Congressman need a bill to stop them from insider trading, whereas we'd go straight to jail.
For ex., congressman x on defense committee gets out of meeting in which major defense appropriation decision made-he calls his stockbroker and maxes out on the stock of company in question long before made public, reported in press....
The "STOCK act"
STOCK Act Reintroduced to Ban Insider Trading by Members of Congress
BNA reports that:
Rep. Louise Slaughter (D-N.Y.) introduced a bill March 17 that would prohibit members of Congress and federal employees from profiting, or helping others profit, from non-public information—primarily through stock and futures trading—gleaned through their access to privileged, political-based information.
In a March 18 statement, Slaughter's office said the Stop Trading on Congressional Knowledge Act would foster greater oversight of “the growing ‘political intelligence’ industry.” Slaughter said the legislation, H.R. 1148, which is co-sponsored by Rep. Tim Walz (D-Minn.), “is about fairness and transparency.” Similar bills introduced several times since 2006 have failed to gain traction.
The bill would level the playing field between corporate and congressional insiders. While the federal securities laws already prohibit trading on material nonpublic corporate information, there is no analogous restriction for information gained in the course of government service.
The bill would amend the 1934 Securities Exchange Act and the Commodity Exchange Act to make it illegal for congressmen and their staffs to trade based on information picked up through knowledge of pending or prospective legislation. It has been referred to the committees on Financial Services, Agriculture, Judiciary, and Administration.
In the statement explaining the bill, Slaughter's office said “there is reason to believe some members of Congress or their staff may have shared nonpublic information about current or upcoming congressional activities with individuals outside of Congress working for political intelligence firms.” It said that indications were that the information was used for “investment purposes.” The statement added that “the increase in the number of political intelligence firms suggests that the leaking of nonpublic congressional information occurs regularly.” ...
Slaughter and Rep. Brian Baird (D-Wash.) introduced similar bills in 2009, 2006, and 2007 (41 SRLR 153, 2/2/09). While the bills failed to pass, a Financial Services subcommittee held an oversight hearing on the topic in July 2009 (41 SRLR 1358, 7/20/09).
My article Insider Trading Inside the Beltway reviewed the need for and analyzed the potential effectiveness of the 2009 version. The abstract follows:
A 2004 study of the results of stock trading by United States Senators during the 1990s found that that Senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade.
Under current law, it is unlikely that Members of Congress can be held liable for insider trading. The proposed Stop Trading on Congressional Knowledge Act addresses that problem by instructing the Securities and Exchange Commission to adopt rules intended to prohibit such trading.
This article analyzes present law to determine whether Members of Congress, Congressional employees, and other federal government employees can be held liable for trading on the basis of material nonpublic information. It argues that there is no public policy rationale for permitting such trading and that doing so creates perverse legislative incentives and opens the door to corruption. The article explains that the Speech or Debate Clause of the U.S. Constitution is no barrier to legislative and regulatory restrictions on Congressional insider trading. Finally, the article critiques the current version of the STOCK Act, proposing several improvements.
Lawmaker Vows to Outlaw Insider Trading on the Hill
more in Politics & Policy »
Save This ↓ More
larger Text smaller
By TOM MCGINTY And BRODY MULLINS
A congressman vowed to renew his efforts to outlaw insider trading by Capitol Hill members and their staffs, following a Wall Street Journal investigation showing that congressional aides traded in companies overseen by their bosses.
View Full Image
Rep. Brian Baird and Sen. Susan Collins in January at the World Economic Forum in Davos, Switzerland.
Rep. Brian Baird (D., Wash.) and a handful of other lawmakers including Rep. Louise Slaughter (D., N.Y.) have for years supported legislation that would explicitly make it illegal for members and their aides to trade stocks and other securities based on non-public information gleaned from the legislative process. Mr. Baird, however, retires at the end of this year.
When the bill—the Stop Trading on Congressional Knowledge Act, or Stock Act—was introduced nearly five years ago, just 14 other lawmakers endorsed it.
A current version of the bill has fared worse, with support from just nine lawmakers. There is no companion legislation in the Senate.
"Members of Congress and their staffs have access to information worth millions of dollars if used for personal gain," Mr. Baird said in an interview on Monday. "The public expects us to adhere to at least as high a standard as we impose on other people, and we don't in this case."
In a page-one story Monday based on an examination of more than 3,000 financial disclosure forms of congressional aides, the Journal reported that hundreds of aides traded stocks during 2008 and 2009. At least 72 of them traded the shares of companies overseen by their bosses' committees.
The aides said they didn't profit by making trades based on any information gathered in the halls of Congress.
Congress is immune from insider-trading laws; federal regulators have never brought an insider-trading case against either congressional members of their staffs. Unlike many executive branch employees, lawmakers and aides don't have restrictions on their stock holdings and ownership interests in companies they oversee.
About 2,900 of the highest-paid congressional aides must disclose information once a year on their finances, such as their assets, debts, spouses' employment and other sources of income, including capital gains from trading securities.
Congressional Staffers Gain From Trading in Stocks
Rather than passing legislation, Mr. Baird said he has come to believe in recent months Congress should simply amend its official ethics guidelines and rules. The next House majority, for example, could easily add the new rules as part of the process of convening the new Congress in 2011, he said.
Mr. Baird also said the new rules should require disclosures of all trades within 48 hours, as the Stock Act states, instead of a year afterward, as current rules require. He said any improper trading would then be more easily detected, because observers would be attuned to congressional activities at the time their trades were made.
