“Insider trading”… buying or selling securities based on knowledge that hasn’t been publicly disclosed is a felony. It’s prohibition is one of the basics of securities regulation and law. Imagine if you knew for a fact that a company’s earnings report was going to be better than expected- you could buy the stock before earnings were reported, and make a pile of cash after the good news was announced. You would also be cheating the rest of the public to whom the information had not been disclosed.
Lots of you know my background on Wall Street; 2 decades as an investment portfolio manager. The Securities and Exchange Commission (SEC) required us to disclose EVERY securities trade we made on our own behalf, to ensure we were not violating any securities regulations- especially “insider trading.” These regulations are very strictly enforced… and the SEC was, and is, vigilant in prosecuting violators. Just ask Martha Stewart.
One special group, however, gets to skirt these regulations. I was outraged to find that a dangerous legal loophole exists; one which allows members of Congress and high-powered executive-branch appointees to exploit “insider” knowledge of publicly traded companies, in order to make personal profits.
Under current law, Congress and staff who have access to the privileged “non-public information” gathered through official oversight proceedings, are NOT prohibited from using that information for personal benefit in securities and commodities trading. The SEC does not have the authority to hold employees of Congress, or the Executive Branch, liable for using insider information gained from official proceedings for insider trading. Equally as abhorrent: there are lobbyists and traders who haunt the halls of Congress seeking insider tips from staff, and are known as “political intelligence consultants.” They may also enrich themselves and their clients using this confidential information.
“Insider trading” is HIGHLY illegal for you, me and every other person who trades in the securities markets. Why is it legal for government officials?
Currently, government officials do not have a duty of confidentiality to Congress, and therefore are not liable for insider trading. Because of this, Members and government employees can use government information which only THEY have access to when making investment decisions.
A 2004 report from Georgia State University showed that United States Senators received annual investment returns that were approximately 25% higher than what typical Americans were able to achieve. No shock to me… being able to trade with inside knowledge would be a virtually risk-less way to bag HUGE profits…if it weren’t illegal. Similarly, there is currently nothing to stop Congressional staffers and executive branch employees from sharing inside information with their friends. Armed with information not available to the general public, these people are able to make lucrative investment decisions that can either make them a windfall profit, or save them from a devastating loss.
“Political intelligence” firms have created a multi-million dollar industry to traffic this information. Since they first showed up in the 1970s, these firms have operated in secret, and largely without government controls. They provide investors with inside information about impending legislative action that can be used to inform investment decisions. One recent questionable example of these firms’ influence appeared in late 2005:
On November 15, 2005, the stock of a building materials company in Chicago, USG Corp, suddenly doubled, despite the fact that there was no publicly available news about the company, or it’s industry, which would explain the increase in volume and stock price. What the public didn’t know yet, but what some investors discovered through back channels and political intelligence companies, was that then-Senate Majority Leader Bill Frist had quietly decided to move forward with legislation to relieve companies, such as USG Corp, of their liabilities in asbestos related lawsuits.
Treasury Secretary Geithner is now pushing for a HUGE expansion of governmental control over ALL types of companies. Do you think the government might run across any non-public info while policing them? Hell yes, they will.
Currently languishing before Barney Frank’s Banking and Finance committee is H.R. 682, the “Stop Trading On Congressional Knowledge Act.” It was introduced by 3 Democrats: Mr. Baird, Ms. Slaughter and Mr. Walz. It is short, very straightforward, and seeks to prohibit “insider trading” practices by government officials and their cronies.
I may not line up with these Representatives on some other matters, but I absolutely applaud this proposed legislation. It was attempted by Rep. Baird once before, only to die in committee. I have contacted the three sponsors of H.R. 682, and I look forward to reporting what I learn from them.
This kind of prohibition and transparency is right in line with Obama’s campaign promises, should he decide to keep one. It’s truly a bi-partisan issue. It’s patently unfair and downright dirty for Congress to be allowed to line their pockets doing something that would land the rest of us in PRISON.
This issue and this bill have had virtually ZERO attention from the press. When I discovered it while doing other research, I kept telling myself that surely there was something I was missing- that Congress COULDN’T be exempt from such basic, fundamental securities laws. Well, I wasn’t missing anything, and I’m furious about it. I hope you are too.
Contact your Representatives and demand that they vigorously support H.R. 682. Whether Democrat or Republican, these hypocrites are playing us for fools. This should be a pitchfork moment.
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