Maloney, Van Hollen Reintroduce Bill to Eliminate Corporate Insiders’ Unfair Advantage in Stock Sales
WASHINGTON, DC – Congresswoman Carolyn B. Maloney (D-NY), senior member of the House Financial Services Committee, and Senator Chris Van Hollen (D-MD), a member of the Senate Banking, Housing and Urban Affairs Committee, today reintroduced the 8-K Trading Gap Act, legislation that will fix a loophole in our current law that allows corporate executives to trade on information before it’s disclosed to the public and to their own shareholders.
Currently, when a significant corporate event – such as bankruptcy or an acquisition – occurs at a public company, the company must disclose that significant event to the Securities and Exchange Commission (SEC) and the public by filing a Form 8-K within four days of the event. During this four-day window, executives at the company know about the significant event, but other investors, and the public, do not. The lawmakers’ 8-K Trading Gap Act would close this gap by requiring public companies to establish policies to prohibit insiders from making trades during this four-day period.
“Corporate executives shouldn’t be allowed to trade on significant information ahead of the public and investors, but that’s exactly what’s happening because of this legal loophole,” said Rep. Maloney. “The 8-K Trading Gap Act has a very simple solution to this problem: prohibit executives from trading during the four-day gap between when an event happens and when the company publicly files a Form 8-K to alert the public and shareholders of the event. Given the broad bipartisan support for this bill last year in the House, I’m hopeful that we will be able to enact this commonsense law this Congress.”
“Time and again we’ve seen corporate executives take advantage of the 8-K trading gap by selling off bundles of shares prior to a major announcement. It’s clear this gap gives corporate insiders a massive unfair advantage over the public,” said Senator Van Hollen. “Our legislation will close this harmful loophole and provide fairness to everyday shareholders. I’ll be working with my colleagues on the Banking, Housing, and Urban Affairs Committee to move this legislation at once.”
The 8-K Trading Gap Act would require public companies to put in place policies and procedures that are reasonably designed to prohibit officers and directors from trading company stock after the company has determined that a significant corporate event has occurred, but before the company has filed a Form 8-K with the SEC disclosing such event. This would prevent corporate insiders from inappropriately taking advantage of non-public information for their own personal gain.
The legislation passed the House last Congress with an overwhelmingly bipartisan vote of 384-7 and was unanimously reported out of the House Financial Services Committee.