A Congress of Inside Traders?
You might think that members of Congress and their staffs would be prohibited from using their privileged access to nonpublic information to cash in on Wall Street. But you’d be wrong.
Congressional insider trading is not, in fact, illegal. In a letter to lawmakers today, several watchdogs groups offer explanation:
“„The Securities and Exchange Commission (SEC) does not have the authority to hold employees of Congress or the Executive Branch liable for using non-public information gained from official proceedings for insider trading. Under current law, ‘insider trading’ is defined as the buying or selling of securities or commodities based on non-public information in violation of confidentiality — either to the issuing company or the source of information. Most federal officials and employees do not owe a duty of confidentiality to the federal government and thus are not liable for insider trading.
The letter — signed by Public Citizen, Democracy 21, Common Cause, U.S. PIRG and the League of Women Voters — was drafted in support of legislation to prohibit congressional and White House insider trading. Introduced in January by Democratic Reps. Brian Baird (Wash.), Louise Slaughter (N.Y.) and Tim Walz (Minn.), the bill would prevent policymakers from profiting from their access to nonpublic information. At the time of the unveiling, Baird pointed to a 2004 Georgia State University study indicating that investments made by members of Congress return 25 percent more than those made by other Americans.
The watchdog groups point out another reason they say Congress should consider the bill quickly: The hundreds of billions of dollars in bailout cash coming out of Washington will provide wonderful investment opportunities for policymakers who know where the money is going before the public does. From the letter:
“„With the federal government assuming a far greater role over the financial services industry, the opportunity and temptation for federal employees to cash in on their insider knowledge of legislation, rules and even business trends that can have a dramatic and immediate effect on the stock market will become all the more dangerous. Members of Congress and federal employees should be required to live by effective restrictions on insider trading.
The bill, aptly, is called the “Stop Trading on Congressional Knowledge Act.”
