Insider Trading Prohibition Act

Mr. Speaker, I rise with my friend and colleague from Arkansas to acknowledge the work that has been put in by our colleague from Connecticut. This has been a long discussion that we have had various points where we have debated, and this is a positive thing.

Mr. Speaker, as you know, preventing fraud and abuse within our financial system and cracking down on bad actors for illegal insider trading is a nonpartisan priority. We all believe that this is a good thing. In fact, this kind of fraud and illegal activity hurts everyday Main Street investors. It also makes our capital markets less efficient, accurate, and fair to all investors.

Now, current law prohibits trading on material insider information in breach of a fiduciary duty under the antifraud provisions of the Federal securities laws. Let me just repeat that. Current law prohibits those activities.

The Securities and Exchange Commission and the Department of Justice are the Federal agencies tasked with enforcing insider trading laws. Both agencies regularly use their authority to bring insider trading cases against these bad actors who violate our insider trading laws.

However, the bill we are discussing here today, H.R. 2655, is flawed and could potentially create even more confusion and uncertainty within the law of insider trading. It could expand liability for good-faith traders, which would weaken investor confidence, chill vital information-gathering, and hurt the efficiency of our markets.

I believe it is important to note that, once again, the SEC is not asking for this bill or, frankly, any other legislative help on this issue. That is, the cop on the beat is not saying we need additional tools. Moreover, Democrats have not identified a problem within the current body of law that inhibits the prosecution of bad actors who illegally trade on material, nonpublic information. Again, the regulators have the tools that they need.

Republican and Democrat SEC chairs alike, with vastly different approaches to enforcement matters, have expressed concerns over Congress codifying a prohibition on insider trading into one single statute, as we are doing. Specifically, they voiced concerns that Congress would write a law that would be both overly broad, yet too narrow. Now, that is an odd phrase.

Former SEC Chair Mary Jo White, during 2015 testimony--by the way, she was President Obama's SEC chair--before our Financial Services Committee, when asked whether or not Congress should pursue an explicit statutory prohibition, stated: ``I think it is challenging to codify it clearly in a way that is both not too broad and retains the strength of the common law.''

Additionally, former SEC Chair Jay Clayton voiced similar concerns that Congress could write an insider trading law that is both too broad and too narrow.

I want to commend the gentleman from Connecticut for his dedicated work over the years on this issue, and I appreciate his efforts to try and codify a specific insider trading prohibition.

However, codifying very nuanced case law and regulations that have been developed over decades to prohibit insider trading is a significant task and undertaking. We all know that case law does oftentimes dictate the nuances. I fear that this bill could add more confusion and uncertainty around insider trading law with rogue judges and prosecutors using the language to expand the bounds of insider trading laws.

It was mentioned that this bill passed this body 410-13, and I was one of the 13.

We have to ask ourselves: Why was the bill ignored by the Senate?

There isn't a compelling problem to solve is why it was ignored. This is a solution in search of a problem.

I believe H.R. 2655, the Insider Trading Prohibition Act, which we are debating today, is both too broad and too narrow, just as former SEC Chair White warned was possible, and I continue to be opposed to the legislation.

Mr. Speaker, let me throw out one name--I guess it is actually, technically, two names: Dodd-Frank.

My friends on the other side wrote a massively expansive bill that did turn over all of that authority to come up and promulgate rules out of whole cloth.

What we are talking about here is a very key word: materiality.

We are having this exact debate about the environmental, social, and governance issues, the ESG of the Securities and Exchange Commission, and the boundaries of those rules. This is the balance between making sure that the legislature and our constitutional powers do not contradict the powers that are given to those regulators.

Yet, at the same time, we need to make sure that the regulators, based on case law, based on experience and the flexibility that they may need to go and do a law enforcement action, that they have those tools and that they are not pulled back from them.

If the gentleman's sort of example was to hold true, then we would have to eliminate all corporate law and every single publicly traded company that incorporates in Delaware. Delaware's entire corporate structure is based on case law and what has gone on. It is widely accepted throughout the United States that it is solid and positive, and that is what we are trying to do here today.

We are not trying to hand over more power to the bureaucrats. We are trying to make sure that the system that is in place, that everybody understands the rules of the road, that they then are going to be used to be enforced.

Mr. Speaker, on that I demand the yeas and nays.

Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 2655) to amend the Securities Exchange Act of 1934 to prohibit certain securities trading and related communications by those who possess material, nonpublic information, as amended.

Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks on this legislation and to insert any extraneous materials thereon.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I rise in strong support of H.R. 2655, the Insider Trading Prohibition Act, which was introduced by my colleague, Mr. Himes.

This long-overdue bill creates a clear definition of illegal insider trading under the securities laws so that there is a codified, consistent standard for courts and market participants. This bill will help to better protect the hard-earned savings of millions of Americans and bring legal and regulatory certainty to U.S. securities markets.

For nearly 80 years, the Securities and Exchange Commission has sought to hold corporate insiders accountable for insider trading through general statutory antifraud provisions and rules it has promulgated under those provisions. This has resulted in a web of court decisions that generally prohibit insiders with a duty of trust and confidence to a corporation from secretly trading on material, nonpublic corporate information for their own personal gain.

These insiders are also generally prohibited from tipping outsiders, known as tippees, who then trade on the information themselves, even though they knew it was wrongly obtained. But because there isn't a statutory definition of insider trading, there is uncertainty around who is subject to insider trading prohibitions.

Further, with various court decisions, liability for this type of violation has shifted. For example, in 2014, an appeals court added a brand-new requirement that the tippee must not just know that information was wrongfully disclosed but must also know about the specific personal benefit that the insider received. This decision has severely hampered the SEC's ability to prosecute insider trading cases.

According to Preet Bharara, the former U.S. attorney for the Southern District of New York, this decision ``provides a virtual roadmap for savvy hedge-fund managers to insulate themselves from tippee liability by knowingly placing themselves at the end of a chain of insider information and avoiding learning details about the sources of obvious confidential and improperly disclosed information.''

I am pleased that this bill codifies existing case law and overturns this new controversial requirement, creating a clear, consistent standard for the SEC, the courts, and market participants to follow.

Last Congress, the House of Representatives passed this commonsense bipartisan bill with an overwhelmingly bipartisan vote of 410-13.

Mr. Speaker, I urge my colleagues to once again support this important bill, and I reserve the balance of my time.

Mr. Speaker, I yield 2 minutes to the gentleman from Connecticut (Mr. Himes), who is also a sponsor of this legislation.

Mr. Speaker, I yield 1 minute to the gentleman from Connecticut (Mr. Himes).

Mr. Speaker, I have no further speakers, I am prepared to close, and I reserve the balance of my time.

Mr. Speaker, I yield myself the balance of my time.

H.R. 2655, the Insider Trading Prohibition Act, is a long overdue piece of legislation that simply spells out the definition of illegal insider trading under the security laws. It creates clarity for participants in financial markets, and empowers the SEC to punish bad actors.

This bill is supported by groups, including the Council of Institutional Investors, the California State Teachers' Retirement System, the North American Securities Administrators Association, and Public Citizen.

Mr. Speaker, I urge all Members to vote ``yes'' on this important bill, and I yield back the balance of my time.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, stopping and punishing bad actors for illegal insider trading is a top priority for House Republicans. This illegal activity hurts everyday Main Street investors as well as the integrity and efficiency of our markets. Trading on material insider information in breach of fiduciary duty is currently prohibited by court-made law under the antifraud provisions of the Federal securities laws.

The Securities and Exchange Commission, the SEC, and the Department of Justice have the power to bring insider trading cases, and both agencies regularly exercise this power.

One body of insider trading law that has been developed is through the courts. Decades of judicial precedent are in place to protect investors and markets by punishing bad actors who illegally trade on insider information.

Codifying nuanced case law and regulations that have been developed over the decades into a single statute prohibiting insider trading is a serious undertaking, and the gentleman from Connecticut (Mr. Himes) has tackled this challenging task.

To be explicitly clear, this legislation's intent is to codify, and neither expand nor contract, insider trading law as it is currently understood and interpreted by the Federal courts.

Again, there should not be a single cause of action available under this law that would not otherwise be available to Federal prosecutors or SEC enforcement attorneys under the already existing securities laws. I underscore this point because both Republican and Democratic SEC Commissioners have expressed concerns about Congress drafting a statute that accurately captures this expansive body of law without expanding it.

