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Tuesday, October 12, 2010

Congress is immune from insider trading rules! Lawmaker Vows to Outlaw Insider Trading on Capitol Hill

Congress is immune from insider trading rules
Lawmakers said there was no followup hearing
on the issue planned for the near future

By Tom McGinty and Brody Mullins
The Wall Street Journal

A congressman vowed to renew his efforts to outlaw insider trading by Capitol Hill members and their staffs, following a Wall Street Journal investigation showing that congressional aides traded in companies overseen by their bosses.

Rep. Brian Baird (D., Wash.) and a handful of other lawmakers including Rep. Louise Slaughter (D., N.Y.) have for years supported legislation that would explicitly make it illegal for members and their aides to trade stocks and other securities based on non-public information gleaned from the legislative process. Mr. Baird, however, retires at the end of this year.

When the bill—the Stop Trading on Congressional Knowledge Act, or Stock Act—was introduced nearly five years ago, just 14 other lawmakers endorsed it.

A current version of the bill has fared worse, with support from just nine lawmakers. There is no companion legislation in the Senate.

"Members of Congress and their staffs have access to information worth millions of dollars if used for personal gain," Mr. Baird said in an interview on Monday. "The public expects us to adhere to at least as high a standard as we impose on other people, and we don't in this case."

In a page-one story Monday based on an examination of more than 3,000 financial disclosure forms of congressional aides, the Journal reported that hundreds of aides traded stocks during 2008 and 2009. At least 72 of them traded the shares of companies overseen by their bosses' committees.

The aides said they didn't profit by making trades based on any information gathered in the halls of Congress.

Congress is immune from insider-trading laws; federal regulators have never brought an insider-trading case against either congressional members of their staffs. Unlike many executive branch employees, lawmakers and aides don't have restrictions on their stock holdings and ownership interests in companies they oversee.

About 1,700 of the highest-paid congressional aides must disclose information once a year on their finances, such as their assets, debts, spouses' employment and other sources of income, including capital gains from trading securities.

Rather than passing legislation, Mr. Baird said he has come to believe in recent months Congress should simply amend its official ethics guidelines and rules. The next House majority, for example, could easily add the new rules as part of the process of convening the new Congress in 2011, he said.

Mr. Baird also said the new rules should require disclosures of all trades within 48 hours, as the Stock Act states, instead of a year afterward, as current rules require. He said any improper trading would then be more easily detected, because observers would be attuned to congressional activities at the time their trades were made.

Mr. Baird said he trained his staff members to avoid profiting from non-public information, but said the majority of the members of Congress and their aides don't receive similar training.

Some legislators remain undecided about supporting the legislation. That includes House Speaker Nancy Pelosi of California. The Journal reported Monday that a top aide to Ms. Pelosi profited by the trading of shares of Freddie Mac and Fannie Mae in a brokerage account with her husband two days before the government authorized emergency funding for the companies.

The aide said she had no knowledge of the trades when they were made, and the husband said he bought the stock after reading a news article.

The House Financial Services Committee has "already begun to examine ways of preventing any unfair trading by government officials in both the executive and legislative branches," said Drew Hammill, a spokesman for Ms. Pelosi. "This includes assessing the implications for the constitutional protections of speech or debate."

Mr. Hammill was referring to a July 2009 hearing at a House subcommittee. "Should government officials trade on information that they have access to that the general public does not?," asked Rep. Dennis Moore (D., Kan.), who chaired the hearing of the House Financial Services subcommittee on oversight and investigations. "If not, what additional rules, regulations or laws are required to address this concern?"

Lawmakers said there was no followup hearing on the issue planned for the near future.

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