The Securities and Exchange Commission voted yesterday to crack down on investors who profit illegally from inside information about stocks, and they arranged to get access to the previously secret Swiss bank accounts of securities law violators.
The SEC commissioners voted unanimously to ask Congress to raise the maximum fine for insider trading from $10,000 to $100,000 and to allow the SEC to seek civil penalties of up to triple the amount of profits made or losses avoided by using illegal inside information.
The action came just hours after American officials signed an agreement with the Swiss government making it harder for violators of insider-trading prohibitions and other securities laws to hide behind Swiss bank secrecy. SEC officials said they plan to seek similar agreements in other countries where felons use secret bank accounts to conduct illegal activities.
Insider trading refers to securities transactions by company officials or others with access to nonpublic information that moves stock prices up or down -- such as advance notice of a proposed merger. Use of such information to buy or unload stock before the information becomes public is a growing threat to the integrity of U.S. securities markets, securities officials have said.
SEC General Counsel Edward Greene noted yesterday that, prior to 1978, the commmission had brought only 40 insider-trading cases. Since then, there have been more than 50 such cases, he said. Commissioner Barbara Thomas called it "a proliferating problem . . . encouraged by greed."
The SEC's only remedy in civil cases has been to require offenders to return illegally made profits. "We have felt this has not been an adequate deterrent," SEC Chairman John S.R. Shad said. He also noted that the $10,000 criminal fine had not been raised since 1934.
Two major recent investigations of insider trading were complicated by the difficulty of discovering the identity of investors whose trades were handled by Swiss banks. Those difficulties resulted in negotiations between Swiss and American officials that culminated in a memorandum of understanding signed yesterday.
"This is a major deterrent to using secret bank accounts for inside trading," Minister Jean Zwahlen of the Swiss Department of Foreign Affairs said.
Under an informal arrangement, Swiss banks will relax their secrecy rules to aid U.S. enforcement actions, requiring customers to agree in advance to release information to an inquiry commission appointed by the Swiss Bankers Association. The commission will decide whether to transmit information to enforcement authorities. The agreement also provides American enforcement officials with more access to information in other types of securities law abuses.
The memorandum will be in effect until the Swiss enact a law making it a crime to misuse insider information. The law may be enacted as soon as January 1984, according to Swiss officials.
Last year a federal judge in New York ordered a Swiss bank doing business for a client in the United States to reveal the name of the client to the SEC.
U.S. District Court Judge Milton Pollack ruled, in effect, that a company doing business in the United States must play by this country's rules, a phrase invoked by U.S. officials in announcing the agreement with Switzerland.
In other action yesterday, the SEC voted to extend for a year an experimental program that allows companies to register a large number of securities at one time and keep the stocks "on the shelf," selling them in batches when it wants to.
The SEC began a nine-month trial program in March and sought comment on how well it was working. Most of the commentators said not enough time had elapsed for a true test, officials said yesterday.
Since the experiment began 1,151 shelf registrations have been filed, including 10 new stock offerings and 65 bond or debenture offerings. Most of the rest were employee stock option plans and dividend reinvestment plans.
The commission extended the program over a strong dissent from Commissioner Thomas, who said that shelf registration should cover only debt offerings -- which are more sensitive to market fluctuations than stock offerings. "Markets do open and close for big debt offerings. They don't for equities," she said.