House Passes New Insider Trading Bill

If you’re an Uber driver and hear a couple of corporate executive types worrying aloud that their company’s stock is about to tank and you short the hell out of it, can you be convicted of insider trading?


With the passage by the U.S. House of Representatives of HR 2534, probably not.

In order to clarify who is liable for insider trading, the Insider Trading Prohibition Act states that you cannot trade “while in possession of material, nonpublic information” if you know, or recklessly disregard, that such information has been obtained wrongfully, or your trade “would constitute a wrongful use of such information.”

It is not be necessary that, while in possession of such information you know the specific means by which the information was obtained or communicated, or whether any personal benefit was paid or promised by or to any person in the chain of communication, so long as you are “aware, consciously avoided being aware, or recklessly disregarded that such information was wrongfully obtained or communicated.”

And you can be indicted if you tip off someone else if it’s “reasonably foreseeable” that your friend will trade on the data or give it to someone who will.

The bill might even stop Congressmen from trading on inside info.

About JeffKoeppel

I am a corporate/securities attorney in the Washington, DC area. Prior to joining the firm, I was a Senior Attorney Advisor in the Division of Corporation Finance at the U.S. Securities and Exchange Commission. I am a member of the Bars of the States of Maryland, New York and the District of Columbia. You can also follow this blog on LinkedIn at:
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