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Lawmakers Revive Bill to Prevent Corporate Insider Trading

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What You Need to Know

  • The bill would fix a loophole allowing corporate executives to trade on information before it’s disclosed to the public
  • The legislation passed the House during the last Congress.
  • “Time and again we’ve seen corporate executives take advantage of the 8-K trading gap,” Van Hollen said.

Rep. Carolyn B. Maloney, D-N.Y., and Sen. Chris Van Hollen, D-Md., reintroduced Thursday the 8-K Trading Gap Act, legislation to fix a loophole in current law that allows corporate executives to trade on information before it’s disclosed to the public and to their own shareholders.

“Corporate executives shouldn’t be allowed to trade on significant information ahead of the public and investors, but that’s exactly what’s happening because of this legal loophole,” Maloney, a senior member of the House Financial Services Committee, said in a statement.

“Time and again we’ve seen corporate executives take advantage of the 8-K trading gap by selling off bundles of shares prior to a major announcement,” added Van Hollen, a member of the Senate Banking Committee. “It’s clear this gap gives corporate insiders a massive unfair advantage over the public.”

As it stands now, when a bankruptcy or an acquisition occurs at a public company, the company must disclose that significant event to the Securities and Exchange Commission and the public by filing a Form 8-K within four days of the event, the lawmakers said.

The 8-K Trading Gap Act would require public companies to put in place policies and procedures that are reasonably designed to prohibit officers and directors from trading company stock after the company has determined that a significant corporate event has occurred, but before the company has filed a Form 8-K with the SEC disclosing such event, the bill states.

“This would prevent corporate insiders from inappropriately taking advantage of non-public information for their own personal gain,” according to the bill.

The legislation passed the House during the last Congress with a vote of 384-7 and was unanimously reported out of the House Financial Services Committee.

“Given the broad bipartisan support for this bill last year in the House, I’m hopeful that we will be able to enact this commonsense law this Congress,” Maloney said.