The Problems with the STOCK Act
Removing the act’s muzzle on whistleblowing

Peter Schweizer on 60 Minutes, November 13, 2011 (CBS)


John Berlau

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.

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.”