15 U.S. Code § 78u–1 - Civil penalties for insider trading

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(a) Authority to impose civil penalties
(1) Judicial actions by Commission authorized
Whenever it shall appear to the Commission that any person has violated any provision of this chapter or the rules or regulations thereunder by purchasing or selling a security or security-based swap agreement while in possession of material, nonpublic information in, or has violated any such provision by communicating such information in connection with, a transaction on or through the facilities of a national securities exchange or from or through a broker or dealer, and which is not part of a public offering by an issuer of securities other than standardized options or security futures products, the Commission—
(A) may bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, a civil penalty to be paid by the person who committed such violation; and
(B) may, subject to subsection (b)(1) of this section, bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, a civil penalty to be paid by a person who, at the time of the violation, directly or indirectly controlled the person who committed such violation.
(2) Amount of penalty for person who committed violation
The amount of the penalty which may be imposed on the person who committed such violation shall be determined by the court in light of the facts and circumstances, but shall not exceed three times the profit gained or loss avoided as a result of such unlawful purchase, sale, or communication.
(3) Amount of penalty for controlling person
The amount of the penalty which may be imposed on any person who, at the time of the violation, directly or indirectly controlled the person who committed such violation, shall be determined by the court in light of the facts and circumstances, but shall not exceed the greater of $1,000,000, or three times the amount of the profit gained or loss avoided as a result of such controlled person’s violation. If such controlled person’s violation was a violation by communication, the profit gained or loss avoided as a result of the violation shall, for purposes of this paragraph only, be deemed to be limited to the profit gained or loss avoided by the person or persons to whom the controlled person directed such communication.
(b) Limitations on liability
(1) Liability of controlling persons
No controlling person shall be subject to a penalty under subsection (a)(1)(B) of this section unless the Commission establishes that—
(A) such controlling person knew or recklessly disregarded the fact that such controlled person was likely to engage in the act or acts constituting the violation and failed to take appropriate steps to prevent such act or acts before they occurred; or
(B) such controlling person knowingly or recklessly failed to establish, maintain, or enforce any policy or procedure required under section 78o (f)  [1] of this title or section 80b–4a of this title and such failure substantially contributed to or permitted the occurrence of the act or acts constituting the violation.
(2) Additional restrictions on liability
No person shall be subject to a penalty under subsection (a) of this section solely by reason of employing another person who is subject to a penalty under such subsection, unless such employing person is liable as a controlling person under paragraph (1) of this subsection. Section 78t (a) of this title shall not apply to actions under subsection (a) of this section.
(c) Authority of Commission
The Commission, by such rules, regulations, and orders as it considers necessary or appropriate in the public interest or for the protection of investors, may exempt, in whole or in part, either unconditionally or upon specific terms and conditions, any person or transaction or class of persons or transactions from this section.
(d) Procedures for collection
(1) Payment of penalty to Treasury
A penalty imposed under this section shall be payable into the Treasury of the United States, except as otherwise provided in section 7246 of this title and section 78u–6 of this title.
(2) Collection of penalties
If a person upon whom such a penalty is imposed shall fail to pay such penalty within the time prescribed in the court’s order, the Commission may refer the matter to the Attorney General who shall recover such penalty by action in the appropriate United States district court.
(3) Remedy not exclusive
The actions authorized by this section may be brought in addition to any other actions that the Commission or the Attorney General are entitled to bring.
(4) Jurisdiction and venue
For purposes of section 78aa of this title, actions under this section shall be actions to enforce a liability or a duty created by this chapter.
(5) Statute of limitations
No action may be brought under this section more than 5 years after the date of the purchase or sale. This section shall not be construed to bar or limit in any manner any action by the Commission or the Attorney General under any other provision of this chapter, nor shall it bar or limit in any manner any action to recover penalties, or to seek any other order regarding penalties, imposed in an action commenced within 5 years of such transaction.
(e) Definition
For purposes of this section, “profit gained” or “loss avoided” is the difference between the purchase or sale price of the security and the value of that security as measured by the trading price of the security a reasonable period after public dissemination of the nonpublic information.
(f) Limitation on Commission authority
The authority of the Commission under this section with respect to security-based swap agreements shall be subject to the restrictions and limitations of section 78c–1 (b) of this title.
(g) Duty of Members and employees of Congress
(1) In general
Subject to the rule of construction under section 10 of the STOCK Act and solely for purposes of the insider trading prohibitions arising under this chapter, including section 78j (b) of this title and Rule 10b–5 thereunder, each Member of Congress or employee of Congress owes a duty arising from a relationship of trust and confidence to the Congress, the United States Government, and the citizens of the United States with respect to material, nonpublic information derived from such person’s position as a Member of Congress or employee of Congress or gained from the performance of such person’s official responsibilities.
(2) Definitions
In this subsection—
(A) the term “Member of Congress” means a member of the Senate or House of Representatives, a Delegate to the House of Representatives, and the Resident Commissioner from Puerto Rico; and
(B) the term “employee of Congress” means—
(i) any individual (other than a Member of Congress), whose compensation is disbursed by the Secretary of the Senate or the Chief Administrative Officer of the House of Representatives; and
(ii) any other officer or employee of the legislative branch (as defined in section 109(11) of the Ethics in Government Act of 1978 (5 App. U.S.C. 109 (11))).
(3) Rule of construction
Nothing in this subsection shall be construed to impair or limit the construction of the existing antifraud provisions of the securities laws or the authority of the Commission under those provisions.
(h) Duty of other Federal officials
(1) In general
Subject to the rule of construction under section 10 of the STOCK Act and solely for purposes of the insider trading prohibitions arising under this chapter, including section 78j (b) of this title, and Rule 10b–5 thereunder, each executive branch employee, each judicial officer, and each judicial employee owes a duty arising from a relationship of trust and confidence to the United States Government and the citizens of the United States with respect to material, nonpublic information derived from such person’s position as an executive branch employee, judicial officer, or judicial employee or gained from the performance of such person’s official responsibilities.
(2) Definitions
In this subsection—
(A) the term “executive branch employee”—
(i) has the meaning given the term “employee” under section 2105 of title 5;
(ii) includes—
(I) the President;
(II) the Vice President; and
(III) an employee of the United States Postal Service or the Postal Regulatory Commission;
(B) the term “judicial employee” has the meaning given that term in section 109(8) of the Ethics in Government Act of 1978 (5 App. U.S.C. 109 (8)); and
(C) the term “judicial officer” has the meaning given that term under section 109(10) of the Ethics in Government Act of 1978 (5 App. U.S.C. 109 (10)).
(3) Rule of construction
Nothing in this subsection shall be construed to impair or limit the construction of the existing antifraud provisions of the securities laws or the authority of the Commission under those provisions.
(i) Participation in initial public offerings
An individual described in section 101(f) of the Ethics in Government Act of 1978 may not purchase securities that are the subject of an initial public offering (within the meaning given such term in section 78l (f)(1)(G)(i) of this title) in any manner other than is available to members of the public generally.


