Last night, the House passed the National Defense Authorization Act (NDAA), sending this sweeping, “must-pass” defense spending legislation on to the Senate. Buried in the bill is legislation that has been rattling around Congress for some time seeking to eliminate the exemption from Section 16 reporting that is available to insiders of foreign private issuers. John blogged about a similar effort to pass this legislation two years ago, but at that time the provision did not advance. Alan Dye’s Section16.net blog noted at that time the background of this legislation:

The proposal was originally introduced in the Senate in 2022, as a standalone bill entitled the Holding Foreign Insiders Accountable Act. The bill was intended to address trading abuses identified by former Commissioner Robert Jackson (now at NYU law school) and Wharton professors Bradford Levy and Daniel Taylor in an April 2022 paper entitled “Holding Foreign Insiders Accountable.” The authors examined trading by insiders of certain foreign private issuers, particularly Russian and Chinese issuers, and concluded that insiders of many of those companies avoided trading losses by selling their company stock shortly before significant declines in its price. In an opinion piece they wrote for the Wall Street Journal, Senators Kennedy and van Hollen said that American investors absorb most of the losses avoided by foreign insiders and that subjecting those insiders to Section 16 would alert investors to insider sell-offs and give American law enforcement agencies better ability to identify insider trading.

If enacted, the legislation would give the SEC 90 days to amend its rules to implement the statutory directive. I tip my hat to Reid Hooper and Vince Sampson of Cooley for their insights on the bill.

Look for more coverage of these developments over on Section16.net. If you are not a member with access to all of the practical information available on Section16.net, please email us at info@ccrcorp.com or call us at 800-737-1271 today.

– Dave Lynn