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Ethics Committee Offers ‘Insider-Trading’ Guidance

The House Ethics Committee sent a memorandum to all Members and staff today that reiterates the Congressional rules barring insider trading and conflicts of interest in their personal financial transactions.

The six-page memo from committee Chairman Jo Bonner (R-Ala.) and ranking member Linda Sánchez (D-Calif.) — detailing rules on the use of nonpublic information in making trading decisions, avoiding conflicts of interest and investment-related gifts — comes on the heels of a “60 Minutes” segment earlier this month that alleged Members of Congress routinely trade on confidential information and vote on bills in which they have a financial interest.

Though experts told Roll Call that existing securities laws and Congressional ethics rules exist that can be applied to Congressional insider trading, the television program’s examination of the investment choices made by Rep. Spencer Bachus (R-Ala.), Speaker John Boehner (R-Ohio) and House Minority Leader Nancy Pelosi (D-Calif.) touched a nerve on Capitol Hill.

Bachus, chairman of the Financial Services Committee, announced just days after the segment aired that his committee would hold a Dec. 6 hearing on the long-stalled Stop Trading on Congressional Knowledge Act, which has found renewed support in both the House and the Senate. The Senate Homeland Security and Governmental Affairs Committee has a hearing slated for Thursday that will “look into laws that prohibit Members of Congress and their staffs from trading on information they obtain as lawmakers and whether those laws need to be strengthened.”

The ethics memorandum circulated this afternoon outlines existing laws and rules that prohibit lawmakers and their staffers from trading on confidential information to which they are privy.

The memo first defines “material nonpublic information” — the standard on which an insider-trading case is based — before providing examples of how Members or staffers could run afoul of Congressional rules or securities law in hypothetical situations both related and unrelated to their jobs.

For example, if a House employee who has a friend at the Food and Drug Administration trades on confidential information he or she learns about a weight-loss drug that is about to be approved and buys stock before that information is public, he or she is subject to liability for insider trading not related to their official duties, the memo advised. If a House employee learns during a closed hearing that an aircraft company is about to be awarded a lucrative contract and purchases shares before the contract is announced, he or she have run afoul of Congressional ethics rules that prohibit using confidential information learned on the job for personal gain, the committee said.

“Examples of material nonpublic information gained during the course of government service may include, but are not limited to, legislation and amendments prior to their public introduction, information from conference or caucus meetings regarding votes or other issues, and information learned in private briefings from either the public or private sector,” the memo read.

A separate section on conflicts of interest advises that Members may not use their Congressional position for personal gain but provides fewer specifics as to how lawmakers can avoid ethical quandary.

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