Insider-trading ban may extend to members

Rep. Louise Slaughter (D-N.Y.), the chairwoman of the House Rules Committee, and Rep. Brian Baird (D-Wash.) introduced a bill today to make it a crime for members of Congress and federal employees to profit from stock tips gathered through their positions.

The legislation also would bar investors from trading in securities based on tips flowing from Congress or the executive branch if they know the information is nonpublic, potentially dealing a blow to the growing political intelligence industry.

“The American people expect members and staffers to work on their behalf and to represent their interests, not to increase the returns on our investments and fatten our stock portfolios,” Baird said at a press conference Wednesday.

Slaughter characterized the bill as part and parcel of the efforts the new Democratic-controlled Congress has taken to curb ethics abuses and conflicts of interest. “It’s another step away from the corruption that has defined Washington for far too long,” the lawmaker said.

Named the Stop Trading on Congressional Knowledge Act, or STOCK Act, the bill effectively would extend insider-trading laws that apply to corporate America to the federal government, imposing fines or even criminal penalties for trading in “nonpublic material information” flowing from the legislative or executive branches.

The legislation is similar to a narrower bill Slaughter and Baird introduced last year after news reports surfaced that a one-time staffer to former House Majority Leader Tom DeLay (R-Texas) day-traded on the job using his congressional computer.

The bill could face a steep climb before becoming law. Last year’s bill, which did not extend to employees of the executive branch, attracted only 14 cosponsors. At least three committees would have jurisdiction over the bill, also complicating its chances of enactment.

In addition to clamping down on leaks of lucrative information, the bill would require members and employees of Congress to disclose any trade in a stock, bond or commodities future greater than $1,000 within 90 days. Political intelligence firms would have to disclose their clients to the House and Senate just as lobbying firms do.

At the press event, Slaughter said the explosion in political intelligence consultancies was proof that people were profiting from tips flowing from the government. She deplored the lack of transparency into the industry: “They operate in secret.”

Slaughter cited the incident of a Chicago-based building-materials company that saw its stock double overnight in the fall of 2005 after Wall Street investors learned that former Senate Majority Leader Bill Frist (R-Tenn.) was about to move ahead with an asbestos bill. Under the legislation, the company would have had received relief from litigation expenses related to asbestos. 

When it was introduced for the first time last year, the legislation created some buzz among political intelligence consultants in Washington. But many question whether it can be enacted without hurting the level of openness in government.

“In order to enforce [this law] you would have to officially make secret, and make confidential, all sorts of meetings and documents. That would require such a fundamental change in our government that I don’t think it’s going to work,” the head of Washington policy research at the Stanford Group, Anne Mathias, said.

The bill empowers the Securities and Exchange Commission to extend its prohibitions against insider trading to the legislative and executive branches. Baird said he suspected the agency had sufficient staff to carry out the enlarged role. “We could potentially expand it, but not by much,” he said.

Baird acknowledged that House rules already prohibit members from profiting personally from their positions. However, he said the current rules are too weak, in part because they don’t apply to staff or carry criminal sanctions.

“It’s like if I passed a law that said you should not speed,” he said. “I think there would still be speeding.”