SEC head signs off on STOCK Act

Securities and Exchange Commission (SEC) Chairwoman Mary Schapiro gave her blessing to legislation explicitly banning insider trading by lawmakers that has passed both chambers of Congress.

As lawmakers pushed to pass the bill making clear that they could not personally profit using private information obtained in the course of their work, SEC officials had previously cautioned that any new laws should tread lightly on existing authority.

On Wednesday, Schapiro said the current version of the Stop Trading on Congressional Knowledge (STOCK) Act looks like it will help the SEC in its work, not hinder it.

"On balance, the STOCK Act is helpful to us," she said at a breakfast hosted by The Christian Science Monitor.

Officials with the Wall Street watchdog had previously told Congress that members already are subject to insider trading laws, but Schapiro said an explicit ban on the books could help in a case brought to court against a lawmaker.

"I think the STOCK Act can be helpful to us in this regard, the clarity that there is in fact a duty that members of Congress owe to the Congress, to the government, to the American people is very useful," she said. "Because we need to show violation of the duty when we bring an insider trading case."

Officials had also warned Congress not to pass any law that would narrow the reach of the SEC when it comes to pursuing insider trading cases; the regulator currently enjoys broad deference in identifying insider trading violations on a case-by-case basis.

Schapiro said one of the benefits of the STOCK Act is that it does not appear to do anything to hinder that authority.

"It’s particularly helpful as well that nothing in it diminishes our current capacity to pursue insider trading aggressively," she said. "One of our worries had been that something inadvertently could make it difficult or undo some of the preexisting case law that has allowed us to be quite aggressive on insider trading."

Both the House and Senate overwhelmingly passed versions of the STOCK Act earlier this month, and a conference committee likely will be established to rectify differences between the two. In his State of the Union address, President Obama called on lawmakers to pass such a bill, vowing to sign it as soon as it reached its desk.

With the bill seemingly destined to become law, Schapiro said there are still some wrinkles the SEC is trying to iron out in advance. In particular, Schapiro said the SEC had to figure out how it could handle pursuing insider trading by members of Congress without running afoul of the Speech or Debate Clause of the U.S. Constitution.

That clause stipulates that lawmakers shall not be arrested while in a session of Congress, and the Supreme Court has determined it means lawmakers and their aides cannot be prosecuted for their legislative acts.

Schapiro said the SEC was looking into how to function with that clause in mind.

"The Speech and Debate Clause can cause some issues for us in the context of investigations," she said. "That’s the Constitution. We can’t ask Congress to fix that."

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