It’s April 2012. You are a conscientious congressional staffer who still takes seriously the need to be a steward of taxpayers’ money. (Yes, we know for a fact there are more than a few of these folks around on Capitol Hill.) You are watching closely events surrounding an “omnibus” or “minibus” spending bill deemed even by conservative Republican members as “must pass” because it funds the military as well as other parts of government.
Suddenly, you hear about an outrageous earmark about to be slipped into the bill that would enrich a Fortune 500 company. You decide to alert a network of fiscal watchdogs you’ve met with over the years to wage an instant campaign against this piece of corporate welfare.
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You have all the information in the e-mail and are about to hit “send.” But then you remember something from a briefing you attended a couple of days ago. The subject was the Stop Trading on Congressional Knowledge (STOCK) Act — aimed at stopping “insider trading” by members and employees of Congress — that your boss and nearly every other member of Congress voted into law in February.
At the time, you didn’t think the law would affect you, since the only trading you do is indirect, through your mutual funds and pension. You were surprised to learn, however, that you now have a broad “duty of confidentiality” that encompasses not just trading on “material, nonpublic information,” but disclosing information to those who might.
You sit back and think, “It is indeed possible that someone I send this to could buy stock in the company, or could short the company based on the coming outrage.” You stare at the computer screen wondering how virtually no one noticed how this law could have potentially criminalized an act of whistleblowing as abetting “insider trading.”
Such a scenario is almost certain if House and Senate versions of the STOCK Act are not modified before a final bill is sent to President Obama. The House has passed the bill 417–2, after a similarly overwhelming 96–3 Senate vote earlier this month. Because the two versions are different, they must go to conference to produce a final bill, giving members an opportunity to make sure that the law doesn’t cover whistleblowing and routine communication with outside groups.
The legislation gained steam after a series of revelations in conservative author Peter Schweizer’s bestselling book, Throw Them All Out, that many members of Congress regularly trade stocks and options, sometimes after receiving sensitive information. A 60 Minutes report based on some of Schweizer’s findings propelled the issue into the spotlight, with President Obama calling on Congress in the State of the Union to ban “insider trading” among its members and staff.
But lost in the justifiable outrage about politicians’ perks is discussion about how provisions in the bills would actually work. Among the most important things to know about the STOCK Act is that by specifically applying “material, nonpublic information” rules that govern officers and directors of a corporation to Congress, the bill would bar in many instances the disclosure of such information as well as trading on it.
The bills specifically impose a “duty of confidentiality” on members of Congress and their staffs. They state that “each Member of Congress or employee of Congress owes a duty arising from a relationship of trust and confidence to the Congress, the United States Government, and the citizens of the United States with respect to material, nonpublic information.”
Time to use the Australian model, where stocks, etc., are placed in blind trusts whilst the owners are Members of Parliament. The Members literally don't know what their specific investments are.
The blind trust is used in Canada, too. However, there is no perfect answer. If we want more citizen-legislators who will serve for a couple of terms and then go back to real work, this would disqualify entrepreneurs who own big chunks of their own companies.
If you disclose actionable, proftable information to a select few - whether in an email to "activists" or in an off-the-record, Grover-Norquist-sponsored meeting - you ARE potentially abetting insider trading.
Such information should be disclosed widely to the public, or not at all.
"Following this precedent, if the STOCK Act is passed, the SEC may require meetings and calls in which Congress members and staffers participate to be open to the public or not occur at all. The result would be less outflow of information from Congress and a less informed public."
Now that's a real headscratcher. A prohibition on secret meetings leads to a less-informed public? That's some newspeak logic if I've ever heard it. "Secrecy is disclosure. The people's business must be done out of sight of the people in order that the people may know about it."
I call shenanigans on this article. Boo hoo, congressmen and their cronies won't be able to keep secretly scratching one another's backs and doing business as usual. Horrors, they might have to publicly disclose who they meet with while doing the people's business. Because we all know that protecting and enabling Washington to keep doing business as usual is priority #1.
Let the act stand with its prohibitions, overwhelmingly passed (albeit in different versions) by both houses of Congress. Anyone in possession of insider info who fears that others might use it for profit should disclose what he or whe knows, immediately and publicly, with full protection against retribution. Far too much of the people's public business is negotiated in private. That is especially true of military/defense contracts with big corporations and rogue outfits like Halliburton.
Once again, Sarah Palin was way out on front on this issue. She recommended that all Congressmen, Senators and their staff have all of their holdings placed int T-Bills for the duration of their terms.
At that point, there is no insider trading and a vested interest in preventing the Fed from keeping rates artificially low.
I have no sympathy for the plight of "political intelligence" workers. Boo Hoo. They ARE traders of inside information, so welcome to the rest of the world.
There are too many lawyers that inhabit congress. The law should read, "If you use nonpublic information to trade stocks in your own account for your profit, you will go to jail." What's so complicated about this?
What "we" want ... well, what this part of "we" wants ... is a system where "public servants" don't accumulate massive amounts of wealth during their "service."
Now, obviously, that's too broad a brush and it would have to be refined - I imagine there are circumstances where fortunes grow without trading (in any way, shape or form) on one's office. There are, however, far too many stories of members of Congress coming to Washington with nothing and leaving wealthy beyond imagination.
"Following this precedent, if the STOCK Act is passed, the SEC may require meetings and calls in which Congress members and staffers participate to be open to the public or not occur at all. The result would be less outflow of information from Congress and a less informed public."
...Um... huh? Do you know how crazy this sounds?
Yes, there must be strong protections for whistleblowers.
Blind-trusts should be required as well.
But any objections that even remotely smack of maintaining business as usual will not be well received by We The People.
While we're applying securities law principles to bureaucrats, how about something like Rule 10b-5? Think how different things would be if politicians could be held liable for any material misstatements or omissions in their campaign speeches.
The easiest way to solve the "problem" would be to pass a bill specifically declaring that "insider trading" with respect to publicly traded securities is legal and nonactionable. It would level the playing field for everybody, and remind widows and orphans that the stock market is no place for them to be playing.
