By: Kirill Kan
The House of Representatives approved the Stop Trading on Congressional Knowledge (“STOCK”) Act on February 9, 2012, by a vote of 417 to 2. The bill stands to (1) prohibit Members and Employees of Congress from using “nonpublic information derived from the individual’s position as a Member or Employee of Congress . . . for personal benefit” and (2) require Members of Congress to publicly file and disclose financial transactions of securities within 30 days. The bill, marks a stripped down version of legislation approved in the Senate last week as the House version does not include a provision to impose new registration requirement on Washington’s “political intelligence industry” insiders (similar to lobbyist) who collect “political intelligence” from lawmakers and sell it to Wall Street. The differences in the House and Senate version will need to be reconciled by a conference committee prior to being sent to President Obama for a signature. This signature is all but sure to be granted based on President Obama’s State of the Union calling on members of Congress to send him “a bill that bans insider trading by members of Congress; I will sign it tomorrow.”
Lawmakers like all other citizens are subject to federal securities laws such as insider trading laws. Insider trading is the broad term referring to transactions in a company’s securities by corporate insiders (e.g. executives, directors, employees) or their associates based on information originating within the firm that would, once publicly disclosed, affect the prices of such securities. Current insider trading laws, however, do not apply to nonpublic information about upcoming congressional activity. Although members of Congress are subject to the US House of Representative Ethics Manual and Senate Ethics Manual, respectively, which broadly prohibit members, officers or employees from deriving financial benefit, directly or indirectly, from the use of their official positions, no actions have ever been taken pursuant to such ethics provisions.
In the wake of heightened SEC enforcement, increased sensitivity to financial regulatory transgressions, and the general economic climate the American public will benefit from the final approval of the STOCK Act, no matter what form it’s in. As stated by House Majority Leader Eric Cantor “[t]he American people need to be able to trust that officials at all levels of the federal government are living under the same rules they are and aren’t using their position for profit in any way.”