President Obama signed into law the STOCK Act today, banning “insider trading” by members of Congress. It is, however, a somewhat watered-down version of the orginal law.
February 9, 2012:
The House passed their version of the bill today by a 417-2 margin. Now comes the task of reconciling the Senate and House versions.
February 2, 2012: Update: Senate Passes Legislation to Prohibit “Insider Trading” By Members of Congress
The Senate has passed the bill by a 96-3 vote (I’d be interested in hearing those three senators’ reason’s for opposing it), and it now goes to the House of Representatives.
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November 15, 2011:
Okay, we have the wrong headline here: For most of us, the real story is It’s Legal For Members of Congress to Profit From Insider Trading.
The current logic is, since members of Congress aren’t required to keep certain information (such as the fact that Corporation A is likely to get a large government contract) secret, there’s no legal or ethical problem with quickly buying up a thousand shares of Corporation A or selling your shares of Corporation B — even if this isn’t knowledge to which the general public really has access to.
to prohibit this has been introduced in the past, but STOCK (the Stop Trading on Congressional Knowledge (STOCK) Act of 2011), introduced by Massachusetts Republican Senator Scott Brown and New York Democrat Kirsten Gillibrand, actually has a chance of succeeding — in large part because of a recent 60 Minutes segment (see below) which discussed this insider trading as one of the reasons members of Congress tend to leave office a lot richer than when they went in.
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© 2012 by Bill Bickel unless otherwise noted.
Congress routinely exempts itself from legislation that applies to all other Americans. This is because Constitutionally, the Congress makes the laws but the President enforces them. The fear is, if they don’t, and a rift between Congress and the President occurs (or far more likely, a rift between certain members of Congress and the President), the President might use his enforcement power selectively to put pressure on Congress.
Presidents HAVE been known to attempt to selectively enforce laws against perceived enemies… example: the attempt to deport John Lennon for supporting the peace movement.
Except, James, this isn’t a case where lawmakers are exempted because they’re lawmakers… anyone privy to this information under the same circumstances (say, a chief of staff, or the President) could do the same thing.
You think a Congresscritter isn’t pressured if their chief of staff is in a room down at the Justice department reviewing records of their business dealings? The critters themselves have Congressional immunity (built into the Constitution.)
It’s possible that some small portion of the reason that Congress exempts itself from legislation is concerns about constitutional conflicts, but a much simpler, and more straightforward, explanation, is that they exempt themselves because they can, and it’s easier for them if they’re exempt. Many of the laws that they’ve exempted themselves from in the past are regulatory (e.g. the ADA), and don’t result in jail time, so aren’t likely to be a source of serious executive pressure and/or constitutional conflicts in realistic cases.
I’m not sure why you say that Congresscritters have Congressional immunity built into the Constitution. They have some very limited immunity built into the Constitution (they can’t be arrested while going to and from the Congress, and are exempt for anything said on the floor of Congress). But except for these fairly limited exceptions, there’s nothing in the Constitution that compels immunity from laws. Any exemptions that they give themselves from otherwise general laws, such as the ADA, is purely optional.
The immunity isn’t a total shield…. for example, it does not apply to cases of treason… but the purpose of the immunity is to prevent the executive’s enforcement power from being used to affect the legislative’s deliberative power. Immunity does NOT extend to aides.
Historically, this has been a touchy area, and from time to time Congress has attempted to encroach on executive authority by maintaining some control over enforcement and application of some laws. The courts are tolerant of this sort of thing ONLY when the function is purely a support agency of the Congress… such as the Library.
Again, not sure what immunity you’re talking about. The Constitution only gives very limited immunity to representatives. It gives immunity for prosecution for things said on the floor of Congress, and this logically includes immunity for activities that are part of the legislative process (and this immunity can cover aides). That’s it. It also protects them from being arrested when going to and from Congress, but that doesn’t give them immunity from prosecution, it just means that there’s a period of activity during which they can’t be arrested (and the set of things that they can be arrested for is much, much wider than treason). Outside that time period, they’re fair game for anything they do not on the floor of Congress. These are very limited immunities, and neither has any relevance to the case being discussed here, which is Congress exempting itself from general legislation. It’s true that it’s not a “total shield,” but only because it’s not a shield at all for the cases at hand. Congress exempting itself from general legislation isn’t a constitutional requirement in any way, shape, or form. It’s a purely elective decision by the Congress.
