CITE

    15 USC Sec. 78u-1                                           01/08/2008

EXPCITE

    TITLE 15 - COMMERCE AND TRADE
    CHAPTER 2B - SECURITIES EXCHANGES

HEAD

    Sec. 78u-1. Civil penalties for insider trading

STATUTE

    (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.

SOURCE

    (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)."