to take appropriate steps to prevent such prohibited acts; or (2) such controlling person knowingly or recklessly failed to establish or enforce any policy or procedure required under provisions of the Securities Exchange Act and of the Investment Advisers Act of 1940. Sets forth procedures for the collection of any such civil penalty imposed. Specifies a statute of limitations of five years for any such action brought by the SEC.

Authorizes the SEC to award a bounty of up to ten percent of any civil penalty imposed to the person or persons who provide information leading to the imposition of such penalty.

Requires every registered broker or dealer to establish, maintain, and enforce written policies and procedures to prevent the misuse of material, nonpublic information by such broker or dealer or any person associated with such broker or dealer. Amends the Investment Advisers Act of 1940 to require every investment adviser subject to such Act to establish, maintain, and enforce written policies and procedures to prevent the misuse of material, nonpublic information by such investment adviser.

Requires the SEC to make recommendations to the Congress with respect to the extension of its authority to impose civil penalties or administrative fines to other violations of the Securities Exchange Act of 1934.

Increases the monetary penalties for any criminal violations of the Securities Exchange Act of 1934 from an individual maximum of $100,000 to $1,000,000 and a maximum for non-natural persons from $500,000 to $2,500,000. Makes all non-natural persons subject to the higher penalty. (Current law imposes the higher penalty only on exchanges.) Increases the maximum prison term for securities law violations from five years to ten years.

Allows a private right of action against any person who violates insider trading rules to be brought by anyone who, contemporaneously with the purchase or sale of securities that form the basis of such violation, purchased or sold securities of the same class. Limits the total amount of damages in such a contemporaneous trading action to any profit gained or loss avoided and reduces any such damages by the amounts the violating person is required to disgorge pursuant to a court order obtained by the SEC. Specifies that a person may not be held liable solely by reason of employing another person who is liable. Specifies a statute of limitations of five years for any such private right of action. Imposes joint and several liability on anyone who communicates insider information to the same extent as those who directly profit from the insider trading. Specifies that the authority to bring such an action shall not be construed to: (1) limit or condition any implied private rights of action; or (2) bar or limit any action by the SEC or the Attorney General.

Authorizes the SEC to provide investigatory assistance to foreign securities authorities.

Directs the SEC to make a study and investigation of the adequacy of the Federal securities laws for the protection of the public interest and the interests of investors. Requires the SEC to report to the Congress concerning the results of such study and investigation. Authorizes appropriations to carry out such study and investigation.

Authorizes appropriations to the SEC for: (1) official reception and representation expenses; and (2) maintaining membership in, and contributing to, the operating expenses of the International Organization of Securities Commissions.