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Insider Trading: Legal When it’s Inside the Beltway?

Congressman Brian Baird (D-WA)

Here’s a riddle for you: How can you make stock trades based on information that hasn’t been made public yet AND avoid jail time? Run for Congress.

That’s right, even though Congress has an unprecedented stake in America’s economy, being a majority shareholder in GM, exerting unprecedented control over the healthcare and energy industries, there are no ethics regulations preventing Congressmen or congressional aides from owning stock in the companies they are regulating

In fact, Chris Miller, the chief energy policy adviser to Senate Majority Leader Harry Reid, nearly doubled his $3,500 investment in a green-energy firm in 2008. It was a perfectly legal trade, even though he helped write legislation his boss guided through Congress that wound up benefiting the firm.

According to The Wall Street Journal, at least 72 congressional staffers from both parties made investments in companies their bosses helped regulate, according to more than 3,000 disclosure forms covering trading activity by Capitol Hill staffers for 2008 and 2009. Unsurprisingly, most of the questionable trades revolved around industries that received government handouts: a Republican member of the Senate Banking Committee bought Bank of America stock before last year’s stress test results were made public, and a top Nancy Pelosi aide profited by buying shares of Freddie Mac and Fannie Mae two days before the government announced its controversial bailout of the firms.

Not only are these trades perfectly legal, but the financial disclosure forms Congressmen and their 2,900 or so highest-paid aides must file annually are extremely vague at best. Staffers only have to submit a stock’s highest price on the day they purchased it and its lowest on the day they sold it, regardless of what they actually paid, and more than 15,000 Congressional staff have no disclosure requirements at all.

Worst of all, there are no financial disclosure requirements at all for the Executive Branch, which is disturbing because many of the policy “czars” within the Obama administration are responsible for crafting and recommending regulatory action.

However, some Congressional leaders have tried to solve this ethical quagmire with new legislation, dubbed the Stop Trading on Congressional Knowledge Act (STOCK Act), first introduced by Congressman Brian Baird (D-WA) in 2006.  The bill has since languished in committee for four years now, its original list of 15 sponsors dwindling to only nine this year.

Baird reemphasized the need for this legislation in a statement from last week, despite the fact he is retiring after he completes this term of office.

“Members of Congress and their staffs should follow the same rules and standards as people in the corporate world follow,” he said.  “The American people deserve to have congressional members and their staffers working for their constituents, not using inside information worth millions of dollars for their personal gain. Banning insider trading on Capitol Hill would go a long way towards making Congress more transparent.”

At the very least, shouldn’t the House amend its ethics rules to prevent this kind of insider trading? After all, it’s only fair the officials regulating Wall Street should have to play by the same rules.

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