STOCK Act

When discussing government corruption, what immediately popped into my head was the recent successful attempt (passed in the House a couple weeks ago) at passing the Stop Trading Of Congressional Knowledge Act, or STOCK Act. For those unfamiliar with STOCK, if passed and put into law, it would prohibit all federal employees—Members of Congress, their aids, etc.—from using "any nonpublic information derived from the individual's position as a Member of Congress or employee of Congress, or gained from performance of the individual's duties, for personal benefit." It would also require every Member of Congress to publicly file and disclose any financial transaction of stocks, bonds, commodities futures, and other securities within 30 days on their websites.

According to the US House of Representatives Ethics Manual, members should "never use any information coming to [them] confidentially in the performance of governmental duties as a means for making private profit." While the Senate Ethics Manual states that its Conflict of Interest Rule 37(1) provides for "a broad prohibition against members, officers, or employees deriving financial benefit, directly or indirectly, from the use of their official position[s]." Yet no arrests or prosecutions have ever been made against members of Congress for insider trading based on nonpublic Congressional knowledge.

Nonetheless, there are still loopholes in STOCK. Essentially, one can still trade using nonpublic information, as long as that information is used—lawfully? That is, if like in the case of David Einhorn, CEO of Punch, someone with that private knowledge didn't sign a Non-Disclosure Agreement for whatever reason, then that person would still be within their legal rights to act on that knowledge. And in that case, it would be the company that gets in trouble for violating Regulation FD and not the recipient of the information. So, since Einhorn didn’t sign an NDA, he had no legal obligation to keep his mouth shut or his money out, and this loophole is still valid for both Congress Members and Non-Members alike. Even so, STOCK still appears to be a step in the right direction. However, the House and the Senate have passed different versions of the act, and so that needs to be resolved before the President can sign off on it himself and put it into law.

(Note: this isn't the first time STOCK has been introduced. It was proposed in 2006, and again in 2007 and 2009, and in each case promptly died in committee.)

So, while this is just a step down a long path, it's an important one. . .

Here's the whole passage from the STOCK Act that I quoted in part above:

S 2038 (Sec. 2) Amends the Congressional Accountability Act of 1995 to prohibit Members of Congress and congressional employees from using any nonpublic information derived from their positions as Members or congressional employees, or gained from performance of the individual's duties, for personal benefit. Directs the congressional ethics committees to issue rules or regulations to carry out the purposes of this prohibition. Declares that such Members and employees are not exempt from the insider trading prohibitions of the Securities Exchange Act of 1934 and Rule 10b-5. Subjects violators of these prohibitions to appropriate punitive, disciplinary, and other remedial actions.

And here is an awesome interview with the author of the STOCK Act, Representative Louise Slaughter, and The Daily Show's Jon Stewart.