(a) Authority to impose civil penalties.
(1) Whenever it shall appear to the Commission
that any person has violated any provision of this title or the rules
or regulations thereunder by purchasing or selling a security or security-based
swap agreement 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), 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.
5-224.71
(2) 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) 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.
5-224.72
(b) Limitations on liability.
(1) No controlling person
shall be subject to a penalty under subsection (a)(1)(B) 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
15(f) of this title or section 204A of the Investment Advisers Act
of 1940 and such failure substantially contributed to or permitted
the occurrence of the act or acts constituting the violation.
(2) No person shall be
subject to a penalty under subsection (a) 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 20(a) of this title shall
not apply to actions under subsection (a) of this section.
5-224.73
(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) A penalty imposed under this section
shall be payable into the Treasury of the United States, except as
otherwise provided in section 308 of the Sarbanes-Oxley Act of 2002
and section 21F of this title.
(2) 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) 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) For purposes of section 27 of this
title, actions under this section shall be actions to enforce a liability
or a duty created by this title.
(5) 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 title, 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.
5-224.74
(e) 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.
(f) The authority of the Commission under this section
with respect to security-based swap agreements shall be subject to
the restrictions and limitations of section 3A(b) of this title.
(g) Duty of members and
employees of Congress.
(1) In general. Subject to the rule of construction under section 10 of the STOCK
Act and solely for purposes of the insider trading prohibitions arising
under this Act, including section 10(b) and Rule 10b-5 thereunder,
each Member of Congress or employee of Congress owes a duty arising
from a relationship of trust and confidence to the Congress, the United
States Government, and the citizens of the United States with respect
to material, nonpublic information derived from such person’s position
as a Member of Congress or employee of Congress or gained from the
performance of such person’s official responsibilities.
(2) Definitions. In this subsection—
(A) the term “Member
of Congress” means a member of the Senate or House of Representatives,
a Delegate to the House of Representatives, and the Resident Commissioner
from Puerto Rico; and
(B) the term “employee of Congress” means—
(i) any individual
(other than a Member of Congress), whose compensation is disbursed
by the Secretary of the Senate or the Chief Administrative Officer
of the House of Representatives; and
(ii) any other officer or employee of the
legislative branch (as defined in section 109(11) of the Ethics in
Government Act of 1978 (5 U.S.C. App. 109(11))).
(3) Rule of construction. Nothing in this subsection
shall be construed to impair or limit the construction of the existing
antifraud provisions of the securities laws or the authority of the
Commission under those provisions.
(h) Duty of other federal officials.
(1) In general. Subject to the rule of construction under section 10 of the STOCK
Act and solely for purposes of the insider trading prohibitions arising
under this Act, including section 10(b), and Rule 10b-5 thereunder,
each executive branch employee, each judicial officer, and each judicial
employee owes a duty arising from a relationship of trust and confidence
to the United States Government and the citizens of the United States
with respect to material, nonpublic information derived from such
person’s position as an executive branch employee, judicial officer,
or judicial employee or gained from the performance of such person’s
official responsibilities.
(2) Definitions. In this subsection—
(A) the term “executive branch employee”—
(i) has the meaning
given the term “employee” under section 2105 of title 5, United States
Code;
(ii) includes—
(I) the President;
(II) the Vice President; and
(III) an employee of the United
States Postal Service or the Postal Regulatory Commission;
(B)
the term “judicial employee” has the meaning given that term in section
109(8) of the Ethics in Government Act of 1978 (5 U.S.C. App. 109(8));
and
(C) the term
“judicial officer” has the meaning given that term under section 109(10)
of the Ethics in Government Act of 1978 (5 U.S.C. App. 109(10)).
(3) Rule of construction. Nothing in this subsection
shall be construed to impair or limit the construction of the existing
antifraud provisions of the securities laws or the authority of the
Commission under those provisions.
(i) Participation in initial public offerings. An individual described in section 101(f) of the Ethics in Government
Act of 1978 may not purchase securities that are the subject of an
initial public offering (within the meaning given such term in section
12(f)(1)(G)(i)) in any manner other than is available to members of
the public generally.
[15 USC 78u-1. As added
by act of Nov. 19, 1988 (102 Stat. 4677) and amended by acts of Dec.
21, 2000 (114 Stat. 2763A-426, 456, 457); July 30, 2002 (116 Stat.
785); July 21, 2010 (124 Stat. 1761); and April 4, 2012 (126 Stat.
292, 297, 300).]
