Congressman Jim Himes, whose district includes most of Shelton, is a co-sponsor of bipartisan legislation to establish an explicit statutory ban on insider trading.
The Insider Trading Prohibition Act makes it a federal crime to trade a security based on material, nonpublic information that was wrongfully obtained.
The proposal would end decades of ambiguity for a crime that has never been clearly defined by law, according to a press release by Himes’ office.
Himes is a four-term Democrat who worked for Goldman Sachs before being elected to Congress. U.S. Reps. Steve Womack, a Republican from Arizona, and Emanuel Cleaver, a Democrat from Missouri, are the lead co-sponsors of the legislation.
The fairness, integrity and safety of America’s financial markets are severely weakened when corporate insiders and others who wrongfully obtain inside information misuse it, profiting at the expense of other investors and the market as a whole, according to Himes’ release.
‘What’s legal and what isn’t’
“The absence of a clear statutory prohibition on insider trading has left us with an amorphous body of case law instead of bright lines around what’s legal and what isn’t,” Himes said. “This haziness opens the door to letting wrongdoers walk free, and provides uncertainty to those who are genuinely trying to operate within the bounds of the law.
“The need for a clear definition of insider trading is particularly important in an era in which complex trades and information literally move at the speed of light,” he said.
Now subject to interpretation
The lack of a federal insider trading law has forced the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) to rely on general anti-fraud statutes and decades of case law subject to interpretation by individual judges, stated the Himes’ release.
The Insider Trading Prohibition Act establishes a statutory prohibition on insider trading, codifying and clarifying the overarching principles on insider trading set forth by courts, the SEC and the DOJ, while eliminating the ambiguities that have existed in the case-by-case evolution of the law in this area.
What the legislation would do
The Insider Trading Prohibition Act would:
— Make it unlawful for a person to trade on material, nonpublic information when the information was wrongfully obtained, or when the use of such information to make a trade would be deemed wrongful.
— Make it unlawful for a person who wrongfully obtains material, nonpublic information to communicate that “tip” to another person when it is reasonably foreseeable that the person is likely to trade on that information.
— Define “wrongful” as information that has been obtained through “theft, bribery, misrepresentation or espionage, a violation of any federal law protecting computer data or the intellectual property or privacy of computer users, conversion, misappropriation or other unauthorized and deceptive taking of such information, or a breach of any fiduciary duty or any other personal or other relationship of trust and confidence.”
— Remove the requirement outlined in a related court case that a person who receives a “tip” (a “tippee”) and trades on that information have any knowledge that the “tipper” received a personal benefit, so long as the tippee was aware, or recklessly disregarded, that the information was wrongfully obtained or communicated.
— Authorize the SEC to exempt any person or transaction from liability under this bill at the commission’s discretion.