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Experts: STOCK Act Not Necessarily Useful

But Lawmakers Say Legislation Would Curb Use of Congressional Information for Trading Purposes

Bill Clark/CQ Roll Call
Sen. Scott Brown introduced a bill that would prohibit lawmakers and employees from trading investments based on nonpublic information they obtain through their positions.

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The push to increase the disclosure of lawmakers' financial investments gained steam Tuesday when Sen. Scott Brown (R-Mass.) introduced a bill to curb the use of information gleaned from official Congressional work to make stock trading decisions.

The Stop Trading on Congressional Knowledge Act, the Senate companion to proposed legislation of the same title pending in the House, would prohibit lawmakers and Congressional employees from trading stocks, bonds and other investments based on nonpublic information they obtain through their positions. The legislation also would bar the transmission of that information to those outside Congress for investment purposes and require more frequent disclosure of trading transactions.

Though the legislation is gaining favor on the Hill — at least 17 Members signed on to the House version of the bill since a "60 Minutes" episode aired Sunday night that alleged insider trading within Congress — legal experts told Roll Call that if the effort succeeds, it is more symbolic than a useful enforcement mechanism.

"It's a dust-up over something that isn't against the rules," Stan Brand of the Brand Law Group said of the allegations.

Members of Congress must already abide by the same insider trading laws that apply to members of the general public, which define illegal transactions as those that use information that is both nonpublic and material — or relevant — to the trading decision. Any transaction that runs afoul of the law could end up before the U.S. Securities and Exchange Commission. The reason Congressional insider trading cases are rare is because it is difficult to make the case that information on the Hill is confidential, given that much of the work occurs out in the open, experts said.

"There is no law, policy or rule that says that the insider trading laws do not apply to Members and staff of Congress," said Robert Walker of the law firm Wiley Rein LLP. "So the question would be under which situations would they apply: Does it apply to all information before a Congress? When is it confidential? The issue is not quite as simple as I think the STOCK Act would make it seem — and not quite as simple as it would seem to those who take the view that insider trading laws don't apply to Members of Congress."

There are also existing ethics rules that prohibit lawmakers from profiting directly from decisions made during the course of their official duties.

"The application of the term 'insider trading' is a misnomer because those rules don't apply in these circumstances. What applies are House rules, and House rules provide that Members are to vote on all matters except for where they have a direct pecuniary interest, which is generally not interpreted to be [investment in] publicly traded companies," Brand said.

Though the House Ethics Manual acknowledges "no federal statute, regulation, or rule of the House absolutely prohibits a Member or House employee form holding assets that might conflict with or influence the performance of official duties," it goes on to state that "Members and employees should never use any information received confidentially in the performance of government duties as a means for making private profit."

Attorneys said toying with the wording and specificity of the rules to extend beyond the standard set by insider trading laws could have unintended consequences, given the number and breadth of investments held by Members of Congress.

"If you start forcing people to recuse themselves or not vote on these matters ... you're going to skew the legislative process in a serious way, which is why the rule is written the way it is written," Brand said.

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