Dec. 5, 2011
Congress Must Clearly and Unequivocally Prohibit ‘Congressional Insider Trading’
House Should Not Be Swayed by the Suggestion That Congressional Insider Trading Already Is Illegal
WASHINGTON, D.C. – The U.S. House Financial Services Committee should refine and pass the “Stop Trading on Congressional Knowledge” (STOCK) Act, Public Citizen said in a letter sent today to the committee. The committee is holding a hearing Tuesday on long-overdue legislation (H.R. 1148) introduced by Reps. Timothy Walz (D-Minn.) and Louise Slaughter (D-N.Y.), along with more than 150 co-sponsors, which would prohibit members of Congress and their staffs from using information gleaned in the course of their official duties for insider trading in the stock market.
Despite some academic arguments that the laws against insider trading already could apply to Congress, no enforcement actions have ever been taken against congressional insider trading. Public Citizen encourages refinements to the legislative language, such as requiring real-time disclosure of trading activity, and strongly recommends passage of the STOCK Act.
The U.S. Senate is considering similar legislation. The Senate Homeland Security and Government Affairs Committee has held a hearing on two similar bills, one sponsored by Sen. Scott Brown (R-Mass.) (S. 1871) and another by Sen. Kirsten Gillibrand (D-N.Y.) (S. 1903).
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. Congressional officials and employees in the course of official business, it is often believed, do not owe a duty of confidentiality to these companies and thus are not liable for insider trading. That is why the laws against insider trading have never been applied to Congress.
“The STOCK Act is a legislative imperative,” said Craig Holman, government affairs lobbyist for Public Citizen. “We know that many members of Congress are active traders in the market, and they enjoy a 6 percent higher rate of return on their investments than the market. Either these members of Congress are geniuses when it comes to stock trading, or they know something the rest of us don’t – and trade on it.”
The STOCK Act would clearly and unambiguously make congressional insider trading illegal. It also would require members, staff and others who work with Congress to provide disclosure of their trading activity.
“Despite the suggestion made by some that the laws against insider trading could be interpreted as applying to Congress, these laws never have been and, as a result, no enforcement action has ever been taken against congressional insider trading. For this reason alone, we need passage of the STOCK Act.”
Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C. For more information, please visit www.citizen.org.