The publication is reproduced in full below:
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Mr. REED (for himself and Mr. Menendez):
S. 3990. 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; to the Committee on Banking, Housing, and Urban Affairs.
Mr. REED. Mr. President, today, I am joined by Senator Menendez in introducing the Insider Trading Prohibition Act, a bill that will finally define the offense of insider trading. This legislation is desperately needed because, in the absence of a statutory definition, the courts have cobbled together a dizzying array of interpretations of anti-fraud statutes, creating what is an inconsistent and complicated body of common law for deciding insider trading cases. What should be simple has become unnecessarily complex.
Indeed, Judge Jed Rakoff, who has presided over many insider trading cases before the Southern District of New York, wrote in a recent opinion that ``the crime of insider trading is a straightforward concept that some courts have somehow managed to complicate.''
Consider the following hypothetical example. A financial analyst receives information about XYZ Corporation's earnings from a company insider, like an executive or board member, before this information is publicly released. The analyst then shares this inside information with her portfolio manager who subsequently trades in XYZ stock. I suspect most Americans would agree that the portfolio manager was given an unfair advantage. But the courts are not so sure. They have left an open question whether this very trade would constitute illegal insider trading. Experts agree that this kind of judicial uncertainty is one reason among many of why Congress must clarify the law of insider trading.
Former SEC Commissioner Robert J. Jackson and former U.S. Attorney Preet Bharara have written that ``[t]he shoddy state of American insider-trading law affects everyone. Prosecutors and regulators are stuck enforcing laws that are ill-suited to 21st-
century misconduct. Lawyers struggle to tell their clients what they can and cannot do within the bounds of the law. And ordinary Americans are left asking whether financial markets are stacked in favor of those who skirt the rules.''
Columbia Law School Professor John C. Coffee, Jr., noted that
``[t]here is general agreement today that the law of insider trading has grown overly complex and technical. As a result, it is hard for the public to understand its logic or for practitioners to give advice with respect to the scope of the prohibition. Moreover, to the extent that insider trading is judge-made law, disparities and inconsistencies among the U.S. circuit courts becomes inevitable because there is little in the way of a definitive statutory text to provide precise guidance.''
State regulators agree, too. For example, Maryland Commissioner of Securities Melanie Senter Lubin recently stated on behalf of the North American Securities Administrators Association that ``[d]efining the standards for insider trading liability by statute would add greater clarity and consistency to this important area of the law.''
This is precisely what Senator Menendez and I are doing in our bill. We are seeking to finally distill the offense of insider trading to clear bright line rules. Simply put, if a person trades a security on the basis of information that the person is aware is material and nonpublic and is aware was wrongfully obtained, then that person has engaged in unlawful insider trading.
Under our legislation, insider trading would be prohibited if a trader knows or has reason to know that her information was wrongfully obtained, for example, through theft, bribery, hacking, misappropriation, or a breach of a fiduciary duty for a personal benefit. We do not intend to restrict those who take the time to independently develop their own information from publicly available sources from trading on the independently developed information.
By cracking down on those who rig securities markets to favor the well connected, our legislation provides everyday investors with a fair shot at seeing some returns after investing their hard-earned savings. Incidents of insider trading, and the perceived pervasiveness of the practice, have for years served to validate the public's worst assumptions about Wall Street culture. It is time we clearly define what is appropriate under the law and take this meaningful step towards improving the integrity of our securities markets for professional traders and retail investors alike.
I would like to thank Senator Menendez for working with me on this legislation, and I urge our colleagues to join us in supporting the Insider Trading Prohibition Act.
____________________
SOURCE: Congressional Record Vol. 168, No. 59
The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.
Senators' salaries are historically higher than the median US income.
Alerts Sign-up