Insider Trading Prohibition Act

IIB 116TH CONGRESS 1ST SESSION H. R. 2534 IN THE SENATE OF THE UNITED STATES DECEMBER 9, 2019 Received; read twice and referred to the Committee on Banking, Housing, and Urban Affairs AN ACT To amend the Securities Exchange Act of 1934 to prohibit certain securities trading and related communications by those who possess material, nonpublic information. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 VerDate Sep 11 2014 21:59 Dec 09, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H2534.RFS H2534 pamtmann on DSKBC07HB2PROD with BILLS 2 HR 2534 RFS SECTION 1 SHORT TITLE. 1 This Act may be cited as the ‘‘Insider Trading Prohi- 2 bition Act’’. 3 SEC. 2. PROHIBITION ON INSIDER TRADING. 4 (a) IN GENERAL.—The Securities Exchange Act of 5 1934 (15 U.S.C. 78a et seq.) is amended by inserting after 6 section 16 the following new section: 7 ‘‘SEC. 16A. PROHIBITION ON INSIDER TRADING. 8 ‘‘(a) PROHIBITION AGAINST TRADING SECURITIES 9 WHILE AWARE OF MATERIAL, NONPUBLIC INFORMA- 10 TION.—It shall be unlawful for any person, directly or in- 11 directly, to purchase, sell, or enter into, or cause the pur- 12 chase or sale of or entry into, any security, security-based 13 swap, or security-based swap agreement, while aware of 14 material, nonpublic information relating to such security, 15 security-based swap, or security-based swap agreement, or 16 any nonpublic information, from whatever source, that 17 has, or would reasonably be expected to have, a material 18 effect on the market price of any such security, security- 19 based swap, or security-based swap agreement, if such 20 person knows, or recklessly disregards, that such informa- 21 tion has been obtained wrongfully, or that such purchase 22 or sale would constitute a wrongful use of such informa- 23 tion. 24 ‘‘(b) PROHIBITION AGAINST THE WRONGFUL COM- 25 MUNICATION OF CERTAIN MATERIAL, NONPUBLIC INFOR- 26 VerDate Sep 11 2014 21:59 Dec 09, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H2534.RFS H2534 pamtmann on DSKBC07HB2PROD with BILLS 3 HR 2534 RFS MATION.—It shall be unlawful for any person whose own 1 purchase or sale of a security, security-based swap, or 2 entry into a security-based swap agreement would violate 3 subsection (a), wrongfully to communicate material, non- 4 public information relating to such security, security-based 5 swap, or security-based swap agreement, or any nonpublic 6 information, from whatever source, that has, or would rea- 7 sonably be expected to have, a material effect on the mar- 8 ket price of any such security, security-based swap, or se- 9 curity-based swap agreement, to any other person if— 10 ‘‘(1) the other person— 11 ‘‘(A) purchases, sells, or causes the pur- 12 chase or sale of, any security or security-based 13 swap or enters into or causes the entry into any 14 security-based swap agreement, to which such 15 communication relates; or 16 ‘‘(B) communicates the information to an- 17 other person who makes or causes such a pur- 18 chase, sale, or entry while aware of such infor- 19 mation; and 20 ‘‘(2) such a purchase, sale, or entry while aware 21 of such information is reasonably foreseeable. 22 ‘‘(c) STANDARD AND KNOWLEDGE REQUIREMENT.— 23 ‘‘(1) STANDARD.—For purposes of this section, 24 trading while aware of material, nonpublic informa- 25 VerDate Sep 11 2014 21:59 Dec 09, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H2534.RFS H2534 pamtmann on DSKBC07HB2PROD with BILLS 4 HR 2534 RFS tion under subsection (a) or communicating material 1 nonpublic information under subsection (b) is wrong- 2 ful only if the information has been obtained by, or 3 its communication or use would constitute, directly 4 or indirectly— 5 ‘‘(A) theft, bribery, misrepresentation, or 6 espionage (through electronic or other means); 7 ‘‘(B) a violation of any Federal law pro- 8 tecting computer data or the intellectual prop- 9 erty or privacy of computer users; 10 ‘‘(C) conversion, misappropriation, or other 11 unauthorized and deceptive taking of such in- 12 formation; or 13 ‘‘(D) a breach of any fiduciary duty, a 14 breach of a confidentiality agreement, a breach 15 of contract, a breach of any code of conduct or 16 ethics policy, or a breach of any other personal 17 or other relationship of trust and confidence for 18 a direct or indirect personal benefit (including 19 pecuniary gain, reputational benefit, or a gift of 20 confidential information to a trading relative or 21 friend). 