[1]  See References in Text note below.

Source

(June 6, 1934, ch. 404, title I, § 21A, as added Pub. L. 100–704, § 3(a)(2),Nov. 19, 1988, 102 Stat. 4677; amended Pub. L. 101–429, title II, § 202(b),Oct. 15, 1990, 104 Stat. 938; Pub. L. 106–554, § 1(a)(5) [title II, § 205(a)(4), title III, § 303(k), (l)], Dec. 21, 2000, 114 Stat. 2763, 2763A–426, 2763A–456, 2763A–457; Pub. L. 107–204, title III, § 308(d)(2),July 30, 2002, 116 Stat. 785; Pub. L. 111–203, title VII, § 762(d)(7), title IX, § 923(b)(2),July 21, 2010, 124 Stat. 1761, 1850; Pub. L. 112–105, §§ 4(b)(2), 9 (b)(2)(B), 12,Apr. 4, 2012, 126 Stat. 292, 297, 300.)
Amendment of Section

Unless otherwise provided, amendment by subtitle B (§§ 761–774) of title VII of Pub. L. 111–203effective on the later of 360 days after July 21, 2010, or, to the extent a provision of subtitle B requires a rulemaking, not less than 60 days after publication of the final rule or regulation implementing such provision of subtitle B, see 2010 Amendment notes and Effective Date of 2010 Amendment note below.
References in Text