I agree with them. I think it would be tough to draft a perfect insider trading law. But with that said, I appreciate the gentleman from Connecticut's intentions not to expand the scope of current insider trading enforcement and his willingness to work with us in a bipartisan manner last Congress and again in this Congress.

Specifically, Ranking Member Patrick McHenry's amendment last Congress, included in the base text of this year's provision, provides the needed changes to align the explicit personal benefit test more closely with Supreme Court precedent. It also clarifies ambiguous wording to ensure that judges and prosecutors know that this bill is not intended to expand or create new insider trading liability.

Republicans will continue to speak out and support efforts to combat illegal insider trading. We look forward to working with our colleagues on the House Financial Services Committee and in the Senate, and I reserve the balance of my time.

Mr. Speaker, I thank my friend from Connecticut for his vigorous defense, always welcome on the House floor, of Article I power here in the Congress. Both sides of the aisle are grateful for that, as we defend it on a regular basis. We thank him for his work.

Mr. Speaker, I yield 3 minutes to the gentleman from Michigan (Mr. Huizenga), the ranking member of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets of the House Financial Services Committee to speak on the topic of this bill.

Mr. Speaker, I yield an additional 1 minute to the gentleman from Michigan.

Mr. Speaker, I yield 2 minutes to the gentleman from Michigan (Mr. Huizenga).

Mr. Speaker, I yield myself the balance of my time.

Mr. Speaker, I think this is a good debate. Again, I thank my friend from Michigan and my friend from Connecticut for the quality of that debate.

Mr. Speaker, I urge my colleagues to support H.R. 2655, and I yield back the balance of my time.

Mr. Speaker, I thank Mr. Emanuel Cleaver for yielding, and I thank my subcommittee ranking member, Mr. Hill, for a very good characterization of the project we are undertaking here.

I will emphasize two things.

Number one, at a moment when we are working hard to find ways to work in a bipartisan fashion in the public interest, this is landmark legislation. As Mr. Hill pointed out, we passed it in the last Congress with a vote of 410-13, and that was the result of a very comprehensive and fairly technical negotiation around the fine points of insider trading.

The second thing I would point out is that everyone in this Chamber should agree that law is to be made in this Chamber, not in the chambers of unelected judges throughout the land. While Mr. Hill is correct that there has been a vast body of court-made law around insider trading developed over the generations, that is far from ideal and, frankly, an abrogation of the legislative responsibilities of the United States Congress. So, we are where we are.

We have attempted to make clear and clear up a great deal of the uncertainty, the reversed convictions, the activities in the Second Circuit that have overturned convictions and created uncertainty in the law. This is an effort to make clear what I think everyone understands, which is that if you trade on information that you know to have been wrongly obtained or that you wrongly obtained or that you recklessly disregard was wrongly obtained, you are doing something wrong. In this case, with the passage of this legislation, it will be clear that you have violated the law.

I am excited for the passage of this legislation because I am a believer that it is, in fact, the elected legislators of this country and not the judges, as important as their role may be, who should determine what we consider wrong in statute and what we punish people for doing.

Finally, of course, it is essential that everyone out there have confidence in our markets. Every time there is another headline about an insider trader or a reversed conviction of insider trading, that confidence is damaged. So, I applaud the bringing of this bill to the floor.

Mr. Speaker, I must say, as much respect as I have for Mr. Huizenga--I have been around here a little while--I think this may be the first time I have heard from my colleagues on the other side of the aisle that the regulators deserve deference on this, that the regulators are not asking us to make a statutory change. I have never heard that in this Chamber--this Chamber--which, under Article I of the Constitution, is charged with writing the laws of this country.

Apparently, my Republican friends, who don't typically defer to regulators, are now saying the SEC is, at best, neutral on this law.

Is there damage?

I would urge anybody who wants to know about that to read the activities of the Second Circuit Court of Appeals in the overturning of conviction after conviction of hedge fund managers and others around points of technical complexity.

We make the laws. We don't ask the regulators whether they would like us to, or whether they would cheer us on in making laws. We make the laws. If we are going to send people to jail, if we are going to stop the confusion of judge-made law, let's do our job and pass this legislation.

Madam Speaker, I was unavoidably detained. Had I been present, I would have voted ``yea'' on rollcall No. 145, ``nay'' on rollcall No. 146, ``nay'' on rollcall No. 147, and ``yea'' on rollcall No. 148.