U.S. Congress Has Pass for Insider Trading
Members of the U.S. Congress consist of Senators and House Representatives, that take an oath to support and defend the constitution against all enemies, but how do they handle the biggest enemy; greed? Those sitting on select committees of Energy, Financial Services, Armed Services and Technology, have insider knowledge based on proposed legislation or regulatory acts, decisions about laws or line items that are going to be passed. These pertinent decisions affect businesses, the economy and fortunes are made based on these policy decisions that only members of Congress have access to.
Recently, Steve Kroft with 60 Minutes put a spotlight on the Inside Trading that goes on in Washington and this video segment points out that laws against Insider Trading do not apply to members of Congress. Of all people, these are the ones that should not be able to trade on this insider knowledge.
I wonder what Galleon, ex-billionaire, Raj Rajaratnam was thinking when he watched the segment on Congressional inside trading after being convicted on 14 counts of conspiracy and securities fraud for insider trading last May. Raj reported to a federal facility in Massachusetts, on Dec 5th, beginning his 11-year sentence, the longest prison term ever given for insider trading.
Apparently, Raj made his mistake in acquiring more than $50 million in illicit profits by acting on secrets provided by his contacts at domestic U.S. corporations such as Google Inc., Hilton and Goldman Sachs Group Inc. If he would have been more savvy and bought his Political intelligence on Capitol Hill directly from Congress members or their staff, the outcome might have been different.
CREW (Citizens for Responsibility and Ethics in Washington) further clarified the 60 Minutes report, providing more examples of insider trading and the corruption that goes on in Congress.
Broad Street with New York Stock Exchange on the right. Source: Wikimedia
When Ron Paul, 2012 presidential candidate was asked if he was aware that members of Congress could buy and sell stocks based on information they received behind closed doors during committee meetings, he seemed genuinely surprised that anyone would be above the law when it comes to insider trading. Paul asked, “Who says insider trading laws do not apply to members of Congress?” and then added, “If the people in Washington had ethics, you would not have to ask that question.”
According to Peter Schweizer, the William J. Casey Research Fellow at the Hoover Institution at Stanford University confirms ”That law makers protect and serve themselves with the power to bend the rules (ethics) or write laws in ways that trading on insider information, does not effect them.”
Peter’s new book, ”Throw Them All Out: How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison,” was published Nov 2011. He and his research assistants read through the Congressional members financial disclosure documents and found many members made significant wealth beyond their salaries through the purchase and sale of stocks at critical times for certain companies, when game changing legislation was ready to be passed.
Election time can bring change to every seat in Congress that does not maintain the highest ethical standards (but those words are missing from their oath) along with forward-thinking individuals with integrity (another omission from the oath) that want to protect and serve our country. Maybe we need to update the oath first, so there are no loopholes to wiggle through.
The more effective mechanism would require pre-approval or pre-clearance of each trade that is what the SEC requires for any SEC staff member who buys or sells a security. Disclosing a month after you make the trade gives congress time and an opportunity to build a record around it. Jacob Frenkel, former SEC attorney http://www.cnbc.com/id/46252444
Central to S.1903 - STOCK bill ("STOCK Act") http://goo.gl/3iGD0 proposed by the Senate is a “duty arising from a relationship of trust and confidence,” that would be owed by members of Congress to the people, and traders need to "disclose nearer to real time,” to substitute a philosophy of full disclosure for the current philosophy of caveat emptor. The loophole in which members of congress and legislative staffers are immune from enforcement of insider-trading laws, is because the delayed reporting of securities transactions by congress, defeats, obstructs, and impairs its use as timely evidence. Insider-trading cases are hard to prove, because the trades must be tightly linked to the events or information on which they are allegedly based. Trades need to be disclosed in "real time or near real time," so that the memories of potential witnesses are fresh and suspects do not have time to cover up their actions. The SEC, which conducts most insider-trading investigations, urged faster disclosure of stock trades by members of Congress on electronic, searchable forms. This is why no Congress people were investigated under the current laws.
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