By Mike Lillis and Russell Berman - 12/02/11 02:00 AM EST
A non-issue just a month ago, legislation to combat insider stock trading by members of Congress is on a fast track in both chambers.
The Stock Act has quickly gained momentum following a “60 Minutes” report last month that raised questions about trading practices by several top lawmakers, including House Speaker John Boehner (R-Ohio), House Minority Leader Nancy Pelosi (D-Calif.) and House Financial Services Committee Chairman Spencer Bachus (R-Ala.).
Yet they’ve also adopted a newfound interest in ensuring that members are barred from such conduct. Bachus has called a hearing on the issue for next week — a move Boehner endorsed Thursday — and Pelosi said she supports a House version of the bill.
“I do think that this will have a momentum and, yes, I would like to see it come to the floor,” Pelosi said during her weekly press briefing in the Capitol.
“I would hope that it’s not as necessary as the whoop-dee-doo over it makes it seem,” she added, referring to the “60 Minutes” report. “But I do think we all disclose what we do, and that’s really important, and that everything we do is a matter of record — is in the public domain — so it’s not so insider.”
The issue hasn’t been overlooked by the Senate, where Sens. Joe Lieberman (I-Conn.) and Susan Collins (R-Maine), the leaders of the Governmental Affairs Committee, held a hearing Thursday to examine several upper-chamber proposals designed to prevent lawmakers from trading on information gleaned in the halls of Congress.
“At a time when the American people’s trust in Congress is close to an all-time low, it is more important than ever that members of Congress affirm that we live by the same rules as everyone else,” said Sen. Scott Brown (R-Mass.), a sponsor of one of the Senate bills.
“Simply put, members of Congress should be held to the same standard as the general public and should not be able to profit based on non-public information,” said Brown, who is up for reelection in 2012.
Lieberman has scheduled a markup for Dec. 14 on insider trading legislation that has yet to be finalized.
Meanwhile, House lawmakers are racing to endorse the lower-chamber bill, sponsored by Rep. Louise Slaughter (N.Y.), the senior Democrat on the Rules Committee.
Before the “60 Minutes” segment ran, there were nine co-sponsors on the House bill, including just one Republican: Rep. Walter Jones (N.C.). Since the program aired on Nov. 13, the number has skyrocketed to 133, including 37 Republicans.
The supporters are lining up so quickly that Slaughter’s office compared the tally to a stock ticker.
Current law prevents insider trading on non-public information received through corporate channels, but the law is much less clear when it comes to whether the Securities and Exchange Commission (SEC) has similar powers to regulate trades made on non-public information obtained through government activities.
Stock Act supporters argue that that lack of clarity has prevented federal regulators from going after lawmakers who might have profited from insider information — a notion backed by several legal experts who testified Thursday in the Senate.
“There are clearly enough ambiguities in this field that you need legislative action,” said John Coffee of Columbia University Law School.
Several reports on the topic suggest that, consciously or not, federal lawmakers use their positions to reap better Wall Street returns than other investors. A 2004 study conducted by researchers at Georgia State University, for instance, found that trades made by selected senators between 1993 and 1998 produced returns more than 12 percent higher than the rest of the market.
“These results,” the researchers concluded, “suggest that senators knew appropriate times to both buy and sell their common stocks.”
More recently, researchers from four universities found that 300 House lawmakers trading 16,000 times between 1985 and 2001 outperformed the market by roughly 6 percent each year — something the researchers deemed “significant positive abnormal returns.”
Slaughter’s proposal — which forms the basis for the Senate bills — would bar lawmakers and their staffs from using insider knowledge gleaned from their everyday duties on Capitol Hill to trade in stocks, bonds and commodities markets. The legislation would also prohibit the transfer of such information to other parties, such as spouses or other relatives, who then use the information for trading purposes.
Bachus spokesman Jeff Emerson said the Alabama Republican hasn’t weighed in on the Slaughter proposal, but has called next week’s hearing to examine “what the status of the law is at it pertains to members of Congress.”
Boehner on Thursday echoed that message, saying it remains unclear if Congress needs to intervene.
The Speaker noted that the House Ethics Committee has already taken steps to ensure that lawmakers aren’t profiting from insider information.
“The Ethics Committee, this week, outlined for the members that the use of private information for their own financial benefit is against the rules of the House and outlined pretty clearly what those rules are,” Boehner said. “In addition to that, I think the SEC also has pretty clear rules.”
“The hearings are a step in the right direction to determine whether there’s a need for such a bill to move,” Boehner said Thursday. “We’ll let those hearings proceed.”
Watchdog groups, long wary of the efficacy of the Ethics panels to police their own, said legislation will have much sharper teeth.
“People have very little confidence in the Ethics committees in the House and Senate,” Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington, told Senate lawmakers Thursday. “They’ve done a pretty lousy job over the past few years.”
House Majority Leader Eric Cantor (R-Va.) has also called for more disclosure in the wake of the “60 Minutes” report.
“If there’s any sense of impropriety or any appearance of that, we should take extra steps to make sure that the public’s cynicism is addressed,” Cantor said last month.
Pelosi is optimistic that Congress will move quickly on the legislation.
“I’m sure they’ll come up with something that removes all doubt that this is something that is acceptable within the Congress,” Pelosi said. “And when they do, to me it seems like it would fly through.”