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Q: I am a lobbyist and I have a question about the insider trading restrictions under the Stop Trading on Congressional Knowledge Act. A friend who is a lawyer told me that restrictions on insider trading by Members and staffers mean that I need to be careful about my communications with lawmakers. But I am pretty sure that the restrictions on gathering political intelligence were removed from the bill before it was passed. This is important to me because I am always discussing potential government action with staffers. I want to make sure my discussions could not somehow expose me to legal liability. There are no new restrictions on such communications, right?
A: Last month, President Barack Obama signed into law the STOCK Act, which “affirms” that Members and staffers have a duty not to trade on material, nonpublic information they learn while doing their jobs.
Before the bill was passed, there was a debate about a provision that would require “political intelligence consultants” to register and publicly disclose their activities, much in the same way lobbyists are required to do. In general, as you probably know, political intelligence consultants are people who gather and exchange information about potential government action that could affect stock prices.
Opponents of the political intelligence provision argued that it would inappropriately chill legitimate communications between lawmakers and lobbyists or employees in the financial industry. Even some proponents of restrictions on political intelligence worried that the provision might be too broad.
For example, the provision would have applied to communications with a Member or staffer where the information derived from the communication is “intended for use in analyzing securities or commodities markets, or in informing investment decisions.” This would have applied not just to people who gather political intelligence for a living, but to anyone who engages in such communications.
The provision was ultimately scrapped before the STOCK Act became law. Instead, the legislation calls for a Congressional study of political intelligence firms, to be completed within one year. Depending on the outcome of the study, restrictions on such firms might follow.
In the meantime, the absence of new restrictions specifically targeting political intelligence consultants does not mean that no risks lie in communications with Members and staffers about potential government activity. The STOCK Act affirms that Members and staffers owe a duty to the public and the government regarding material, nonpublic information they learn on the job. This means Members or staffers could face liability if they trade stocks on the basis of such information or if they disclose such information with the intent to benefit somehow from that disclosure.
It also could mean possible exposure for people who receive material, nonpublic information from Members and staffers. Recipients of such information, or “tippees,” should be careful both about their communications with government officials and about their stock trades. They could face liability if they buy or sell shares in a company after receiving nonpublic information from a government source about government action that could affect the stock value of that company.