Since the 60 Minutes segment aired on Sunday, there has been a quite a flap over alleged insider trading by Congressional officials and a healthy debate over the legality of the practice. Professors Donna Nagy (it is already illegal) and Stephen Bainbridge (it is currently legal) have eloquently stated their positions in scholarly publications and other communications. My post earlier this week gives the citations to Professor Nagy's work, and Professor Bainbridge provides a link to his discussion in his comment to my blog.
Although legislation to ban the practice has previously been introduced, and quickly died, in Congress, there is now renewed interest. Senator Scott Brown (R-Mass) introduced S. 1871, the Stop Trading on Congressional Knowledge (STOCK) Act, on Wednesday. It would prohibit members or employees of Congress and Executive Branch employees from buying or selling stocks, bonds, or commodities futures based on nonpublic information they obtain because of their privileged status. The Act would also prohibit Members and employees from disclosing any non-public information about any pending or prospective legislative action obtained from a member or employee of Congress for investment purposes. Members of Congress and employees would also be required to report the purchase, sale or exchange of any stock, bond, or commodities future transaction in excess of $1,000 within 90 days.
A different version of legislation has been introduced by some Democratic senators, including Senator Kirsten Gillibrand. It would redefine insider trading to include knowledge gained from Congressional work and service, create rules and reporting requirements, and require “political intelligence consultants” to register as lobbyists.
For a critique of the problems with the STOCK Act, see my article The Stop Trading on Congressional Knowledge Act (August 13, 2009), which 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 prior version of the STOCK Act, proposing several improvements.
