He Also Approves Legislation Covering Contractor Fraud : Reagan Signs Bill Stiffening Insider Trading Penalties

WASHINGTON — President Reagan on Saturday signed separate legislation imposing tougher penalties against insider trading and against contractors who cheat the government.

The first is designed to counter the wave of insider trading scandals that rocked Wall Street. It doubles the maximum criminal penalties for insider trading from five years in jail to 10 years, and raises fines from $500,000 to $2.5 million for a company and from $100,000 to $1 million for an individual.

It also holds firms liable to fines for the actions of their employees if the firms “knowingly or recklessly” fail to detect and prevent insider trading.

Brief Announcement

Contrary to some of the publicity given to other bill signings in recent weeks, the White House simply put out a brief announcement that Reagan had signed the bill. Congress passed the legislation in its final days in October.

The legislation also would:

--Authorize the Securities and Exchange Commission to offer tipsters a bounty of up to 10% of any fine collected.

--Codify the right of investors to sue inside traders if they lost money by trading in the same securities and at the same time as insiders.

--Permit the SEC to issue subpoenas and investigate insider trading on behalf of foreign countries, with the idea that foreign countries would offer reciprocal privileges to the United States.

Crime Hard to Detect

Rep. Edward J. Markey (D-Mass.), chief sponsor of the bill and chairman of the House subcommittee that oversees the securities markets, predicted after the measure’s final passage that it will change attitudes toward insider trading, a crime that is hard to detect and difficult to prove, because, he maintained, white-collar criminals fear the prospects of going to jail.

New Legal Weapon

The second bill, by making major procurement fraud a crime, hands prosecutors a powerful new weapon to help protect the Pentagon’s complex purchasing process.

The Defense Department has estimated that procurement fraud cost taxpayers $99.1 million in fiscal years 1986 and 1987.

Under the new law, those convicted of major fraud in government purchasing could get prison sentences of up to 10 years and fines of up to $10 million.

A person or corporation would be subject to penalties if convicted on a scheme or act to defraud the government in connection with a contract of at least $1 million.

The White House announced that Reagan had signed the bill along with numerous other pieces of legislation. The House and Senate passed the measure in late October.

A statute of limitations of seven years would be established under the bill, in contrast to the normal one of five years.

Help for ‘Whistle-Blowers’

The measure also includes “whistle-blower” protections for those who draw attention to major fraud. The provision allows anyone fired or punished for furnishing information to the government to sue for reinstatement and receive twice the amount of lost pay.

Among other things, the bill authorizes $8 million over four years to hire additional prosecutors to handle fraud cases.

It also prohibits contractors from recovering legal expenses in proceedings in which they were found to engage in wrongdoing.

Sen. Howard M. Metzenbaum (D-Ohio), the Senate sponsor of the bill, said shortly after it was passed that it was needed because “defense fraud rips off American taxpayers and endangers the lives of our fighting forces” by providing them with defective parts.