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A further possible consequence of the STOCK Act is an increase in government scrutiny of communications between the public and Congress. Some scholars and lawyers believe that even before the STOCK Act, laws prohibited insider trading based on information from government sources and have argued that nothing has changed. Nonetheless, the STOCK Act has shone a spotlight on the issue, which could result in a spike in federal investigators’ attention on insider trading based on information from government sources.
Historically, this type of insider trading, to the extent it has occurred, has not often been prosecuted or even investigated. One reason for this might be the constitutional hurdles that make such investigations more difficult. For example, the Speech or Debate Clause provides that “legislative acts” shall not be questioned in any place. The House and Senate have interpreted this clause to mean that prosecutors cannot compel Members and staffers to produce information or documents that concern the legislative process.
In light of this obstacle, government investigators might focus on tippees — people outside Congress who receive inside information from Members and staffers. Such tippees do not enjoy the privilege of the Speech or Debate Clause. The potential for a focus on tippees is further reason to take renewed precautions regarding communications with Members and staffers.
What type of precautions? It might be wise for employers to revisit insider trading policies to make sure they sufficiently address the risk associated with information gained from government sources. In addition, companies with employees who regularly communicate with government officials might consider training those employees about the insider trading restrictions relevant to their communications.
With a renewed focus on insider trading based on information, someone is going to be the guinea pig, i.e., the first to face an investigation under the new law. Take action now in case the guinea pig is you.
C. Simon Davidson is a partner with the law firm McGuireWoods. Readers should not treat his column as legal advice.