Liz Dunshee of TheCorporateCounsel.Net reports:
Last week, the “Insider Trading Prohibition Act” was introduced in the Senate – after garnering widespread support in the House last spring. This bill has been circulating for the better part of a decade. But on the heels of the SEC’s proposals to reform Rule 10b5-1 and issuer repurchase disclosures, maybe 2022 will finally be the year we also get an insider trading statute.
At a hearing about this legislation held last week by the Committee on Banking Housing & Urban Affairs, former SEC Commissioner Rob Jackson testified that:
– The Act would close a significant gap in the current common law, by clearly outlawing trading on info obtained through cybersecurity hacks. That’s because the Act’s definition of “wrongful” trading on MNPI would extend to information obtained through theft or unauthorized access, or violation of a Federal law protecting computer data or intellectual property or privacy of computer users.
– The SEC should reconsider foreign companies’ Section 16 exemptions – in order to crack down on apparent insider trading by executives at foreign firms listed in the US. That was the topic of a study released a couple weeks ago by Professor Jackson along with Bradford Lynch and Daniel Taylor, which was reported on by the WSJ.
The Committee also heard testimony from Columbia Law prof John Coffee (who generally supported codifying insider trading law, but took issue with the Act’s murky “personal benefit” standard), as well as University of Chicago Law prof M. Todd Henderson and Heritage Foundation Fellow David Burton. UCLA’s Stephen Bainbridge has also criticized the Act.
She somewhat understates the case by describing my attitude towards this mess as "critical." My article. A Critique of the Insider Trading Prohibition Act, 2021 UNIVERSITY OF ILLINOIS LAW REVIEW ONLINE 231 (2021), https://ssrn.com/abstract=3869222, argues that:
The Insider Trading Prohibition Act of 2021 has been passed by the House of Representatives and, as of this writing, is awaiting action in the Senate. The Act’s proponents claim that it simply codifies and clarifies existing law. In fact, the Act does neither. It likely will expand the scope of insider trading in undesirable ways and introduce new ambiguities into the law.
The ways in which the Act likely will expand the insider trading prohibition, coupled with the new ambiguities it introduces, threatens the central policy on which the insider trading prohibition rests. The Supreme Court has recognized that the work of market analysts and other investment professionals inherently entails seeking information advantages. In turn, as the Court also recognized, that work is an essential part of maintaining efficient stock markets. By increasing the risk of liability, especially in light of the Draconian penalties associated with insider trading, the Act likely will chill this vital activity, to the detriment of all investors.
When a very similar bill passed the House in the 116th Congress, the legislation died in the Senate. The Insider Trading Prohibition Act of 2021 now awaits Senate action. The Senate would be well advised to let this bill die as well.
