Yes, it seems amazing on its face. Under current laws (or lack thereof), members of Congress and high-powered executive branch appointees can exploit “insider” knowledge of the financial industry to turn personal profit.
Basically, had Martha Stewart been a member of Congress, she wouldn’t have been sent to the slammer for five months and ordered to wear an ankle bracelet for another five for convictions related to insider trading .
If this all sounds a little hard to believe, you’re not the only one. The St. Petersburg Times (Fla.) didn’t believe it either, so the newspaper set about investigating our assertion that the potential exists for lawmakers to legally engage in insider trading, and that the situation must be addressed. Its conclusion? “Public Citizen Gets It Right About Insider Trading Rules.”
We hadn’t heard the allegation that members of Congress had a leg up for insider trading and wondered if it’s true.
Thomas Newkirk, a partner with the law firm Jenner and Block, told us that indeed there’s some uncertainty about how insider trading rules impact members of Congress and their staff. … Unless lawmakers have some express confidentiality agreement — whether it’s in writing or in word — they can do whatever they want with the information they obtain on Capitol Hill, Newkirk said.
Bruce Carton, a former Senior Counsel with the SEC’s enforcement division and current editor of Securities Docket, agreed there is uncertainty about the rules. “Insider trading depends on some kind of duty. You can steal information, but unless you have some sort of duty of confidentiality to it, you’re not going to be held liable,” Carton said.
Right now, there is no duty of confidentiality for Congress, their staff or executive branch employees, he said. “It may be unethical, and it may be unseemly, but it’s not illegal,” Carton said.
There is reason to believe that abuses may be occurring. A 2004 study found that investment returns for senators were 25 percent higher than for average investors. And the most recent financial disclosure statements for members of Congress show an alarming trend of members investing in businesses and industries directly affected by Congress.
As our own Craig Holman said, “Whether members of Congress are in fact cashing in on insider information, or coincidence just makes it appear so, the damage to the integrity of the federal government is the same.”
If this doesn’t seem right to you, take action by sending a message to your representative asking them to support H.R. 682. The bill, the “Stop Trading on Congressional Knowledge Act”, would ensure that the same insider trading restrictions we face apply to members of Congress and staff as well as the federal government. Let’s prevent government officials from making some big bucks at our expense.
flickr photo by Perpetualtourist2000