STOCK Act Would Stop Controversial Insider Congressional Trading

By DANA LIEBELSON

CBS News' "60 Minutes" aired a fairly condemning report on Sunday, alleging that several Members of Congress--including Reps. Spencer Bachus (R-AL) and Nancy Pelosi (D-CA)--have earned hefty stock returns thanks to inside information obtained on the job. 

The report pointed out that this kind of insider trading is legal—a claim which may not even be true, according to an Indiana University law professor. Regardless, it’s making a lot of taxpayers very angry. The good news is there’s a piece of legislation already moving through the House that could stop this squeamish practice dead in its tracks: the cleverly named, Stop Trading on Congressional Knowledge (STOCK) Act (H.R. 1148).

CBS revealed why this Act couldn’t be more timely. According to the report, the day after House Rep. Bachus (R-AL), who is chairman of the House Financial Services Committee, received a closed-door briefing from the U.S. Treasury Secretary and Federal Reserve Chairman that warned of a global financial catastrophe, Bachus reportedly bought option funds that would go up in value if the market crashed—ignoring his own advice to the American people.

Bachus, as you may remember, also recently proposed draft legislation that would essentially allow the financial industry to regulate itself and raises a host of conflict of interest issues. So far, he’s denied using non-public information to inform his personal investment decisions.

House Minority Leader Nancy Pelosi has also fired back against the CBS report. She issued a statement in response to accusations that her purchase of profitable Visa shares in 2008—which occurred when legislation opposed by credit card companies began to move through the House— constituted a conflict of interest:

Congress has never done more for consumers nor has the Congress passed more critical  reforms of the credit card industry than under the Speakership of Nancy  Pelosi…It is very troubling that 60 Minutes would base their reporting off of an already-discredited conservative author who has made a career of out attacking  Democrats.

Putting politician/journo squabbling aside for a moment—here’s a rundown of the STOCK Act, which was introduced by Rep. Louise Slaughter (D-NY) and Rep. Tim Walz (D-MN) in March. The Act would:

Prohibit purchase or sale of either securities, security-based swaps, or commodities for future delivery or swap by a person in possession of material nonpublic information regarding pending or prospective legislative action if the information was obtained: (1) knowingly from a Member or employee of Congress, (2) by reason of being a Member or employee of Congress, and (3) other federal employees.

In other words, as the Bureau of National Affairs pointed out: “The bill would level the playing field between corporate and congressional insiders.”

The CBS story may be making a lot of waves, but this isn’t a new problem.  For years, researchers have shown that Members of Congress get abnormally high returns from their stocks.  Incarnations of the STOCK Act have been introduced three times in the past, but no one has voted on it (POGO supported the Act in the last Congress). The time has come to stop shaking our fists at the politicians making extra bucks off of a legally grey loophole—and throw support into the solution. At present, the STOCK Act is hanging out in the House Judiciary Subcommittee on the Constitution.

Dana Liebelson is POGO's Beth Daley Impact Fellow.

Follow @dliebelson

Comments

[Henry]

Are "our representatives" required to report their stock holdings? It appears the protesters really do have a good point. We should all join them.

[foggyworld]

I am currently reading _Throw Them All Out_ by Peter Schweizer and my eyes are popping. There is no way that our "representatives" are ever going to give up the game that apparently is an integral part of what they do every day of the year. I never would have believed what I am reading could be legal and yet I just know it is. These folks vote and buy or sell stock in the companies that will be affected by legislation by using what to the rest of us would be referred to as "insider information." Not to them. I have for a long time wondered how all of them seem to do so well financially and this book has taught me the game. Just wish I was younger and could run and win office!

These folks are making a mockery out of us and it doesn't stop here. They have their own bank, their own medical plan and insurances and Lord knows what else. They do not get the TSA pushing their bodies around in airports and frankly seem to be living on another planet.

I strongly suggest that everyone pick up a copy of this book because finally the pieces will fit together and it will help you see that they will never, ever give up their very exclusive life style. It's vote them all all - or "THROW THEM ALL OUT" - and make it clear that it's one term or out the next go round if this incestuous behavior they have with banks and corporations doesn't stop right away. It is unbelieveable.

I thought John Kerry would win the prize by buying his new yacht in New Zealand and having it delivered to RI to avoid the Massachusetts sales tax!!!!!!!! Boy, was I wrong. That was just chump change for him as it would be for all of our other "representatives."

And in this same book, you will find out how We the People really are subsidizing Warren Buffett and a whole slew of the ultra wealthy of this land on a regular basis. An amazing quick read that will keep me awake for many nights. Maybe it's too late because this didn't happen overnight. Remember LBJ and all those television stations ..... the family still owns them.

[randy reneau]

Shouldn't Congress be held to a higher standard . Jail is the solution.

[Emile Zola]

There is a shame that many of the laws that apply to regular Joes do not apply to congress. This two class system would be alright in the old USSR, but in Amwerica? I htought we are a democracy and that no one is above the law. Now we know that is baloney. Time for me to open a deli.

[Kurt Schaefer]

Approval ratings for congress is at an historical low point, somewhere around 9%. Soon our government representatives will be less popular than Fidel Castro at 5%.

[Marcia Simpson-James]

This kind of behaviour is both shocking and despicable. Anything that can be done to lock off any revolving doors, or close loop-holes must be done. This kind of corruption should be an imprisonable offence if committed by politicians, advisers or government ministers. Those who exploit insider information in this way, usually deflect the law enforcement services to attack either, the whistleblower or even a member of the public (i.e. an individual with an interest in politics who may have stumbled upon the crime).

The political, economic and social costs are too horrendous for any of these defacto criminals to be allowed to 'get away with it'.

[Gloria Morotti]

No more inside information for the 1%.

[Donna Sams]

The time has come to stop shaking our fists at the politicians making extra bucks off of a legally grey loophole—and throw support into the solution.

[david eisbach]

this is a dispicable practice and one that separates the people form their representatives.

[Bob Mosher]

The flagrant abuses in Congress must be stopped now. Citizens were not elected to Congress to enrich themselves, but rather to do our bidding in an open and fair process consistant with obvious ethical and high moral standards!

[Bob Burns]

So, what's new? Can anyone name a MOC who left office poorer than when he/she went in? The whole system is so abysmally corrupt that I seriously wonder if it ever can be fixed.

I read somewhere there are 185 ex-MOC's and/or high level staffers who are lobbyists now (notwithstanding the Newtster!) They'd probably be working for Goldman Sachs, too, if they knew much about how the financial industry operates.

I dispair!

[John Leone]

Legislation merely makes Congress on a par with other traders.What is an IPO but an opportunity for insiders to cash out? Good prohibition, woefully short on enforcement penalties.