This is not the ban on insider trading that you were looking for [Reader Post]


Congress has a penchant for passing toothless legislation, especially as it affects them. The STOCK Act is no exception. STOCK stands for Stop Trading on Congressional Knowledge. There is enthusiasm for such a law.

Fervor over insider trading on Capitol Hill reached a peak last fall following the airing of a “60 Minutes” segment questioning whether lawmakers including House Minority Leader Nancy Pelosi (D-CA) and Speaker John Boehner (R-OH) made investments based on their knowledge of legislative activity to which they would be privy.

Pelosi and other lawmakers named in the piece disputed any allegation of impropriety, but a number of lawmakers in the meanwhile proposed versions of the STOCK Act to address any perception of poor ethics.

Senate democrats are eager to prove something- despite failing to produce a budget for more than 1000 days.

Today during a conference call, Sens. Kristen Gillibrand (D-NY), Jon Tester (D-MT), and Debbie Stabenow (D-MI) each said the STOCK act was important to pass to remind the American people that Congress can actually achieve something.

“The American people need to know that their elected leaders play by the exact same rules that they play by,” Gillibrand told reporters, “We have to show, number one: we’re not above the law, number two: that we play by the same exact rules as every other american, and three: that we can actually get something done.”

We’ll see about that.

Republicans in the House do not approve of the bill as it was passed in the Senate. They feel it is weak.

House Majority Leader Eric Cantor (R-Va.) on Tuesday criticized the Senate legislation as weak. His staff said he would move a strengthened version of the bill to the House floor at the end of the month.

Senators voted for an amendment Thursday to expand the legislation’s reporting requirements to members of the executive branch.

The legislation would mandate that lawmakers report all major transactions within 30 days and file financial disclosure reports electronically.

But there was a limit to the Senate’s self-discipline:

But lawmakers defeated several proposals to significantly reform the perks and powers critics charge have a corrupting influence on Capitol Hill.

Senators voted down a bipartisan proposal to permanently ban earmarks as well as an amendment to require lawmakers and senior staff to divest of stocks or put their stock holdings in blind trusts.

The amendment sponsored by Sens. Claire McCaskill (D-Mo.) and Pat Toomey (R-Pa.) to permanently ban earmarks failed by a vote of 40-59.

But this was particularly egregious

Senators defeated another amendment sponsored by Paul to prohibit executive branch appointees and staff from having oversight, rule-making, and loan- or grant-making authority over companies in which they or their spouses have significant financial interest.

The amendment was designed to guard against the alleged improprieties stemming from the bankruptcy of Solyndra, a solar-panel manufacturer that received more than $500 million in federal loan guarantees.

Kirsten Gillibrand (D-NY) demonstrated once more the contempt Congress holds for voters:

“We tried to focus at the specific task at hand, closing loopholes to ensure that members of Congress play by the exact same rules as everyone else,” said Sen. Kirsten Gillibrand (D-N.Y.), a sponsor of the legislation.

Cue Peter Schweizer. Schweizer noticed something about the success of Senatorial investing:

Schweizer: Well, you know, somebody sent me an article that appeared in an academic journal a few years ago. It’s a journal called the Journal of Quantitative Economics. If you have trouble sleeping at night, this might be a good place to go.

But this study was actually very interesting, because these scholars looked at 6,000 stock trades by U.S. senators, and what they found, shockingly, was that while the average American tends to underperform the market averages, the average corporate executive beats the market by 5% a year and the average hedge fund beats the market by 7 to 8% a year. This study found that U.S. senators beat the market by 12% a year…

Schweizer: Yeah. And so, it left me wondering, you know: “OK, gee. Either these guys are really, really smart geniuses that I don’t give them enough credit for, or something else is going on.” And it really only took me a split second to say, “You know, I think something else is going on.”

Hill: And again, there’s so much research that you and your team did for this book. How did you go about connecting the dots?

Schweizer: Well, you know, it was very difficult. What we really wanted to do was show and sort of overlay the financial transactions of members of Congress. They’re required to disclose them once a year. They’re required to show what their holdings are and also the dates of transactions, but they only give the amounts in ranges, so you don’t know exactly how much money they’re trading.

But we took that material, and then we looked at their legislative activity or things that were going on where they had access to special information. Like for example, during the 2008 financial crisis, they had a lot of closed-door meetings with the Fed chairman and Treasury secretary. And once we overlaid those, we found, astonishingly, that people who served on financial committees were aggressively trading bank stocks. Those that were involved in the health-care bill, the health-care reform debate in 2009 were aggressively buying and selling all sorts of health care-related stocks, and it was kind of stunning. So, once we had this overlay, then we started to track to see what sort of investment decisions they were making and how they did in terms of those investments.

