Insider Trading Prohibition Act

Floor Speech

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Mr. HIMES. Madam Chair, I thank the gentlewoman for yielding.

I rise, delighted today by our consideration of H.R. 2534, the Insider Trading Prohibition Act, because, after years of work, we are going to produce a bipartisan product which actually does address a significant challenge in insider trading law, and that is, in general, that, to date, there has existed, remarkably, no specific statutory prohibition on insider trading.

I am a believer, as I know everyone else in this Chamber is, that, if we are going to create criminal or civil liability, the legislators of the Congress of the United States should make specific how and when and under what circumstances we do so. And that is what we are doing today, I am delighted to report, in bipartisan fashion.

But let me back up for a second, for those who don't sit on the committee or watch this particular space all that closely, just to explain why this is important.

Insider trading is an activity in which somebody who has information that they have been entrusted with, or for which they have paid or come by in some dishonest fashion, uses it to secure a market advantage. They have information that others don't. They trade on that information. That allows them to get a material gain.

There is a problem with that, quite apart from the notion that it is only insiders or those people who are not acting based on their talent or their intelligence or their hard work, but acting based on who they know or, worse yet, who they might have paid, that they are the ones who benefit from our capital markets. I think that notion sort of strikes at the fundamental sense of fairness that we all carry around.

But, inasmuch as this behavior exists, it is profoundly damaging to the capital markets that are such a hallmark of the United States, and it is damaging because those capital markets rely on the confidence that millions of American families have out there that their hard- earned savings can be put into the market, invested, and redeployed in a way that is fair to them, that will create a return, and that they are doing so on a level playing field, not competing with people who may have an inside advantage.

Now, the good news here is that, in the generations preceding us, we have, in fact, prosecuted insider trading, but we have done so under antifraud provisions of the Securities Acts that were passed in the early 1930s; and, as a result, there is not a particularly good fit between the concept of fraud and the concept of insider trading.

And to my friend Mr. Huizenga's point, as he knows, this has led to a vast body of court-determined law, starting with the Dirks decision in 1984, moving through Materia, Carpenter, O'Hagan, all court decisions which crafted the concept of liability around insider trading, culminating in the 2014 Newman decision by the Second Circuit, leading then to the Salman decision at the Supreme Court in 2016.

All of these cases that I have mentioned have created uncertainty about the nature of liability and have resulted in overturned convictions of people who behaved in ways that would violate our intuitive sense of right and wrong.

So, because of this uncertainty, because of the overturning of convictions, now is the moment for us to finally do what we are here to do, which is to make it very clear what the law of the land is.

So the moment has come to pass this legislation, and I am delighted to say it comes after years of working with experts like the aforementioned Professor John Coffee, past and present Commissioners of the Securities and Exchange Commission, and consultation with prosecutors as well as with defense attorneys.

This is a fairly fiddly and technical area of the law, and so it was my intention, over the years, to make sure that we crafted good law which created liability for bad behavior but which did not, in fact, create liability for behavior like doing a little extra work to secure an advantage in investments.

It was also very, very important to me that this be done on a bipartisan basis. There is really nothing partisan about this bill. Neither party believes in insider trading or wants to support insider trading. This is not a question of balancing regulation or allocating public resources; this is a question of clarity of law.

So I want to close, apart from just saying that that has been the track record of the establishment and writing of this legislation, by thanking Ranking Member McHenry and Ranking Member Huizenga.

There will be an amendment offered by Ranking Member McHenry which the Democrats support. It does improve the bill. It is not really a compromise in the sense that it actually makes for a better bill.

But I am pleased to say that, after a lot of hard work, this is, in fact, the product of some very robust engagement between the Democratic and Republican Representatives in this Chamber. That is not easy to achieve under these circumstances.

So I want to start, first and foremost, by thanking Chairwoman Waters and Chairwoman Maloney for their sponsorship and then, again, Mr. McHenry and Mr. Huizenga, who committed to really understanding what is a technical corner of the law and offered, in good faith, amendments, including some ideas that we will shortly be taking up.

And then, finally, as every Member in this Chamber knows, hard work happens and gets done and leads to success only because of the commitment and very, very hard work of the staff on both sides of the aisle. So, before yielding back my time to the chairwoman, I do want to specifically thank Katelynn Bradley, Ben Harney, David Fernandez, and David Karp from the Financial Services staff; Mark Snyder, my legislative director, and Rachel Kelly, his predecessor, from my staff.

And then, on the Republican side, big thanks to Kimberly Betz, McArn Bennett, and Jamie McGinnis.

Madam Chair, I urge passage of this law. This will be a good thing for the confidence in our capital markets. It will be a good thing in reassuring the American public that we can get things done on a bipartisan basis. On that basis, I urge passage of H.R. 2534, the Insider Trading Prohibition Act.

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Mr. HIMES. Mr. Chairman, what is the balance of time available?

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Mr. HIMES. Mr. Chairman, I thank Ranking Member Waters for yielding me time.

I rise very briefly to welcome the amendment by Mr. McHenry. Mr. McHenry raised four substantive points. Three of those points are incorporated in this amendment, which we are very happy to accept.

I think it is, again, not a compromise, but an improvement of the bill.

In my very little remaining time, we did have discussions about exclusivity. As the ranking member knows, the idea here is to create a law under which insider trading is prosecuted. That is the objective.

As the ranking member knows, it is a fairly complicated situation when including specific exclusivity language. Ultimately, that was not included in the ranking member's proposed amendment here, but we should continue to work together to make sure that this is about clarifying and simplifying and making more efficient rather than making more complex.

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Mr. HIMES. Mr. Chairman, I thank Chairwoman Waters for yielding me the time.

I rise in reluctant opposition to this amendment because it has been a hallmark of this process that I very much enjoyed working with Mr. McHenry and Mr. Huizenga. The reason I rise in opposition is really twofold or threefold.

Number one, as Mr. Huizenga may recall, the original draft of the bill would make it prosecutable to prosecute somebody who is in possession of material, nonpublic information. My Republican friends correctly pointed out that we are often in possession of information that we may not be aware of. Certainly, if you were to take a look at my email inbox, you would know that to be true. So at the suggestion of the Republicans, we changed the standard from ``in possession'' to ``aware of.''

While I know that Mr. Huizenga is acting in good faith, Chairwoman Waters got it exactly right. If we go to a use standard, it would require prosecutors to actually get inside the motivation of why somebody made a trade. They would have to prove that you made this trade because you had inside information.

In support of Mr. Huizenga's good faith, I understand where he is coming from, but let's also face that the confluence of circumstances where you have material, nonpublic information and you were going to do that trade at precisely that moment is a very, very rare event.

While I understand where Mr. Huizenga is coming from, what I would suggest is, instead of creating probably an impossible prosecutorial burden, let's acknowledge that if in that very rare event where you want to make a trade and you happen to be in possession of material, nonpublic information, let that trade go by. That is rare enough that it shouldn't in any way, I think, speaking as somebody who has spent time in this industry, compromise the effectiveness or the efficiency of our capital markets.

Again, reluctantly, I stand in opposition to Mr. Huizenga's amendment. I hope he will nonetheless support the underlying bill.

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