§ 78u-1. — Civil penalties for insider trading.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC78u-1]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2B--SECURITIES EXCHANGES
Sec. 78u-1. Civil penalties for insider trading
(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 (as defined in section 206B of the Gramm-Leach-Bliley
Act) 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) 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 (subject to
subsection (e) of this section) be payable into the Treasury of the
United States, except as otherwise provided in section 7246 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) Authority to award bounties to informants
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.
(f) 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.
(g) Limitation on Commission authority
The authority of the Commission under this section with respect to
security-based swap agreements (as defined in section 206B of the Gramm-
Leach-Bliley Act) shall be subject to the restrictions and limitations
of section 78c-1(b) of this title.
(June 6, 1934, ch. 404, title I, Sec. 21A, as added Pub. L. 100-704,
Sec. 3(a)(2), Nov. 19, 1988, 102 Stat. 4677; amended Pub. L. 101-429,
title II, Sec. 202(b), Oct. 15, 1990, 104 Stat. 938; Pub. L. 106-554,
Sec. 1(a)(5) [title II, Sec. 205(a)(4), title III, Sec. 303(k), (l)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-426, 2763A-456, 2763A-457; Pub. L.
107-204, title III, Sec. 308(d)(2), July 30, 2002, 116 Stat. 785.)
References in Text
This chapter, referred to in subsecs. (a) and (d)(4), (5), was in
the original ``this title''. See References in Text note set out under
section 78a of this title.
Section 206B of the Gramm-Leach-Bliley Act, referred to in subsecs.
(a)(1) and (g), is section 206B of Pub. L. 106-102, which is set out in
a note under section 78c of this title.
Amendments
2002--Subsec. (d)(1). Pub. L. 107-204 inserted ``, except as
otherwise provided in section 7246 of this title'' before period at end.
2000--Subsec. (a)(1). Pub. L. 106-554, Sec. 1(a)(5) [title III,
Sec. 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, Sec. 1(a)(5) [title II, Sec. 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, Sec. 1(a)(5) [title III, Sec. 303(l)],
added subsec. (g).
1990--Pub. L. 101-429 inserted ``for insider trading'' in section
catchline.
Effective Date of 1990 Amendment
Amendment by Pub. L. 101-429 effective Oct. 15, 1990, with
provisions relating to civil penalties and accounting and disgorgement,
see section 1(c)(1), (2) of Pub. 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 of Pub. L. 100-704 set out as an Effective Date of 1988
Amendment note under section 78o of this title.
Congressional Findings
Section 2 of Pub. L. 100-704 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
Section 3(c) of Pub. L. 100-704 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).''
Section Referred to in Other Sections
This section is referred to in sections 77t, 78j, 78u of this title.
