March, 18 2011, 01:48pm EDT
Reform Groups Urge Congress to Prohibit 'Congressional Insider Trading'
Reps. Walz and Slaughter Introduce ‘Stop Trading on Congressional Knowledge Act’
WASHINGTON
Five reform groups sent a letter today urging Congress to adopt the "Stop Trading on Congressional Knowledge Act." The measure, sponsored by Reps. Timothy Walz (D-Minn.) and Louise Slaughter (D-N.Y.), would prohibit members of Congress and congressional staff from using non-public information for insider trading in the stock markets.
The organizations that sent the letter are Citizens for Responsibility and Ethics in Washington, Common Cause, Democracy 21, Public Citizen and U.S. PIRG.
The groups expressed surprise that congressional insider trading is not already illegal. Insider trading may be illegal for the public but it is not for congressional officials. As the letter observes:
"The Securities and Exchange Commission (SEC) does not have the authority to hold employees of Congress liable for using non-public information gained from official proceedings for insider trading. Under current law, 'insider trading' is defined as the buying or selling of securities or commodities based on non-public information in violation of confidentiality - either to the issuing company or the source of information. Congressional officials and employees do not owe a duty of confidentiality to these companies and thus are not liable for insider trading."
There is also growing concern that a lucrative for-profit industry has emerged in which lobbyists and "political intelligence consultants" cultivate staff connections to obtain information that can be used to take advantage of the markets.
Consequently, the groups applauded the legislation for prohibiting private individuals and firms who attempt to mine such information from using it for insider trading. It would require that such "political intelligence consultants" register and disclose their financial activity under the Lobbying Disclosure Act and expand disclosure requirements of stock investments by public officials.
The STOCK Act also would enable the public and enforcement authorities to monitor more closely whether lobbyists and other political intelligence consultants are attempting to cash in on knowledge gained from congressional officials or their staff. The legislation would require for the first time that individuals and firms that make it their business to extract non-public information from officials or employees of Congress for the purpose of analyzing securities markets or guiding investment decisions must register under the Lobbying Disclosure Act (LDA). They would have to disclose to the public their clients, income and expenditures and activity that affect government policy. Similarly, members of Congress and their staffers would be required to report stock transactions of $1,000 or more within 90 days after the transaction.
"This measure provides a balanced application of the laws against insider trading to both the private and public sectors and offers the important tool of disclosure for ensuring compliance with the law," the letter says. "The STOCK Act should be adopted by Congress before new scandals arise."
Public Citizen is a nonprofit consumer advocacy organization that champions the public interest in the halls of power. We defend democracy, resist corporate power and work to ensure that government works for the people - not for big corporations. Founded in 1971, we now have 500,000 members and supporters throughout the country.
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