Supporters of a bill that would prohibit Members of Congress and their aides from trading stocks based on nonpublic information are hoping that the current fiscal crisis will be a catalyst for passing the long-standing legislation.
The Stop Trading on Congressional Knowledge Act would also require the booming political intelligence industry to publicly register.
Democratic Reps. Louise Slaughter (N.Y.) and Brian Baird (Wash.) first introduced the bill in 2006.
The pair testified before the Financial Services Subcommittee on Oversight and Investigations on Monday that the financial services meltdown has given even greater importance to the bill.
“The upcoming financial market regulatory reform will bring with it even greater opportunity for those with early access to information to profit on an immense scale,— Slaughter said.
“By explicitly prohibiting the improper use of sensitive information for personal gain, we will be taking an enormous step in providing transparency while preserving and strengthening public faith in our government and the Democratic process,— she added.
Currently, Members of Congress and staff aren’t prohibited from buying and selling stocks based on information that they glean from their jobs.
Executive branch officials are banned from insider trading. They also face strict rules about owning stocks that could be affected by their regulatory responsibilities.
The issue first came to light during the massive ethics reform overhaul following the Jack Abramoff lobbying scandal.
As chairwoman of the Rules Committee, which oversaw the bulk of the ethics reform legislation, Slaughter noted the large number of stock trades a former staffer for then- House Majority Leader Tom DeLay (R-Texas) made during work hours on a government computer.
The rise of lobby shops and other consulting firms forming political intelligence practice groups has also created a need for the legislation, Slaughter said.
“We need to regulate them more,— she said. “Frankly, I don’t like the whole idea of [intelligence firms] making $40 million off information from Congress for their clients.—
In effect, these firms use their political connections in Washington, D.C., to monitor legislative activities to see whether they will affect stocks and report the information back to interested companies, such as investment banks and private equity firms.
“A Member of Congress or a staffer is in the position to know things that are nonpublic regarding the movement of proposed legislation that could affect the movement of a particular stock or industry,— said Ken Gross, an ethics lawyer at Skadden, Arps, Slate, Meagher & Flom.
“In those situations, there should be a restriction on trading shares in those companies because it’s not much different than having inside financial information,— he added.
The proposed legislation would expand the definition of insider trading.
It would also require Members of Congress and staff to publicly report to the Clerk of the House or the Secretary of the Senate within 90 days after the purchase, sale or exchange of securities worth more than $1,000.
Additionally, the STOCK Act would amend the Lobbying Disclosure Act of 1995 to require political intelligence consultants to register and report to Congress on their activities.
Still, the bill, which has two other co-sponsors, faces significant hurdles, including being referred to four other committees, according to opponents of the legislation.
Rep. Judy Biggert (R-Ill.), the subcommittee ranking member, also questioned the ability to define nonpublic information and the practical application of passing such a law.
But, supporters of the bill say that the details can be worked out and that now is the time to enact legislation.
“The [bill] is very significant, especially given the federal government is now becoming a controlling partner in the financial services sector,— Public Citizen’s Craig Holman said.
Public Citizen, U.S. PIRG and others sent letters in support of the bill on Monday.
Additionally, Holman said he will be lobbying to help boost the number of co-sponsors. “It is an important piece of legislation to get through before we see any real obvious scandals,— he said.