GIVEN THE EXPERIENCE of the past few years, many individual investors think that the rich and powerful have rigged the financial markets in their favor. If investor confidence in the integrity and fairness of those markets ever is to be restored, congressional leaders must eliminate that perception.
A sensible place to start is to make sure that members of Congress and their staff members are expressly forbidden from profiting from stock trades based on nonpublic information.
Pending legislation aimed at preventing such trading doesn't go far enough. It should be modified so that there is no doubt that members of Congress don't have a leg up in the financial markets.
Thanks to conservative scholar Peter Schweizer's book, “Throw Them All Out” (Houghton Mifflin Harcourt, 2011), it is now known that some members of Congress — including Rep. Spencer Bachus, R-Ala., Sen. John Kerry, D-Mass., and Rep. Nancy Pelosi, D-Calif. — appeared to have profited legally from land deals and stock trades connected to information that they gathered in their roles as public servants. In addition, a recent “60 Minutes” report brought even more light to the long-standing practice.
Predictably, the book and the “60 Minutes” report helped drum up considerable support for the Stop Trading on Congressional Knowledge, or STOCK, Act.
The legislation would prohibit members of Congress and their highest-paid staff members from trading securities based on privileged information. It also would require them to report trades of more than $1,000 to the clerk of the House within 90 days.
The House bill, which was introduced in 2006 by Rep. Louise Slaughter, D-N.Y., and Tim Walz, D-Minn., has the bipartisan support of more than 235 members of Congress.
Unfortunately, House Majority Leader Eric Cantor, R-Va., postponed a markup of the proposal two weeks ago, thereby delaying a vote by the full House. The markup was delayed because some members expressed concern that it was being pushed through too quickly as a result of pressure from the media, he said.
The “60 Minutes” report also sparked interest for the first time in the Senate, where Sen. Scott Brown, R-Mass., and Kirsten Gillibrand, D-N.Y., last month introduced two separate bills aimed at prohibiting lawmakers and their staff members from using nonpublic information in making trades. The two bills were combined last week into a single piece of legislation, which was approved by the Senate's Homeland Security and Governmental Affairs Committee and sent to the full Senate for a vote.
Like the House version, the Senate bill would require disclosure of any stock or commodities transaction of $1,000 or more, but within 30 days, not 90. (Members of Congress and their principal staff members disclose financial transactions annually.)
But as proposed, the House version would apply only to information related to “pending or prospective” congressional action. That would still allow members of Congress to trade securities or engage in land deals based on information gathered other ways, such as through private meetings with corporate executives.
Also, members of Congress should be required to report all trading activities immediately — not after 90 days, or even 30.
The best approach would be to require members of Congress and their top staff members to place their assets in blind trusts or even mutual funds. If the assets are put into a trust, the trustee should remain anonymous to prevent lawmakers from passing along privileged information on which the trustee could then trade.
In securities trading as in other areas, members of Congress should be required to live by the same rules as everyone else.