Also, insider trading IS illegal… but the definitions of “insider” and “trading” are tricky to pin down and various court cases have stretched the boundaries and opened some holes. The original definition of “insider” was basically “anyone who has inside information” which in turn is “any information not announced to the public that could affect the stock price”
The insider-trading law should apply to law-makers, but I’m for getting rid of the law itself. A part of business is getting an edge on the other guy, and knowledge is an edge. Any average Joe “playing” the stock-market should do so realizing there are those who know more than they do.
So, you’d let Bernie Madoff off? After all, all he did was enrich himself by trading on inside information (he knew it was a Ponzi scheme, and the public didn’t. The investors should have known there were people out there who knew more than they did…)
I don’t see the connection; Madoff wasn’t an investor. There’s a difference between buying and selling stock at the right time with knowledge of upcoming changes, and just saying you’re going to do so with another’s money.
Madoff was an investor in his own company. He was also an insider in his own company. He had inside information that was not known to other investors in his company. The information he had was certainly material to investors. He profited personally by his insider information, which you say is just fine. Yet there he sits, in prison. Poor guy. All we was doing was getting an “edge” on the other investors.
Someone with “Insider information” on Madoff would avoid giving money to him. But, “Playing the Stock Market” means you buy and sell stocks. You. You don’t hand your money over to someone else to invest for you. If you want to gamble, do you hand your money to someone and send them to Vegas? Maybe you do, but that’s not just playing, that’s playing the fool.
If you are a big enough investor, you get some say in how the company is run. If you’re the majority investor, you get total control over the way the company is run (and if you’re almost, but not quite, the sole stockholder, you can force others out.) But if you’re a small investor, you get no say at all in the way the company is run. How is that different from giving your money to someone else going to Las Vegas?
Eliminating insider-trading restrictions us a sure-fire way to increase the gap between the wealthy and the poor. I mean, who has the insider information? The wealthy usually. And as the wealthy use their information to screw over everyone else, any remaining wealth floats to the top via stock fixing, something more difficult to do when the people pulling the strings can’t trade.
What you propose is destroying the middle class. Those who can afford stock in the middle class will either make a ton if money and join the wealthy or lose everything they’ve invested. But oh well, some people just know more.
Either class warfare leads to revolution, or nobody wants to get involved in stock because why would you when the people you invest in could easily screw you over. To avoid that, nobody invests and the economy collapses because of it. (as I don’t think we could revert to pre stock market times.)
How do you see the scenario playing out? I assume different than I do as you think it would be a good idea?
On Google I read an article written by Indiana Law Professor Donna Nagy which says…..we do not need the Stock Act; it is more restrictive than the SEC Rule 10b-5, which was part of the 1934 Securities and Exchange Act and is the rule under which JUDGES try and convict people of insider trading.
Congress has never made a federal securities law which explicitly prohibits anyone from insider trading.
The reason insider trading by members of Congress is illegal is…Members of Congress owe fiduciary-like duties of trust and confidence to us citizen-investors, the federal government, other members of Congress and government employees outside of Congress. We rely on their loyalty and integrity. They engage in deception and are guilty of violating Rule 10b-5.
Who is going to prosecute?
Why would they even NEED to insider trade?!? They can just retire with a comfy golden parachute (taxpayer funded), go to K Street and clean up.
I think they should be euthanized after 2 terms.
Remember Newt Gingrich’s Contract With America (1994 or thereabouts)? One of its promises was to make all the laws apply to Congress as well.
Ten made; ten broken.
Funny you mentioned that, Mark: today, I heard Obama say, referring to the House Republican proposed budget, “It’s so radical, it makes the Contract With America seem like the New Deal.”
And then I heard most of the American voting public mumble “It’s like the what the WHAT???”
Thanks, Wallaby, for trying to get James to see reason. That “congressional immunity” argument is just a handful of straw.