TREATICE ARTICLE--Insider Trading and Securities Fraud Enforcement Act of 1988

The Insider Trading Sanctions Act of 1984 authorized the Securities and Exchange Commission to seek civil penalties against any person purchasing or selling a security while in possession of material nonpublic information.[FN1] The 1984 Act applied not only to inside traders but also to "tippers" of material nonpublic information. The 1984 Act also increased the penalties for criminal violations of the Securities Exchange Act of 1934 from a maximum fine of $10,000 to $100,000.

The Insider Trading and Securities Fraud Enforcement Act of 1988[FN2] essentially recodified the Insider Trading Sanctions Act of 1984 as Section 21A of the Exchange Act. In addition to imposing a monetary penalty of up to three times the sum of profit gained or loss avoided by any person purchasing or selling a security while in possession of material nonpublic information,[FN3] the 1988 Act amended the 1984 Act to make penalties applicable to controlling persons.[FN4] It also amended the language of the 1984 Act by providing that a penalty can be imposed against a person not only for purchasing or selling a security while in possession of material nonpublic information but also a person who has violated the Act by communicating such information.[FN5] Thus, the 1988 Act makes it clear that a penalty can be imposed against tippers of material nonpublic information.[FN6] The 1988 Act authorizes the SEC to pay up to 10% of fines to informers as bounty in certain cases.[FN7] The legislation also created an express private right of action for any person who, contemporaneous with the purchase or sale of securities by an insider, has purchased or sold securities of the same class.[FN8]

The 1988 Act increased the maximum criminal fines from $100,000 to $1,000,000, except that a fine of $2,500,000 may be imposed against any person other than a natural person.[FN9] Further, the maximum prison sentence was increased from 5 to 10 years.[FN10] Fletcher Cyclopedia of the Law of Corporations Current through September 2006 update, Chapter 59C

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