The Securities and Exchange Commission is opposed to the definition of illegal insider stock trading contained in a bill submitted to Congress earlier this week because it would hamper enforcement efforts, the agency's head said yesterday.
Acting SEC Chairman Charles Cox said the definition, in a bill submitted by Sens. Donald W. Riegle (D-Mich.) and Alfonse M. D'Amato (R-N.Y.), also fails to resolve the uncertainty over what constitutes illegal insider trading. Cox promised that the SEC would propose its own definition by Aug. 3.
"The commission could support a definition that preserved its authority and flexibility, although the commission does not believe a statutory definition is necessary for the continued success of its enforcement program," Cox told members of the Senate Banking Committee's securities subcommittee.
Current law provides no formal definition of illegal insider trading. Prosecutors have relied on broad securities-fraud statutes to bring cases in this area, largely allowing courts to create a working definition. The recent string of highly publicized insider trading cases has prompted calls for a formal definition to clarify the law, although Rep. John D. Dingell (D-Mich.) has opposed a definition on the grounds that it would provide a road map for violators.
The Riegle-D'Amato proposal focuses on the wrongful use or wrongful communication of material nonpublic information to make stock trading profits. Cox said the measure is flawed in several respects.
For example, he said, it fails to explain the meaning of key concepts, such as "material" and "nonpublic," leaving it to the courts to decide on a case-by-case basis. Cox also said the bill would make life more difficult for prosecutors by using an "unclear" test for persons who trade on tips based on inside information.
D'Amato attacked Cox, saying he was "totally befuddled by what the SEC's position is. We've been after you for three years. I've had it. This thing goes on and on."
D'Amato said he doesn't believe the SEC really wants a definition.