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U.S. Code as of:
01/19/04
Section 78u-1. Civil penalties for insider trading
(a) Authority to impose civil penalties
(1) Judicial actions by Commission authorized
Whenever it shall appear to the Commission that any person has
violated any provision of this chapter or the rules or
regulations thereunder by purchasing or selling a security or
security-based swap agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act) 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
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(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) of this section, 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.
(2) Amount of penalty for person who committed violation
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) Amount of penalty for controlling person
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.
(b) Limitations on liability
(1) Liability of controlling persons
No controlling person shall be subject to a penalty under
subsection (a)(1)(B) of this section 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 78o(f) of this title or section 80b-4a
of this title and such failure substantially contributed to or
permitted the occurrence of the act or acts constituting the
violation.
(2) Additional restrictions on liability
No person shall be subject to a penalty under subsection (a) of
this section 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 78t(a) of this title shall not apply to
actions under subsection (a) of this section.
(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) Payment of penalty to Treasury
A penalty imposed under this section shall (subject to
subsection (e) of this section) be payable into the Treasury of
the United States, except as otherwise provided in section 7246
of this title.
(2) Collection of penalties
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) Remedy not exclusive
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) Jurisdiction and venue
For purposes of section 78aa of this title, actions under this
section shall be actions to enforce a liability or a duty created
by this chapter.
(5) Statute of limitations
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 chapter, 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.
(e) Authority to award bounties to informants
Notwithstanding the provisions of subsection (d)(1) of this
section, there shall be paid from amounts imposed as a penalty
under this section and recovered by the Commission or the Attorney
General, such sums, not to exceed 10 percent of such amounts, as
the Commission deems appropriate, to the person or persons who
provide information leading to the imposition of such penalty. Any
determinations under this subsection, including whether, to whom,
or in what amount to make payments, shall be in the sole discretion
of the Commission, except that no such payment shall be made to any
member, officer, or employee of any appropriate regulatory agency,
the Department of Justice, or a self-regulatory organization. Any
such determination shall be final and not subject to judicial
review.
(f) 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.
(g) Limitation on Commission authority
The authority of the Commission under this section with respect
to security-based swap agreements (as defined in section 206B of
the Gramm-Leach-Bliley Act) shall be subject to the restrictions
and limitations of section 78c-1(b) of this title.
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