A House Republican on January 17, 2024, introduced legislation to expand reporting requirements around insider stock transactions at foreign private issuers. HR 7019, the Holding Foreign Insiders Accountable Act, is identical to the Senate version (S 1169) introduced in April 2023.
Under Section 16(a) of the Securities Exchange Act of 1934, public company officers, directors, and shareholders who meet a more than 10 percent ownership threshold have two business days to electronically file disclosures of trades in the company’s stock, among other reporting requirements. The bill would amend the Exchange Act to apply those requirements to foreign private issuers, which are today exempt from Section 16 and instead subject to paper disclosures. The SEC would have 90 days following enactment to issue rules.
Representative Blaine Luetkemeyer (R-MO) introduced the House bill, with Representative Brad Sherman (D-CA) joining as cosponsor. The Senate bill is sponsored by Senators John Kennedy (R-LA) and Chris Van Hollen (D-MD). Identical language had been included in the Senate’s version of the National Defense Authorization Act (NDAA) last year, but did not survive in the final version of the NDAA.
“Congress and federal agencies have taken steps to prevent U.S. citizens from insider trading, yet executives of foreign companies are still playing by a separate set of rules,” Luetkemeyer said in an emailed statement to Thomson Reuters. “We must close the loophole that has allowed Russian and Chinese nationals to abuse our markets and traders to the tune of $9 billion.”
In a July 2022 paper, Robert Jackson of New York University and Bradford Lynch-Levy and Daniel Taylor of the Wharton School at the University of Pennsylvania, wrote that “consistent with a lack of public scrutiny facilitating opportunism, we show that foreign insiders’ stock sales are highly opportunistic, and that opportunistic trading is concentrated in companies that are domiciled in non-extradition countries beyond the reach of US legal authorities: specifically, Russia and China.”
Jackson is a former SEC commissioner. Levy is now an assistant professor of accounting at the University of Chicago’s Booth School of Business.
Luetkemeyer, who chairs the House Financial Services Committee’s subcommittee on National Security, Illicit Finance, and International Financial Institutions, announced earlier this month he would retire at the end of his term.
This article originally appeared in the January 23, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.
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