Yet this bill is sorely lacking. Why?

Nancy Pelosi.

Pelosi’s net worth skyrocketed 62% in 2010. How?

Insider trading. Specifically- taking advantage of IPO’s. And what doesn’t this proposed law cover?


The passage of the STOCK Act in the Senate is just the first battlefield victory in this war for reform. The STOCK Act makes congressional insider-trading illegal. But let’s be clear: it alone doesn’t go nearly far enough to deal with the problems of cronyism and corruption that we face. It deals only with publicly traded stock, not equity buys in private companies. It does nothing to close the sweetheart deals involving IPO shares that can make politicians more money in one day than a bribe ever could. And insider-trading cases are very hard to win. On top of that, the Securities and Exchange Commission and Justice Department are unlikely to go after a powerful politician. Just look at what happened to the FBI when they were investigating Rep. William Jefferson, who famously took bribes and put the money in his freezer. There were threats to cut the FBI budget!

So when Pelosi says she backs the STOCK ban, believe it. It won’t stop her from abusing the American people.

Which is why this is not the insider trading ban you were looking for.

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Another good reason for term limits! IPOs would not be offered to legislators since the term limits may make the legislator not as valuable to people or companies seeking favors!

From Investopedia:

Definition of ‘Insider Trading’
The buying or selling of a security by someone who has access to material, nonpublic information about the security.

Insider trading can be illegal or legal depending on when the insider makes the trade: it is illegal when the material information is still nonpublic–trading while having special knowledge is unfair to other investors who don’t have access to such knowledge. Illegal insider trading therefore includes tipping others when you have any sort of nonpublic information. Directors are not the only ones who have the potential to be convicted of insider trading. People such as brokers and even family members can be guilty.

By the very definition of the word, what Senators and Congress members are doing is illegal. Prison sentence illegal actually. If you want to know why the Democrats and Republican Establishment are so hell bent on protecting their fiefdom, this is one of the main reasons.

@Michael… Seems pretty cut and dried to you and I but I’m sure a slick lawyer would argue that information gathered during congressional committees is public information. Just not yet widely disseminated. Blind trusts would be the answer. But, don’t count on career politicians doing anything that would undermine their ability to corruptly line their own pockets, be they Democrat or Republican.

” Like for example, during the 2008 financial crisis, they had a lot of closed-door meetings with the Fed chairman and Treasury secretary. And once we overlaid those, we found, astonishingly, that people who served on financial committees were aggressively trading bank stocks.”

What they are discussing and what laws are being proposed are not always public information. Insider Trading is not buying and selling securities that no one has access to. Its buying and selling securities with insider knowledge before other investors have access to the same information. I agree a lawyer who is well versed in SEC law would find any angle to defend their client. The problem would be explaining how John and Jane Doe can be convicted of insider trading with far less evidence against them.

This from the SEC website

Examples of insider trading cases that have been brought by the SEC are cases against:

Corporate officers, directors, and employees who traded the corporation’s securities after learning of significant, confidential corporate developments;
Friends, business associates, family members, and other “tippees” of such officers, directors, and employees, who traded the securities after receiving such information;
Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded;
Government employees who learned of such information because of their employment by the government; and
Other persons who misappropriated, and took advantage of, confidential information from their employers.

Executives of a company cannot meet behind close doors, determine the direction their company is going to take, call up their broker and load and unload their stock over a period of months without reporting it to SEC. As I understand it, these transactions have to be filed with the SEC within 2 days of the transaction. As you can see above, government employees are not exempt from this as well. What Senators and members of Congress are doing is a classic example of insider trading and why it is illegal.

Finally people are starting to take notice.

Years ago, and by years, I really mean decades, I was still in high school and played sports. One of those sports I participated in was wrestling. I don’t know how much anyone knows about the sport, but losing weight in order to make certain weight classes was an important part of it. Several of my teammates, more friendly than most I guess, mingled with other kids quite frequently at meets and tournaments. It was after one tournament in particular(those were on weekends) prior to the Monday practice after school, that a few of my teammates cornered the coach and discussed a new way of losing weight which allowed the kids to eat more than they had been for a majority of the week. Their new discovery? The predecessor of those diet pills one can buy over the counter today.

