The $9 Billion Loophole: How Wharton Research Helped the SEC Fight Back Against Foreign Insider Trading

Key Takeaways

• There was a disclosure gap most investors didn’t know existed.
  U.S. law requires domestic company insiders to report their stock sales electronically and publicly within two business days. Insiders at foreign companies listed on U.S. exchanges, like Alibaba, were fully exempt. That single exemption covered companies representing more than $12 trillion in market value.
• The data exists, but most investors can’t see it.
  Foreign insiders were still required to file Form 144 (a notice of proposed sale of restricted or control securities) when selling certain types of stock. But it’s filed on paper, mailed to the SEC, stored in a physical filing cabinet for 90 days, and never posted online. One private data vendor was sending a daily courier to scan these forms and sell the information to large institutional clients. Most investors had no idea it existed.
• Insiders at Chinese and Russian companies were selling large amounts of stock right before significant price drops.
  Digitizing the data from the paper filings provided a window on U.S. stock sales by foreign insiders. The average sale by an insider at a U.S.-listed Chinese company was more than five times larger than that of insiders at U.S. companies. In the twelve months after sales by insiders at U.S.-listed Chinese companies, stock prices fell nearly 19% on average. After the average sale at a U.S. company, prices rose 5%. For insiders at U.S.-listed Russian companies, post-insider sale declines averaged 21%.
• The total cost to investors was substantial.
  By combining trade size with post-sale price performance, the researchers estimate that insiders at Chinese and Russian companies avoided at least $9 billion in losses between 2016 and 2021. That’s a conservative figure, too, since Form 144 only captures one category of stock sales.
• The pattern comes down to accountability.
  China and Russia have no extradition treaties with the U.S., meaning their company insiders face virtually no legal consequences under U.S. securities law. The data reflects what economic theory predicts: when enforcement disappears, opportunistic behavior fills the gap.
• From Research to Policy
  The impact of the team’s research, however, was striking enough to get the attention of U.S. Senators John Kelly (Louisiana) and Chris Van Hollen (Maryland). The pair introduced the Holding Foreign Insiders Accountable Act (HFIA) to Congress, which was passed on a bipartisan basis, signed by President Trump, and entered into effect in March 2026. Under the HFIA, if you are a director or officer of a U.S.-listed foreign company you now have to file:
  • Form 3 – Initial statement of beneficial ownership
  • Form 4 – Reports changes in ownership (within two business days)
  • Form 5 – Annual catch-up report for certain exempt or missed transactions

  HFIA brings parity to reporting requirements of all U.S.-listed companies. Officers and directors of foreign companies listed in the U.S. face the same requirements as officers and directors of U.S. companies. Investors will now be able to see when executives of foreign-listed companies buy or sell shares. In addition, in connection with these changes, and based on the team’s research, the SEC began requiring electronic submission of Form 144 which can now be found on the SEC’s EDGAR system.