This chapter, referred to in subsecs. (a) and (d)(4), (5), was in the original “this title”, and this chapter, referred to in subsecs. (g)(1) and (h)(1), was in the original “this Act”. See References in Text note set out under section 78a of this title.
Subsec. (f) ofsection 78o of this title, referred to in subsec. (b)(1)(B), was redesignated (g) by Pub. L. 111–203, title IX, § 929X(c)(1),July 21, 2010, 124 Stat. 1870.
Section 10 of the STOCK Act, referred to in subsecs. (g)(1) and (h)(1), is section 10 ofPub. L. 112–105, which is set out as a note under section 101 of the Ethics in Government Act of 1978, Pub. L. 95–521, set out in the Appendix to Title 5, Government Organization and Employees.
Section 109 of the Ethics in Government Act of 1978, referred to in subsecs. (g)(2)(B)(ii) and (h)(2)(B), (C), is section 109 ofPub. L. 95–521, which is set out in the Appendix to Title 5, Government Organization and Employees.
Section 101(f) of the Ethics in Government Act of 1978, referred to in subsec. (i), is section 101(f) ofPub. L. 95–521, which is set out in the Appendix to Title 5, Government Organization and Employees.
Amendments

2012—Subsec. (g). Pub. L. 112–105, § 4(b)(2), added subsec. (g).
Subsec. (h). Pub. L. 112–105, § 9(b)(2)(B), added subsec. (h).
Subsec. (i). Pub. L. 112–105, § 12, added subsec (i).
2010—Subsec. (a)(1). Pub. L. 111–203, § 762(d)(7)(A), struck out “(as defined in section 206B of the Gramm-Leach-Bliley Act)” after “security-based swap agreement” in introductory provisions.
Subsec. (d)(1). Pub. L. 111–203, § 923(b)(2)(A), struck out “(subject to subsection (e) of this section)” after “shall” and inserted “and section 78u–6 of this title” after “section 7246 of this title”.
Subsec. (e). Pub. L. 111–203, § 923(b)(2)(B), (C), redesignatedsubsec. (f) as (e) and struck out former subsec. (e). Prior to amendment, text of subsec. (e) read as follows: “Notwithstanding the provisions of subsection (d)(1) of this section, there shall be paid from amounts imposed as a penalty under this section and recovered by the Commission or the Attorney General, such sums, not to exceed 10 percent of such amounts, as the Commission deems appropriate, to the person or persons who provide information leading to the imposition of such penalty. Any determinations under this subsection, including whether, to whom, or in what amount to make payments, shall be in the sole discretion of the Commission, except that no such payment shall be made to any member, officer, or employee of any appropriate regulatory agency, the Department of Justice, or a self-regulatory organization. Any such determination shall be final and not subject to judicial review.”
Subsec. (f). Pub. L. 111–203, § 923(b)(2)(C), redesignatedsubsec. (g) as (f). Former subsec. (f) redesignated (e).
Pub. L. 111–203, § 762(d)(7)(B), which directed amendment of subsec. (g) by striking out “(as defined in section 206B of the Gramm-Leach-Bliley Act)”, was executed by making the strike out after “security-based swap agreements” in subsec. (f), to reflect the probable intent of Congress and the redesignation of subsec. (g) as (f) by Pub. L. 111–203, § 923(b)(2)(C). See above and Effective Date of 2010 Amendment note below.
Subsec. (g). Pub. L. 111–203, § 923(b)(2)(C), redesignatedsubsec. (g) as (f).
2002—Subsec. (d)(1). Pub. L. 107–204inserted “, except as otherwise provided in section 7246 of this title” before period at end.
2000—Subsec. (a)(1). Pub. L. 106–554, § 1(a)(5) [title III, § 303(k)], inserted “or security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act)” after “purchasing or selling a security” in introductory provisions.
Pub. L. 106–554, § 1(a)(5) [title II, § 205(a)(4)], substituted “standardized options or security futures products, the Commission—” for “standardized options, the Commission—” in introductory provisions.
Subsec. (g). Pub. L. 106–554, § 1(a)(5) [title III, § 303(l)], added subsec. (g).
1990—Pub. L. 101–429inserted “for insider trading” in section catchline.
Effective Date of 2010 Amendment