22 ‘‘(2) KNOWLEDGE REQUIREMENT.—It shall not 23 be necessary that the person trading while aware of 24 such information (as proscribed by subsection (a)), 25 VerDate Sep 11 2014 21:59 Dec 09, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H2534.RFS H2534 pamtmann on DSKBC07HB2PROD with BILLS 5 HR 2534 RFS or making the communication (as proscribed by sub- 1 section (b)), knows the specific means by which the 2 information was obtained or communicated, or 3 whether any personal benefit was paid or promised 4 by or to any person in the chain of communication, 5 so long as the person trading while aware of such in- 6 formation or making the communication, as the case 7 may be, was aware, consciously avoided being aware, 8 or recklessly disregarded that such information was 9 wrongfully obtained, improperly used, or wrongfully 10 communicated. 11 ‘‘(d) DERIVATIVE LIABILITY.—Except as provided in 12 section 20(a), no person shall be liable under this section 13 solely by reason of the fact that such person controls or 14 employs a person who has violated this section, if such 15 controlling person or employer did not participate in, or 16 directly or indirectly induce the acts constituting a viola- 17 tion of this section. 18 ‘‘(e) AFFIRMATIVE DEFENSES.— 19 ‘‘(1) IN GENERAL.—The Commission may, by 20 rule or by order, exempt any person, security, or 21 transaction, or any class of persons, securities, or 22 transactions, from any or all of the provisions of this 23 section, upon such terms and conditions as it con- 24 VerDate Sep 11 2014 21:59 Dec 09, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H2534.RFS H2534 pamtmann on DSKBC07HB2PROD with BILLS 6 HR 2534 RFS siders necessary or appropriate in furtherance of the 1 purposes of this title. 2 ‘‘(2) DIRECTED TRADING.—The prohibitions of 3 this section shall not apply to any person who acts 4 at the specific direction of, and solely for the ac- 5 count of another person whose own securities trad- 6 ing, or communications of material, nonpublic infor- 7 mation, would be lawful under this section. 8 ‘‘(3) RULE 10b–5–1 COMPLIANT TRANS- 9 ACTIONS.—The prohibitions of this section shall not 10 apply to any transaction that satisfies the require- 11 ments of Rule 10b–5–1 (17 CFR 240.10b5–1), or 12 any successor regulation.’’. 13 (b) COMMISSION REVIEW OF RULE 10b–5–1.—Not 14 later than 180 days after the date of the enactment of 15 this Act, the Securities and Exchange Commission shall 16 review Rule 10b–5–1 (17 CFR 240.10b5–1) and make any 17 modifications the Securities and Exchange Commission 18 determines necessary or appropriate because of the 19 amendment to the Securities Exchange Act of 1934 made 20 by this Act. 21 (c) CONFORMING AMENDMENTS.—The Securities 22 Exchange Act of 1934 (15 U.S.C. 78a et seq.) is further 23 amended— 24 VerDate Sep 11 2014 21:59 Dec 09, 2019 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H2534.RFS H2534 pamtmann on DSKBC07HB2PROD with BILLS 7 HR 2534 RFS (1) in section 21(d)(2), by inserting ‘‘, section 1 16A of this title’’ after ‘‘section 10(b) of this title,’’; 2 (2) in section 21A— 3 (A) in subsection (g)(1), by inserting ‘‘and 4 section 16A,’’ after ‘‘thereunder,’’; and 5 (B) in subsection (h)(1), by inserting ‘‘and 6 section 16A,’’ after ‘‘thereunder,’’; and 7 (3) in section 21C(f), by inserting ‘‘or section 8 16A,’’ after ‘‘section 10(b)’’. 9 Passed the House of Representatives December 5, 2019. Attest: CHERYL L. JOHNSON, Clerk. VerDate Sep 11 2014 21:59 Dec 09, 2019 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H2534.RFS H2534 pamtmann on DSKBC07HB2PROD with BILLS