On Sunday, the WSJ published an op-ed written by two U.S. senators, John Kennedy (R-LA) and Chris Van Hollen (D-MD), in which they explain the significance of their proposed legislation designed to close a loophole connected to foreign companies and insider trading.

Their bill is called the Holding Foreign Insiders Accountable Act, and would require executives and principal stockholders at foreign firms that raise money in the United States to disclose their trades to investors within two business days, giving the market and regulators a chance to spot (and discipline for) any insider trading.

Their objective: Making sure foreign firms abide by the same rules as other market participants that are raising capital from investors, increasing both transparency and accountability.

“All companies operating on U.S. markets should have to play by the same rules. And when corporate insiders sell their stocks, investors and the American public have a right to know. It’s time to require foreign executives to disclose these trades and provide this information to the public.” 

Senator Chris Van Hollen (D-MD)

The senators remind readers of the case of Luckin Coffee, a Chinese business that had fabricated its sales numbers to appear more profitable back in 2020. In the wake of that scandal, the House and Senate passed the bipartisan Holding Foreign Companies Accountable Act, which requires the SEC to bar trading in any firm whose books have not been inspected for two years.

Now, the senators are trying to fill another gap in the rules that can be exploited by foreign firms to the detriment of investors active in the American markets.

Federal law requires executives at US public companies to promptly disclose trading in their companies’ stock to investors. The immediacy of the disclosure is meant to prevent secretive insider trading, or the buying or selling of a publicly traded company’s stock by someone who has non-public, material information about that stock.

Kennedy and Van Hollen note that current law exempts foreign companies from such timely disclosure, permitting them to file by paper and so allowing their insiders to trade their own company stock with a significant lag time arising before the public and other investors are made aware of the trades.

The bill (S. 4127) was introduced last May and was referred to the Committee on Banking, Housing and Urban Affairs where it is currently awaiting further action.