Mr. Baird said he trained his staff members to avoid profiting from non-public information, but said the majority of the members of Congress and their aides don't receive similar training.
Some legislators remain undecided about supporting the legislation. That includes House Speaker Nancy Pelosi of California. The Journal reported Monday that a top aide to Ms. Pelosi profited by the trading of shares of Freddie Mac and Fannie Mae in a brokerage account with her husband two days before the government authorized emergency funding for the companies.
The aide said she had no knowledge of the trades when they were made, and the husband said he bought the stock after reading a news article.
The House Financial Services Committee has "already begun to examine ways of preventing any unfair trading by government officials in both the executive and legislative branches," said Drew Hammill, a spokesman for Ms. Pelosi. "This includes assessing the implications for the constitutional protections of speech or debate."
Mr. Hammill was referring to a July 2009 hearing at a House subcommittee. "Should government officials trade on information that they have access to that the general public does not?," asked Rep. Dennis Moore (D., Kan.), who chaired the hearing of the House Financial Services subcommittee on oversight and investigations. "If not, what additional rules, regulations or laws are required to address this concern?"
Lawmakers said there was no followup hearing on the issue planned for the near future.
Write to Tom McGinty at firstname.lastname@example.org and Brody Mullins at email@example.com
Corrections & Amplifications
About 2,900 of the highest-paid congressional aides must disclose information annually about their finances, and each of the forms submitted in 2008 and 2009 was reviewed by The Journal. A previous version of this article incorrectly said that about 1,700 staffers are required to submit the disclosures.
The Stop Trading on Congressional Knowledge Act
Stephen M. Bainbridge
University of California, Los Angeles (UCLA) - School of Law
August 13, 2009
UCLA School of Law, Law-Economics Research Paper No. 09-16
A 2004 study of the results of stock trading by United States Senators during the 1990s found that that senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to - and were using - material nonpublic information about the companies in whose stock they trade.
Under current law, it is uncertain whether members of Congress can be held liable for insider trading. The proposed Stop Trading on Congressional Knowledge Act addresses that problem by instructing the Securities and Exchange Commission to adopt rules intended to prohibit such trading.
This article analyzes present law to determine whether members of Congress, Congressional employees, and other federal government employees can be held liable for trading on the basis of material nonpublic information. It argues that there is no public policy rationale for permitting such trading and that doing so creates perverse legislative incentives and opens the door to corruption. The article explains that the Speech and Debate Clause of the U.S. Constitution is no barrier to legislative and regulatory restrictions on Congressional insider trading. Finally, the article critiques the current version of the STOCK Act, proposing several improvements.
Number of Pages in PDF File: 19
Keywords: insider trading, Congress
JEL Classifications: K22
Working Paper Series
What is the Stop Trading on Congressional Knowledge (STOCK) Act?
General Reference (not clearly pro or con)
The Congressional Research Service (CRS) wrote a summary of the STOCK Act (H.R. 1148) (185 KB) on Mar. 29, 2011, available on thomas.loc.gov. The bill was introduced in Congress on Mar. 17, 2011 by Rep. Timothy J. Walz (D-MN) with cosponsors Representatives Raul Grijalva (D-AZ), David Loebsack (D-IA), Louise Slaughter (D-NY), and Niki Tsongas (D-MA). The summary said in its entirety:
"Stop Trading on Congressional Knowledge Act - Amends the Securities Exchange Act of 1934 and the Commodity Exchange Act to direct both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to prohibit purchase or sale of either securities, security-based swaps, or commodities for future delivery or swap by a person in possession of material nonpublic information regarding pending or prospective legislative action if the information was obtained: (1) knowingly from a Member or employee of Congress, (2) by reason of being a Member or employee of Congress, and (3) other federal employees.
Amends the Code of Official Conduct of the Rules of the House of Representatives to prohibit certain House personnel from disclosing material nonpublic information relating to any pending or prospective legislative action relating to either securities of a publicly-traded company or a commodity if such personnel has reason to believe that the information will be used to buy or sell the securities or commodity based on such information.
Directs both the Committee on Agriculture and the Committee on Financial Services of the House of Representatives to hold hearings on the implementation by the CFTC and the SEC of such financial transaction prohibitions.
Amends the Ethics in Government Act of 1978 to require formal disclosure of certain securities and commodities futures transactions to either the Clerk of the House of Representatives or the Secretary of the Senate.
Amends the Lobbying Disclosure Act of 1995 to subject to its registration, reporting, and disclosure requirements, as well as requirements for identification of clients and covered legislative and executive officials, all political intelligence activities, contacts, firms, and consultants. Requires the Comptroller General to include political intelligence activities, contacts, firms, and consultants in its annual compliance audits and reports."
[Editor’s Note: In a series of procedural moves, the bill was referred to six House committees (Financial Services, Agriculture, House Administration, Judiciary, Ethics, and Rules) on Mar. 17, 2011, then re-referred and "discharged" from five of those committees (all but Rules) and referred to all six committees again on Mar. 29, 2011. As of May 25, 2010 there has been no additional Congressional action.]
Mar. 29, 2011 - Congressional Research Service (CRS)
[Editor's Note: The STOCK Act was introduced by Rep. Brian Baird (D-WA) and Rep. Louise Slaughter (D-NY) on Jan. 26, 2009. According to the official summary of actions on the Library of Congress website, the STOCK Act was assigned to five committees in the House of Representatives "for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned." The following chart lists all actions taken by the Congress on the STOCK Act. The bill died in committee.]
|Liveleak on Facebook|