April 13, 2022

Senate Considers Insider Trading Statute

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.

Liz Dunshee