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Project on Government Oversight




Insider Trading in the Halls of Congress?

October 28, 2010 


Earlier this month, the Wall Street Journal reported that 72 congressional aides had recently traded shares of stock in companies that their bosses help oversee.

A few examples cited in the piece:

  • The top energy-policy adviser to Senate Majority Leader Harry Reid (D-NV) purchased stock in a renewable-energy firm, which, according to the WSJ, stood to benefit from tax credits supported by Senator Reid.

  • The chief of staff of Rep. Shelley Moore Capito (R-WV), a member of the House Financial Services Committee, "invested $1,570 in Citigroup Inc. on Feb. 27, 2009, the day Citi and the Treasury announced the bank would issue common stock in exchange for preferred shares," a move that "helped bolster investor confidence," according to the WSJ.

  • An aide for House Speak Nancy Pelosi (D-CA) "had several successful trades in 2008 in a Charles Schwab brokerage account with her husband," who purchased "about $2,000 worth of Freddie Mac and $2,700 worth of Fannie Mae on July 11, 2008, just two days before the Fed authorized emergency funding to Freddie and Fannie."

Most staffers mentioned in the piece denied that they had done anything improper. Chris Miller, the Reid staffer noted above, told the WSJ that it had "cherry-picked information and woven a misleading narrative," explaining his investment this way:

It's pretty straightforward: I bought on a dip and sold on spikes, none of which had anything to do with my job.

It wasn't just congressional staffers who rejected the implication that something more sinister was afoot. Reuters columnist Felix Salmon, for example, called the analysis a "non-story," attributing WSJ's findings more or less to chance. WSJ was just as likely, Salmon argues, to find such well-timed trades in an analysis of any 3,000 investors.

To POGO, the key issue isn't whether or not some staffers simply got lucky—it is that even the appearance of impropriety threatens the integrity of public officials and public confidence in government.  Astonishingly, insider trading laws do not specifically apply to Members of Congress, congressional aides, or other federal employees, and there is significant ambiguity as to whether or not the examples noted in the WSJ story would qualify as a violation of the insider trading law.

Fortunately, some Members of Congress are offering legislation to clear up any confusion and specifically bar federal employees—including Members of Congress and their staff—from cashing in on information they receive as they serve the American people. Representatives Brian Baird (D-WA), Louise Slaughter (D-NY), and Timothy Walz (D-MN) originally introduced the Stop Trading on Congressional Knowledge Act, or STOCK Act (H.R. 682), in March 2009. Unfortunately, since then, they have only been joined by six other cosponsors.

Hopefully the WSJ analysis can breathe new life into the outrage over the insider-trading temptation for our public servants and support for the STOCK Act—a bill that has POGO's support. As Professor Stephen Bainbridge concludes in a paper published in July, insider trading on the Hill could seriously undermine the legislative process:

Insider trading by corporate insiders has been banned for over 4 decades. Throughout that period, we have known that insider trading by Members of Congress was a potential problem that arguably presented even more serious policy concerns than trading by classic insiders. Congressional insider trading creates perverse legislative incentives and opens the door to serious corruption. Yet, both Congress and the SEC have turned a blind eye.

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO's investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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