[Congressional Record Volume 172, Number 129 (Thursday, August 6, 2026)]
[Senate]
[Pages S4520-S4521]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself, Mr. Van Hollen, Mr. Kim, Ms. 
        Alsobrooks, and Ms. Blunt Rochester):
  S. 5320. A bill to amend the Securities Exchange Act of 1934 to 
prohibit certain securities trading and related communications by those 
who possess material, nonpublic information, and for other purposes; to 
the Committee on Banking, Housing, and Urban Affairs.
  Mr. REED. Mr. President, today, I am joined by Senators Van Hollen, 
Kim, Alsobrooks, and Blunt Rochester in introducing the Insider Trading 
Prohibition Act, a bill that will finally define the offense of insider 
trading. This legislation is desperately needed because in the absence 
of a statutory definition, the courts have cobbled together a dizzying 
array of interpretations of anti-fraud statutes, creating what is an 
inconsistent and complicated body of common law for deciding insider 
trading cases. What should be simple has become unnecessarily complex.
  Indeed, Judge Jed Rakoff, who has presided over many insider trading 
cases before the Southern District of New York, wrote in a recent 
opinion that ``the crime of insider trading is a straightforward 
concept that some courts have somehow managed to complicate.''
  Consider the following hypothetical example. A financial analyst 
receives information about XYZ Corporation's earnings from a company 
insider, like an executive or board member, before this information is 
publicly released. The analyst then shares this inside information with 
her portfolio manager, who subsequently trades in XYZ stock.
  I suspect most Americans would agree that the portfolio manager was 
given an unfair advantage.
  But the courts are not so sure. They have left an open question 
whether this very trade would constitute illegal insider trading. 
Experts agree that this kind of judicial uncertainty is one reason 
among many of why Congress must clarify the law of insider trading.
  Current SEC Chair Paul Atkins said in response to questions for the 
record that ``following several high-profile insider trading cases, in 
1988 Congress adopted the Insider Trading and Securities Fraud 
Enforcement Act, but despite the statute's name, did not define 
`insider trading' because of lack of consensus of how to define it. 
Almost four decades later, the situation is even muddier as courts have 
applied the concept to various fact patterns.''
  Former SEC Commissioner Robert J. Jackson and former U.S. Attorney 
Preet Bharara have written that ``[t]he shoddy state of American 
insider-trading law affects everyone. Prosecutors and regulators are 
stuck enforcing laws that are ill-suited to 21st-century misconduct. 
Lawyers struggle to tell their clients what they can and cannot do 
within the bounds of the law. And ordinary Americans are left asking 
whether financial markets are stacked in favor of those who skirt the 
rules.''
  Columbia Law School Professor John C. Coffee, Jr., noted that ``there 
is general agreement today that the law of insider trading has grown 
overly complex and technical. As a result, it is hard for the public to 
understand its logic or for practitioners to give advice with respect 
to the scope of the prohibition. Moreover, to the extent that insider 
trading is judge-made law, disparities and inconsistencies among the 
U.S. circuit courts becomes inevitable because there is little in the 
way of a definitive statutory text to provide precise guidance.''

[[Page S4521]]

  State regulators agree too. For example, Maryland Commissioner of 
Securities Melanie Senter Lubin has stated on behalf of the North 
American Securities Administrators Association that ``defining the 
standards for insider trading liability by statute would add greater 
clarity and consistency to this important area of the law.''
  This is precisely what my colleagues and I are doing in our bill. We 
are seeking to finally distill the offense of insider trading to clear 
bright line rules. Simply put, if a person trades a security on the 
basis of information that the person is aware is material and nonpublic 
and is aware was wrongfully obtained, then that person has engaged in 
unlawful insider trading.
  Under our legislation, insider trading would be prohibited if a 
trader knows or has reason to know that her information was wrongfully 
obtained, for example, through theft, bribery, hacking, 
misappropriation, or a breach of a fiduciary duty for a personal 
benefit. We do not intend to restrict those who take the time to 
independently develop their own information from publicly available 
sources from trading on the independently developed information.
  By cracking down on those who rig securities markets to favor the 
well connected, our legislation provides everyday investors with a fair 
shot at seeing some returns after investing their hard-earned savings. 
Incidents of insider trading and the perceived pervasiveness of the 
practice have for years served to validate the public's worst 
assumptions about Wall Street culture. It is time we clearly define 
what is appropriate under the law and take this meaningful step towards 
improving the integrity of our securities markets for professional 
traders and retail investors alike.
  I would like to thank my Banking Committee colleagues for working 
with me on this legislation, and I urge our colleagues to join us in 
supporting the Insider Trading Prohibition Act.
                                 ______