It Isn’t Insider Trading When Your Senator Does It: Ann Woolner
Your senator learns that a much- maligned weapons system now has enough votes for funding. Before the news gets to a reporter, he buys shares in the arms manufacturer for a quick, handsome profit.
What’s wrong with this picture? Nothing, according to the law. Nor would it be illegal for him to tip someone else, say, his largest campaign contributor.
Laws that criminalize insider trading cover corporate insiders and those they tip, but not specifically Congress. And while scholars differ on whether existing law could be applied on Capitol Hill, it hasn’t been.
It’s a gap in the law that two members of Congress have been trying for years to plug, to no avail. Congress is famous for telling others what they can and can’t do. When it comes to proscribing its own conduct, it’s a different story.
This week the Wall Street Journal reported that during the past two calendar years, 72 congressional aides from both parties made trades in companies that their bosses’ help oversee. Among them are top advisers to Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi. Their timely investments proved profitable, but the staffers deny the trades sprung from inside knowledge, the Journal reported.
Either way, suspiciously timed trading on Capitol Hill isn’t new.
Companies stuck in asbestos litigation suddenly saw inexplicably heavy trading and a rise in share price on Nov. 15, 2005. The next day, then-Senate Majority Leader Bill Frist announced a breakthrough on a bill to create a government-backed fund to settle asbestos cases. It turned out that political intelligence firms benefitted from a leak in Frist’s office, Business Week reported the following month.
Capitol Day Trader
Then there was a staffer who day traded from his desk on Capitol Hill. As a top aide to then-House Republican Leader Tom DeLay, Tony Rudy made some 500 trades on his House computer in 1999 and 2000, and profitably so, the Wall Street Journal and Washington Post reported.
He got into trouble with the law but not for that. Rudy pleaded guilty in 2006 to a corruption conspiracy, not insider trading.
U.S. senators, representatives and congressional staffers routinely attend high level, closed briefings or engage in conversations where secrets are disclosed that might send shares climbing or slumping if widely known.
That access lets them buy low and sell high based on material, non-public information, and they can do it without concern that their remarkable prescience will alert federal investigators of possible wrong doing.
“This is an area in which the public is quite justifiably suspicious about dual standards,” says Representative Brian Baird, a Democrat from Washington state.
Along with New York Democrat Louise Slaughter, Baird has been trying to apply insider trading law to Congress through the Stop Trading on Congressional Knowledge bill.
Until 1995, Congress exempted itself from labor, civil rights and safety laws. But with the Congressional Accountability Act that year, members finally applied to themselves many of the same statutes they enacted for other employers. The hypocrisy of punishing others for doing that which they could do with impunity finally caught up with them.
More or less. They still cut themselves more breaks in the law than private employers have. But at least congressional employees have some protection against job bias, sexual harassment, unfair labor practices and hazardous work space, whereas they used to have none.
But when it comes to forbidding members of Congress from using access to secrets for financial enrichment, Slaughter and Baird have gotten nowhere on their bill. Now Baird’s retiring.
He says Congress could solve the problem without a new law or a repeal of an old one.
“It’s not that we have laws protecting us,” Baird says. “We don’t have laws applying it to us.”
All it would take is a change in ethics rules, which now generally forbid conflicts of interest and using official influence for personal gain.
When Congress opens its next session in January, the majority party in each chamber could amend the rules to make it explicitly clear that members and their staff can’t trade on secrets that their jobs make available to them or give others that information.
What Companies Do
Baird says members and their aides should be made to do what employees at every major corporation in America must do when they take the job. They read the employer’s rules that specifically forbid trading on non-public information or tipping others. They are warned against conflicts of interest. They get training on it, and they must confirm in writing that they have read the rules and agree to be bound by them.
“Absent that, and given that members of Congress are not corporate insiders,” Baird says, “there is not a clear cut basis for prosecuting insider trading” on Capitol Hill.
With that, and by requiring ongoing instead of annual disclosure of trades, investigators and prosecutors would have the tools they need, Baird says.
Congress should be ashamed of itself for not passing a law forbidding conduct that is criminal if anyone else does it. Why not assure voters that the people they put in Congress aren’t putting their portfolios ahead of solid public policy?
The idea of using an ethics rule to get around congressional hypocrisy should embarrass each senator and representative unwilling to do the job with a straight-up statute.
But if that’s what it takes to get it done, so be it.
Just get it done.
(Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.)
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