Stopping Insider Trading in Congress ...

Sunday April 2, 2006

The Journal story dated March 26, 2006, is subscription based. So here are excerpts on our legislative effort to curb insider trading in Congress:

Amid broad congressional concern about ethics scandals, some lawmakers are poised to expand the battle for reform: They want to enact legislation that would prohibit members of Congress and their aides from trading stocks based on nonpublic information gathered on Capitol Hill.

Two Democrat lawmakers plan to introduce today a bill that would block trading on such inside information. Current securities law and congressional ethics rules don’t prohibit lawmakers or their staff members from buying and selling securities based on information learned in the halls of Congress.

It isn’t clear yet what kind of support the bill will garner from Republicans. But its prospects are enhanced by the current charged environment in Congress; lawmakers from both parties in both houses have placed a high priority on passing ethics and lobbying-reform legislation. Such legislation would provide a vehicle to which proponents could attach a measure on stock trades.

In addition to banning trading on inside information, the proposal would require that lawmakers and their top aides disclose within 30 days any stock trades. Congressional rules now require lawmakers to disclose their trades once a year. The bill also would require that companies register with Congress if they sell information about congressional activity to Wall Street investors.

Unlike members of Congress, executive-branch employees already are banned from trading on inside information. Employees of several federal agencies are prohibited from investing in companies that have business before them. In 1934, for example, Congress banned Federal Communications Commission employees from owning stocks or bonds in telecommunications or broadcast companies.

Again just why did we introduce this legislation?:

The two Democrats who wrote the bill say they were motivated by the trading activity of a former top aide to Rep. Tom DeLay, the onetime Republican majority leader in the House. The aide, Tony Rudy, bought and sold hundreds of stocks from his computer in the U.S. Capitol in 1999 and 2000, according to financial-disclosure forms and other DeLay aides.


It is difficult to tell how much Mr. Rudy profited on particular trades. House financial statements require disclosure of stock trades only in broad ranges. Mr. Rudy bought each of his stocks for between $1,001 and $15,000 and sold them in the same ranges.

But Mr. Rudy’s net worth grew from 1999 to 2000. Mr. Rudy and his wife were at least $49,000 in debt at the end of 1999, according to his disclosure form. They owned no more than $1,000 in stock and reported a student-loan debt between $50,001 and $100,000.

At the end of 2000, Mr. Rudy and his wife reported assets between $6,007 and $91,000. Their student-loan debt was between $30,002 and $100,000.

There are few issues here that are deeply troubling to us. First, there is a huge problem with a senior leadership staffer spending his days making stock trades instead of serving the people he is supposed to represent, as seems to have been the case with Mr. Rudy. This represents yet another compromise of the integrity of this leadership and another failure to impose accountability where it should have been already.

Second, we need to find out whether or not Mr. Rudy was trading on sensitive nonpublic information he gained while working in Congress. More than likely only a full investigation could bear that out.

Of course the deeper issue here is the vast potential for abuse. The possibility that members of congress and their staffs could use information not available to the public to make money in the stock market is very real. The fact that entire political intelligence firms exist for the sole purpose of garnering such information and trading on it suggests it happens more than any of us have ever imagined.

The bottom line is, at the very least, individuals with access to non-public government information should be held to the same standards as any other American. There is a gaping hole in the law and it needs to be closed. People should come work in Congress to serve their country, not to enrich themselves.

That is why we introduce legislation, which will bring those standards in line and give the SEC the power to enforce insider trading in Congress. It will also require reporting by members and staff on the trades they make, infusing some accountability into the process.

Also, if there are any of you in this community who are expert day-traders or know a lot about this kind of market activity, we would be really interested to hear your thoughts and feedback on this.  What other avenues can we pursue to get more information on Mr. Rudy’s day-trading activities on the Hill?

Thank you!

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