Amendment by section 923(b)(2) ofPub. L. 111–203effective 1 day after July 21, 2010, except as otherwise provided, see section 4 ofPub. L. 111–203, set out as an Effective Date note under section 5301 of Title 12, Banks and Banking.
Amendment by section 762(d)(7) ofPub. L. 111–203effective on the later of 360 days after July 21, 2010, or, to the extent a provision of subtitle B (§§ 761–774) of title VII of Pub. L. 111–203requires a rulemaking, not less than 60 days after publication of the final rule or regulation implementing such provision of subtitle B, see section 774 ofPub. L. 111–203, set out as a note under section 77b of this title.
Effective Date of 1990 Amendment

Amendment by Pub. L. 101–429effective Oct. 15, 1990, with provisions relating to civil penalties and accounting and disgorgement, see section 1(c)(1), (2) ofPub. L. 101–429, set out in a note under section 77g of this title.
Effective Date

Section not applicable to actions occurring before Nov. 19, 1988, see section 9 ofPub. L. 100–704set out as an Effective Date of 1988 Amendment note under section 78o of this title.
Affirmation of Duty Of Government Officers and Employees

Pub. L. 112–105, § 4(b)(1),Apr. 4, 2012, 126 Stat. 292, provided that: “The purpose of the amendment made by this subsection [amending this section] is to affirm a duty arising from a relationship of trust and confidence owed by each Member of Congress and each employee of Congress.”
Pub. L. 112–105, § 9(b)(2)(A),Apr. 4, 2012, 126 Stat. 297, provided that: “The purpose of the amendment made by this paragraph [amending this section] is to affirm a duty arising from a relationship of trust and confidence owed by each executive branch employee, judicial officer, and judicial employee.”
Congressional Findings

Pub. L. 100–704, § 2,Nov. 19, 1988, 102 Stat. 4677, provided that: “The Congress finds that—
“(1) the rules and regulations of the Securities and Exchange Commission under the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] governing trading while in possession of material, nonpublic information are, as required by such Act, necessary and appropriate in the public interest and for the protection of investors;
“(2) the Commission has, within the limits of accepted administrative and judicial construction of such rules and regulations, enforced such rules and regulations vigorously, effectively, and fairly; and
“(3) nonetheless, additional methods are appropriate to deter and prosecute violations of such rules and regulations.”
Commission Recommendations for Additional Civil Penalty Authority Required

Pub. L. 100–704, § 3(c),Nov. 19, 1988, 102 Stat. 4680, provided that: “The Securities and Exchange Commission shall, within 60 days after the date of enactment of this Act [Nov. 19, 1988], submit to each House of the Congress any recommendations the Commission considers appropriate with respect to the extension of the Commission’s authority to seek civil penalties or impose administrative fines for violations other than those described in section 21A of the Securities Exchange Act of 1934 [15 U.S.C. 78u–1] (as added by this section).”

The table below lists the classification updates, since Jan. 3, 2012, for this section. Updates to a broader range of sections may be found at the update page for containing chapter, title, etc.

The most recent Classification Table update that we have noticed was Tuesday, August 13, 2013

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15 USCDescription of ChangeSession YearPublic LawStatutes at Large
§ 78u-12012112-105 [Sec.] 12126 Stat. 300
§ 78u-1nt new2012112-105 [Sec.] 9(b)(2)(A)126 Stat. 297
§ 78u-12012112-105 [Sec.] 9(b)(2)(B)126 Stat. 297
§ 78u-1nt new2012112-105 [Sec.] 4(b)(1)126 Stat. 292
§ 78u-12012112-105 [Sec.] 4(b)(2)126 Stat. 292

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12 CFR - Banks and Banking

12 CFR Part 10 - MUNICIPAL SECURITIES DEALERS

17 CFR - Commodity and Securities Exchanges

17 CFR Part 200 - ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND REQUESTS

17 CFR Part 201 - RULES OF PRACTICE

17 CFR Part 249 - FORMS, SECURITIES EXCHANGE ACT OF 1934

17 CFR Part 249b - FURTHER FORMS, SECURITIES EXCHANGE ACT OF 1934

 

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