The issue of "insider trading" in Congress has come to the fore after a shed new light on the issue, but some members of Congress today complained that the response has become a "witch hunt," as Rep. Carolyn McCarthy, D-N.Y., said today.
"Most members up here are not out to make a quick buck," McCarthy said today in a hearing of the House Financial Services Committee, which is considering the Stop Trading on Congressional Knowledge (STOCK) Act.
The STOCK Act would prohibit members or employees of Congress from using nonpublic information obtained through their public service for investing or any attempt at personal financial gain.
Like everyone else, members of Congress are subject to current insider trading laws. However, some contend that current insider trading laws do not apply to nonpublic information about current or upcoming congressional activity, since members of Congress aren't technically obligated to keep that information confidential. So, for instance, if a lawmaker learns an upcoming bill will grant a company a large government contract, which could boost that company's stock, he or she is free to buy that stock ahead of the bill's public introduction.
Democratic Reps. Louise Slaughter of New York and Tim Walz of Minnesota introduced legislation in the House to stop this practice -- but the bill, which has been introduced before, has never had more than 14 congressional sponsors. But in the wake of the "60 Minutes" report, it now has 171 co-sponsors in the House as well as bipartisan support in the Senate.
Walz, testifying before the Financial Services Committee, said the bill isn't about "singling out" any congressmen for insider trading but about restoring the public's faith in Congress.
"The perception that [insider trading" is being done is strong," he said. "If you think a 9 percent [congressional] approval rating is bad, don't do anything on this" bill.
Committee Chairman Spencer Bachus, R-Ala., who was one of the congressmen singled out in the "60 Minutes" report, agreed that the legislation had more to do with improving public perception of Congress. "If this is the answer, so be it," he said, saying he would schedule a markup of the bill.
Rep. Judy Biggert, R-Ill., expressed concern that Congress may "overreact" to reports on congressional insider trading, while Rep. Emanuel Cleaver, D-Mo., said that he and others believe the current legislative solutions are "terribly, terribly flawed."
Slaughter, the bill's original sponsor, testified to the committee that one of the bill's critical provisions was being ignored -- a provision to regulate the burgeoning "political intelligence" industry.
"Political intelligence," now a $100 million-a-year industry, provides hedge funds and other investors with information about upcoming legislation that could impact stock prices. The STOCK Act would make political intelligence firms register with Congress like lobbyists.
"These so-called political intelligence firms have operated quietly in the background without any oversight," Slaughter said.
Robert Khuzami, the director of the enforcement division of the U.S. Securities and Exchange Commission, added that the STOCK Act would be helpful in that it would tighten the trading disclosure requirements for members of Congress.
"Without disclosure of trading on a timely basis, it is difficult to get notification of circumstances that might require investigation," he said. "Prompt disclosure, preferably electronic and searchable, is the single most important thing that could be done for our investigations."
However, Khuzami added that a "simpler and clearer" bill to get at the potential problem of congressional insider trading may be more prudent. Any legal changes in this area should be kept narrow, he testified, to ensure they don't make it more difficult to bring future insider trading actions against individuals outside of Congress, he testified.