With no federal statute on the books specifically banning the practice, congressional lawmakers are seeking a clearer legal definition of insider trading.
The latest comes from Rep. Jim Himes (D-CT), who last week submitted the “Insider Trading Prohibition Act,” the third bill submitted to Congress in the last month aiming to establish a clear statutory prohibition against insider trading.
The other two bills come from Rep. Stephen Lynch (D-MA) who introduced the “Ban Insider Trading Act of 2015” and Senators Jack Reed (D-RI) and Bob Menendez (D-NJ) who introduced the “Stop Illegal Insider Trading Act.” All three bills are currently sitting in committee.
Today, insider trading cases are built around antifraud rules under the Securities Exchange Act of 1934 and subject to broad judicial interpretation. The result has been an unclear and inconsistent legal standard that compliance professionals have wrestled to understand.
As SEC-registered investment advisers, private fund managers are required to adopt policies and procedures to prevent insider-trading, leading CCOs to monitor staff trading activity. As private investors executing only a handful of deals per year, if at all, private equity and real estate firms have been less exposed to insider trading cases, but a steady migration of private fund managers into other, more liquid investment strategies has increased the need to understand insider trading rules.
The Himes bill, a scant six pages, would only make it illegal to trade information that “has been obtained wrongfully,” through specific actions like theft, bribery or computer hacking. If passed, the bill removes a requirement that tipsters gained some type of benefit from sharing insider information.
Of the three bills, only the Himes bill has a Republican co-sponsor, Rep. Steve Womack (AK), which may give it traction in a Republican-controlled Congress.