Patrick McHenryChairman

Washington, December 5, 2019 -

WASHINGTON –Today, the House of Representatives passed H.R. 2534, the Insider Trading Prohibition Act. As a result of an amendment offered by the top Republican on the House Financial Services Committee, Patrick McHenry (NC-10), and accepted by the House, the bill received bipartisan support. While H.R. 2534 as amended does not include all Republican priorities, including an exclusivity provision to make this the exclusive insider trading law of the land, Republicans worked to ensure the bill simply codifies current insider trading law without expanding liability to good-faith traders innocent under the current law.

Ranking Member McHenry’s remarks as prepared for delivery:

“As I just mentioned a few minutes ago, I have concerns with H.R. 2534, the Insider Trading Prohibition Act, in its current form.  

“My amendment addresses several of these concerns and improves this bill to better demonstrate congressional intent of codifying current insider trading law and not expanding it. 

“I’d like to thank the bill’s sponsor, Mr. Himes from Connecticut and his staff, for their diligence and patience in working with us over the last few months and over the recent Thanksgiving holiday.

“And I want to thank Mr. Himes for agreeing to support my amendment in order to make his underlying bill a bipartisan approach to codifying insider trading law and punishing bad actors.

“My amendment reflects Republican priorities discussed at our May markup, such as the inclusion of an explicit personal benefit test consistent with Supreme Court precedent, the removal of the novel Rule of Construction section from the Rules print of the bill, and a clarification of ambiguous wording to ensure judges and prosecutors know that this bill is not intended to expand or create new insider trading liability.

“The bill as drafted does not explicitly include the so-called “personal benefit test,” a significant element of insider trading law that prosecutors must currently satisfy in certain insider trading cases. In the 2016 Salman case, the Supreme Court noted that, in order for a violation to have occurred, the insider—or “tipper” providing the material non-public information—must have received a direct or indirect personal benefit, including but not limited to, pecuniary gain, reputational benefit, or a gift of confidential information to a trading relative or friend. 

“Including an explicit personal benefit test, as set forth by the Supreme Court, ensures this important test cannot be read more broadly by judges than the Supreme Court has allowed and prevents activist judges and overzealous prosecutors from reading the test out of the law entirely.

“My amendment also clarifies the ambiguities within the “relating to the market” phrasing in the underlying bill. This phrase, “relating to the market,” is not a legal term of art defined within the existing body of insider trading law, nor is it defined in this bill. It is entirely plausible for an activist judge or a rogue prosecutor to interpret this phrase far more broadly than the drafters of the bill intended.

“This amendment provides a limiting principle by applying only to nonpublic information that has, or is reasonably expected to have, a material effect on the market price of a security. This ensures that the statute will still capture cases where the receipt of material nonpublic information was not from the company itself, but from another source, like the Supreme Court’s 1987 Carpenter decision.

“Finally, my amendment strikes the Rule of Construction section in the underlying bill that was not reviewed or debated by the Financial Services Committee. I believe this provision is at best unnecessary, and at worst could have been read as giving a Congressional stamp of approval to poorly reasoned judicial decisions. As such, my amendment would ensure that Congress’ intent is to simply codify existing law, not expand liability or create additional defenses for those accused of insider trading.

“That being said, my amendment does not achieve all Republican goals that we have previously outlined. Unfortunately, the bill, even if it is amended, still will not contain an exclusivity provision to make this the exclusive law of the land for insider trading. 

“While my amendment does not make H.R. 2534 a perfect bill, it does allow for Congress to exercise its Article I authority to produce a comprehensive insider trading law for the first time, and does so in a bipartisan manner that simply intends to codify current insider trading law without expanding liability to good-faith traders innocent under the current law.

“I urge my colleagues to support my amendment and I reserve the balance of my time.”

Watch Ranking Member McHenry’s remarks in support of his amendment here.