The House Committee on Financial Services recently approved a bill, the Insider Trading Prohibition Act, which creates a statutory definition of insider trading in response to what Rep. Jim Himes, D-Conn., called a “judicial mess” of court decisions on the subject. This “judicial mess” exists, of course, because Congress has never adopted an explicit prohibition on insider trading, leaving it to the courts to interpret and develop the contours of an insider trading prohibition within the context of the existing anti-fraud provisions of the federal securities laws.
Whether or not the proposed legislation will improve matters remains to be seen, but the history of insider trading cases prosecuted civilly by the U.S. Securities and Exchange Commission and criminally by the U.S. Department of Justice supports the need for clarification.
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