A Quick Look at the Insider Trading Act of 1988

A Quick Look at the Insider Trading Act of 1988

In 1988, the Insider Trading Act amended the Securities Exchange Act of 1934, giving the Securities and Exchange Commission (SEC) more power to enforce insider trading laws. It was signed into law on November 19, 1988, by President Ronald Reagan and increased penalties for insider trading. One notable case after its passage was Martha Stewart's involvement in the 2001 ImClone incident.


The Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA), also known as the Insider Trading Act, was signed into law by then-President Ronald Reagan on November 19, 1988. This act aimed to address the rise in prominent insider trading cases and the growing monetary values involved in such trades. It essentially heightened liability penalties for all parties engaged in insider trading, including the possibility of imprisonment and fines for those who unlawfully share inside information that leads to insider trading.


The act enables the SEC to impose substantial monetary penalties, often tied to the profits gained from insider trades, and offenders may face significant prison sentences, up to ten years, depending on the severity of their actions. The fines are capped at either 300% of the trading gains or $1 million, whichever is higher.

Notable Cases

Martha Stewart's involvement in the 2001 ImClone case resulted in a five-month federal corrections facility sentence, making it one of the notable cases of insider trading since the enactment of the Insider Trading Act of 1988. Additionally, in September 2017, Brett Kennedy, a former Amazon financial analyst, faced insider trading charges for providing inside information about Amazon's 2015 first-quarter earnings to a friend in exchange for $10,000.

Insider Trading and Securities Laws

Individuals outside a company gain non-public information and use it to profit from stock trading, which is known as insider trading. It often happens when unforeseen events significantly impact a company's value. These insiders can include accountants, lawyers, stockholders, or anyone with private information about a company's stock. While possessing such information is not illegal, sharing or trading based on it is against the law. However, some forms of insider trading are legal and occur regularly.

As a response to Goodrich Rubber's failure to disclose important dividend information in 1914, the New York Stock Exchange implemented a requirement for companies to promptly report dividend and interest-related actions. Later, in 1934, the Securities Exchange Act took things further by imposing stricter laws on the disclosure of company stock transactions. As a result of this act, directors and major stockholders must disclose their stakes, transactions, and changes of ownership.


The Insider Trading Act of 1988 aimed to address the issue of insider trading by increasing penalties for those who engage in it. It granted the SEC more power to enforce laws against insider trading. This act serves as a reminder that insider trading is illegal and can result in serious consequences.


Securities and Exchange Commission (SEC)
Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA)
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