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.
