Yesterday, just two days after the WSJ
reported that certain members of Congress "made risky bets with their own money that U.S. stocks or bonds would fall during the financial crisis," it followed up with a
story noting that the "Stop Trading on Congressional Knowledge (the 'STOCK Act')" continues to languish in Congress. The STOCK Act would prohibit lawmakers from engaging in insider trading based on nonpublic information they learn on the job.
The WSJ's reminder that Congress currently can’t be held liable for insider trading based on congressional knowledge seemed to come as a surprise to many people. "That's right! Members of Congress are currently allowed to profit on insider trading!," Yahoo! Finance
marveled in an article yesterday.
And yet this bizarre congressional exemption from basic insider trading laws has existed for years, flying safely under the radar. As I wrote
here in March 2009,
It’s hard to come up with any compelling reason why trading based on Congressional knowledge should remain legal, and quite easy to build the case against it. Still, despite a situation that cries out for legislation to end this loophole, recent efforts to pass a bill that would do just that have gone nowhere. In January, U.S. Reps. Louise Slaughter and Brian Baird introduced—for the third time—legislation intended to stop insider trading on Capitol Hill called the “Stop Trading on Congressional Knowledge Act” (the STOCK Act). Slaughter and Baird also introduced similar bills in 2006 and 2007, without success.
Now yet another year has passed, and the STOCK Act has made absolutely no progress. In fact, its minimal support continues to dwindle. As the WSJ notes, when Baird and Slaughter "first proposed the legislation more than four years ago, they were able to persuade just 14 of their colleagues to endorse it. The current version of the bill has fared worse: Only six lawmakers have agreed to support it, and Mr. Baird has announced that he is retiring from Congress at the end of the year."
What congressman would be willing to stand up in the Capitol building to argue to his constituents why he or she should
not be subject to the same insider trading laws to which the rest of us are subject? A loophole allowing legal insider trading for Congress continues to strike me as something that can only exist if it stays out of the public eye. A few more WSJ articles on the subject might be just the thing needed to get some version of the STOCK Act passed eventually.