“Market professionals, lawyers, public relations executives, financial printers and many others play crucial roles in our market system. It is enormously disturbing that persons either directly or indirectly involved in the securities markets show so little respect for concepts of fairness and integrity. The eradication of insider trading by such persons will continue to have the highest priority in the Commission’s enforcement program.”
The final version of the Insider Trading and Securities Fraud Enforcement Act (ITSFEA) was introduced on August 2, 1988, and passed the House 410-0 on September 14, 1988. 25 The bill increased penalties for violations of insider trading and other fraudulent activities, permitted a private cause of action for such violations, and created a whistle-blower provision for informants of insider trading violations. The bill passed the Senate by voice vote in the early hours of October 22, 1988, just prior to Congress’s adjournment sine die. 26
Before final passage, SEC Chairman Ruder affirmed his support for legislation. “I believe the Commission should support a definition of insider trading which is broad enough to reach not only insider trading by corporate employees, but also insider trading by persons associated with the market, by friends and relatives, and by other persons who knowingly violate relationships of trust and confidence by utilizing inside information for their own benefit.” 27
Significantly, the specific definitional provision of insider trading that Chairman Ruder and the SEC staff had advocated for, responding to a less desirable position proposed by the Pitt committee, was not in the final bill. While increased penalties and the new private right of action for insider trading violations were important improvements to the enforcement regimen, and while SEC staff “provided extensive technical expertise” in drafting the bill, the legislative process adopted by Congress deferred to the proposals of the Pitt Committee. In the end, with respect to ISTFEA, the Congressional response and legislative process addressing the insider trading scandals and market break actually diminished the influence of the SEC.
(25) 134 Cong. Rec. H7465 (September 14, 1988).
(26) Kaswell, 151-152.
(27) November 11, 1987 SEC News Release: Insider Trading Continues as High Priority.
