Members of Congress could be one step closer this week to losing one of their most profitable perks, thanks to the STOCK Act (Stop Trading on Congressional Knowledge Act).
The Senate will hold a procedural vote today (Monday) on a bill that prohibits Congress members from using nonpublic information to make stock transactions - known as "insider trading" when conducted by corporate insiders. Today's vote could put a time limit on passing the bill, which the Senate will continue debating this week.
Congress has faced increasing backlash lately for its growing list of financial advantages over the Americans it represents. A CBS News' "60 Minutes" program in November 2011 exposed Congress insider trading - elected representatives trading stocks related to hot topics being debated in Congress before information had been disclosed to the public.
The show's segment fueled a resurgence of STOCK Act support in Washington. Prior to the televised report, the bill only had four supporters in Congress. That number has grown to 230.
The act also would make illegal Congress tipping off hedge fund managers to information that could affect stocks, and would require detailed disclosure of members' stock transactions within 30 days. Anyone who violated the insider trading ban would be subject to an investigation by U.S. regulatory agencies and the Justice Department. House and Senate ethics committees could also develop penalties and rules regarding insider trading.
Through a radio address to the nation, President Barack Obama this weekend urged Congress to deliver on the matter.
"The House and Senate should send me a bill that bans insider trading by members of Congress, and I will sign it immediately. They should limit any elected official from owning stocks in industries they impact," said President Obama.
STOCK Act a Congressional Must-Have
Peter Schweizer, a fellow at Stanford University's conservative think tank, the Hoover Institution, told "60 Minutes" correspondent Steve Kroft about the deep-rooted issue of Congress insider trading.
"This is a venture opportunity," said Schweizer. "This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends, and your family."
Schweizer pointed specifically to Rep. Spencer Bachus, R-AL, who traded financial stocks after sitting in on a closed-door hearing about an impending economic meltdown; Rep. John Boehner, R-OH, who profited from healthcare stocks while Congress voted on regulations affecting the industry; and Rep. Nancy Pelosi, D-CA, who bought Visa Inc. (NYSE: V) stock while related legislation was debated in the House.
Another Washington transgression was revealed shortly after the insider trading news broke last year.
Turns out Washington insiders have been tipping off Wall Street as to the likely outcomes of legislation being debated in Congress.
For example, New York-based broker-dealer JNK Securities Corp. arranges about 12 meetings a month between legislators and hedge fund managers, according to The Wall Street Journal. If the information discussed turns into a useful stock tip, the hedge fund must execute the trade with JNK so it can earn a commission. But as questionable as it all sounds, no one is breaking any laws.
It boils down to "buying information from members of Congress in a perfectly legal way," Richard Painter, a former ethics lawyer for President George W. Bush and currently a law professor at the University of Minnesota, told The Journal.
The Senate plans to start STOCK Act debates at 4:30 p.m. Monday in Washington.
News and Related Story Links:
- Money Morning:
It's Not Just Congress - the System Has Failed
- Money Morning:
Your Vote Will Help Us Put the Squeeze on Congress
- CBS News "60 Minutes":
- The Associated Press:
Congress tries to police itself on insider trading
- The Wall Street Journal:
Inside Capitol, Investor Access Yields Rich Tips