A Renewed Push to Ban Insider Trading on the Hill
By Ben Pershing
Are members of Congress and their aides using their advance knowledge of the legislative process to make a killing in the stock market? The answer isn't clear, but the mere possibility of such insider trading has been enough to fuel a renewed push to ban the practice.
In January, Reps. Brian Baird (D-Wash.) and Louise M. Slaughter (D-N.Y.) introduced the Stop Trading on Congressional Knowledge Act, which would ban securities and commodities trading based on "material nonpublic information" by lawmakers, their aides or people who obtained the information from lawmakers or aides.
The practical effect of such a ban: If a Senate aide sits in on a meeting where leaders decide to bring bill X to the floor tomorrow, that aide couldn't run to his desk and buy or sell stock based on that information. Under current law, the aide could trade to his heart's content, or pass on a tip to a friend in the private sector.
While lawmakers and top staff currently report their personal financial holdings just once per year, this bill would require the reporting of any securities transaction worth at least $1,000 within 90 days. The measure would also require political intelligence firms -- which mine Capitol Hill for information and sell it to investors -- to register with the government the way lobbying firms currently do.
Baird and Slaughter have tried this before, in each of the last two Congresses, but those efforts didn't go anywhere.
What makes them think this new push will succeed?
"I don't know that it will," Slaughter admitted. "But this is the first time we're getting a hearing."
That hearing is scheduled for Monday before the House Financial Services subcommittee on oversight and investigations.
Baird suggested they might have better luck because "the context is different" this year, in the wake of the financial sector's meltdown.
"This bill is about two things, both of which are in question in the minds of the public -- the integrity of the markets and the integrity of Congress," he said
When Slaughter and Baird first introduced the bill in 2006, they said they were motivated by the trading activities of Tony Rudy, the former aide to ex-Majority Leader Tom DeLay (R-Texas) who pleaded guilty to a conspiracy charge in connection to the Jack Abramoff lobbying scandal.
While working for DeLay, Rudy made hundreds of stock trades from his work computer. But it was never firmly established whether Rudy actually made any of those trades based on inside information.
Nor has there been any other open-and-shut instance of insider trading on the Hill. A 2004 academic study found that senators' personal financial portfolios were beating the market by a wide margin over several years. And in 2005, some companies facing asbestos-related claims saw their stocks climb just before then-Senate Majority Leader Bill Frist (R-Tenn.) gave a speech on creating an asbestos trust fund.
Still, not everyone is convinced Baird and Slaughter's STOCK Act is necessary. In 2007, Daniel Gross wrote in Slate that there was no convincing evidence that such insider trading was occurring, and that the new regulations on political intelligence firms amounted to "a curious swipe at the First Amendment." He also pointed out that lots of organizations -- including lobbying firms and even newspapers -- already make money by trying to pry exclusive information out of Congress.
Baird said he found it hard to believe that insider trading wasn't occurring on the Hill, particularly since the practice is currently legal. And both lawmakers believe the bill is worth passing regardless.
"Okay, let's say it's never happened," Slaughter said. "It should never happen."
Posted by: Martial | July 8, 2009 7:00 PM | Report abuse
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