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Congressional Insider Trading: Where Things Stand Now

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President Obama calls the STOCK Act "a good first step."

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Suddenly, according to Holman, Congress "fell over itself" in getting the STOCK Act passed.

In an email, he explained what happened next:

The Senate picked up the STOCK Act first for a floor vote, and much to my surprise several senators added strengthening provisions. Sen. Grassley added the political intelligence component, which would require private investors who roam the halls of Congress for insider information to register under LDA (Lobbying Disclosure Act) as "political intelligence" operatives and disclose their clients. This would enable us to enforce the insider trading laws against these operatives. Sen. Cornyn added an anti-corruption enforcement provision, which would clarify to the courts that government corruption can consist of just honest services fraud and does not need to proof of quid pro quo. So the Senate strengthened the STOCK Act.


However, there were problems. After the Senate voted 96-3 in favor, the STOCK Act found itself on life support.

Here's Holman again:

I was then pushing for the stronger version to be accepted by the House as well. It was heading that way, as even Baucus signed off on the strong measure and sent it to the House floor. As you can imagine, Wall Street hit the chamber with a lobbying campaign to delete the stronger provisions, and Eric Cantor complied, pulling the bill from the floor.


Holman then sent a letter to Congress, which read:

Public Citizen is writing out of deep concern that the delaying tactics by the House Republican leadership, under the direction of House Majority Leader Eric Cantor (R-Va.), are intended to weaken the original legislation. Stalling is providing lobbyists and others with precious time to deflate the scope and nature of the STOCK Act.


Holman tells me that he then "went back to Sen. Reid in an effort to get him to propose a slightly revised stronger measure for conference, where I believed we would prevail. Reid decided he did not want to fight any further on the STOCK Act and so accepted Cantor's version, which is now law."

In a statement released in February, Holman wrote: "What a sorry -- but telling – display."

So where do things stand now?

According to a White House fact sheet, the STOCK Act "expressly affirms that Members of Congress and staff are not exempt from the insider trading prohibitions of federal securities laws" and "makes clear that Members and staff owe a duty to the citizens of the United States not to misappropriate nonpublic information to make a profit."

It also "requires that Members of Congress and government employees report certain investment transactions within 45 days after a trade," and adds six additional ethics requirements Members and staff must follow.

Holman says the STOCK Act is "now moving into the implementation stage," and explains the logistics:

In order to monitor compliance to the law, Congress and the Office of Government Ethics (OGE) for the executive branch, must set up systems of on-line disclosures of trading activity and personal financial reports. Congress is well on its way to doing so, making use of the LDA system of electronic filing and disclosure that we mandated in HLOGA in 2007.

OGE must build its electronic filing and disclosure system largely from scratch, which it is on its way to doing. I joined several transparency groups and met with the director and senior staff of OGE yesterday, and was pleasantly surprised to learn that the agency has been consulting with their congressional colleagues about how to set up such a system. OGE has 18 months since signing of the Act to comply and develop a centralized on-line reporting system. In the meantime, each individual executive branch agency is supposed to set up their own web-based disclosures for their employees by August 31. I can already tell that most agencies are pursuing this mandate haphazardly, if at all. I am not expecting much on August 31. But the most important task is to get OGE's centralized system set up next year.


Will it work? It's anyone's guess. President Obama calls the STOCK Act "a good first step." Holman says that, while the Cantor measures are weaker than he would have liked, they are "still good measures" and "the most significant ethics achievement of the 112th Congress."

As for why it took the better part of a decade and an expose by the most influential news program in the western world to explicitly prohibit insider trading by our elected officials?

Pointed out Melanie Sloan, executive director of the Center for Responsibility and Ethics in Washington and a former federal prosecutor, "There's rarely support for things that limit lawmakers' behavior."
No positions in stocks mentioned.
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