Securities Regulation: Efforts to Detect, Investigate, and Deter Insider Trading
GGD-88-116
Published: Aug 05, 1988. Publicly Released: Sep 27, 1988.
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Highlights
Pursuant to a congressional request, GAO reviewed the Securities and Exchange Commission's (SEC) and self-regulatory organizations' (SRO) efforts to detect, investigate, and deter insider trading.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| The Subcommittee should pursue with SEC, the Department of Justice, and other appropriate law enforcement agencies, the feasibility of using key investigative leads from informants to identify and prosecute insider traders. | The House and Senate passed a bill authorizing a bounty program to reward informants. Public Law 100-704, enacted November 19, 1988, authorizes SEC to pay bounties to informants who provide information leading to the imposition of penalties for insider trading. | |
| The Subcommittee may want to explore insider trading further with SEC to determine the extent of the problem and whether legislation is needed to exempt information obtained by SEC from foreign governments from the act. | Public Law 100-704, enacted subsequent to the issuance of this report, did not exempt information obtained by SEC from foreign governments from the Freedom of Information Act. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| United States Securities and Exchange Commission | Because of the importance of timely information to the successful detection of insider trading, the Chairman, SEC, in conjunction with SRO, should establish a timetable for completion of the Electronic Blue Sheet Project. This timetable should be used by SEC to monitor progress to ensure that unwarranted delays do not occur. |
SEC established a date, February 8, 1989, for completion of the electronic blue sheet project.
|
| United States Securities and Exchange Commission | The Chairman should strengthen negotiations with other countries for the release of information on suspicious trades executed through foreign financial institutions. The Chairman should: (1) establish a policy that when blue sheet data showing trends and patterns of suspicious trades executed through foreign institutions become available, the data will be used in an attempt to persuade foreign governments to release the names of the beneficiary owners involved; and (2) determine the feasibility of foreign financial institutions routinely disclosing the size of every trade emanating from each account. |
SEC strengthened its negotiations with other countries to secure information on suspected insider trading occuring through foreign financial institutions.
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Crime preventionInformation systemsInternational agreementsLaw enforcementProposed legislationSecurities fraudSecurities regulationSelf-regulatory organizationsStock exchangesWhite collar crime