Well, my coach was none too pleased about their “discovery” and proceeded to have a little talk with not just them, but the entire team. The usual pre-practice meeting lasted a few minutes, tops. That day, it lasted over 30 minutes. He began by acknowledging that the use of such pills weren’t technically illegal, by the rules of the sport at the time, but they also weren’t legal. They fit into a gray area within the rules. He mentioned the side effects of such pills, informing us that as each of our bodies was different, the effects themselves would be different as well. That wasn’t the most important thing he lectured us on, though, at least in my opinion.

My coach stated that what we(my team) did would be known by more than just ourselves, as we were one of the best teams in the state, therefore we were a high-profile team, and much of how we conducted business, both at meets/tournaments and during practice, would be scrutinized by the state’s sports writers as well as the state’s governing body, and most importantly, the other competitors. And that being the case, he went on, that we needed to ensure that everything we did, individually and as a team, would be done entirely above-board, and by the most strict reading of the rules. We needed to ensure that everything we did, at all times, could be looked at and considered, and that no impropriety could ever be assigned as the reason for our success. And that this shouldn’t just apply to wrestling, he continued, but should be carried on throughout the remainder of our lives. That is, that everything we do, now and in the future, if it is done by that most strict reading of the rules, and the success we might enjoy both now and in the future, can never be considered a case where we cheated to attain that success.

In other words, if you are going to do something, do it with the highest integrity possible, and the success it brings you will be something no one can ever take away from you. I have tried to follow that, in my life, ever since that speech my wrestling coach gave decades ago. There certainly were times that I could have taken the shortcut, and probably would be further along financially in life than I am right now. However, that “success” would have been looked down upon in many circles, and respect would have been lacking because of it. It wouldn’t have been easy to live with myself if I had engaged in activity that many would consider cheating, even if it technically wasn’t.

As for the congresspeople, those listed above in the op and others not listed, it is the stories like the one on 60 Minutes that shed light on activities many would consider cheating, even if in many cases it wasn’t technically that. Our congresspeople need to be held to not only the standard we voters have to live by, but to a higher standard. They represent us, and in more ways than one. Not only do they represent our desires in Congress, but they also represent our, their constituents’ values in public, do to the very public nature of politics. Look at a congressperson. Our views of their constituents are shaped by what that congressperson does, or is known to do, are they not?

In the specific case of the OP, of insider trading, that higher standard must be applied to congresspeople. They won’t do it willingly, on their own, holding themselves to such a standard without an item of force making them do so. So, they need to have that item of force to do it for them. Blind trusts might be a way to go, as long as the law stipulated it applying to direct family as well. A stricter enforcement, with more public financial holdings by congresspeople would probably help as well, as the money could be more easily followed. I’m not sure what the complete solution is, but I do know that something needs to be done about it.

@johngalt: As a military officer we were held to a higher standard than our governmental officials. This included extramarital affairs, fratranization and engaging in business unless approved by the command. That is one reason we dislike bureaucrats and governmental officials who are allowed special considerations under the law. It looks like most of the country agrees with the current congressional approval rate being about 10%


I would say that the problem with congresspeople engaging in insider trading isn’t just a one-way street, that is, that congresspeople benefit from trading in investments in which legislation is being discussed, passed and signed into law. There is also the reciprocal problem of the bad law being passed in order to make congresspeople a few bucks.

Imagine, if you can, how much of the law wouldn’t get passed if there was no opportunity for congresspeople to make a few bucks off of the law being considered. How many of those congresspeople, if their investments were at the same risk/reward level of the average citizen’s investments, would allow for their conscience and convictions, or principles, to outweigh their greed? Certainly not all of them, but I’d guess that a lot more of them would do so than happens currently.

Would many of those “green” companies have garnered the “loans” or grants given them, if not for the added incentive to congresspeople of making a few quick bucks? What other laws passed in the last decade would have been different, or discarded, if that incentive wasn’t there? How many of the laws that affect US civilization negatively would not be in effect currently, if not for that incentive? I do not know the answer to those questions, but it’s very hard to imagine that the answer to them all would be zero, is it not?

BTW, it isn’t just commissioned officers held to a higher standard than government officials. Non-comms also are held to a higher standard. In fact, my current workplace holds me to a higher standard, and I’m sure that isn’t the exception either.

Put Rangel in prison for his crimes. Pelosi is disgusting. Prosecute Congress when they break the laws they pass for the American citizen. Remember Justice is BLIND under the law!

Alec Guinness was a big star long before Star Wars.
He starred in a very appropriate movie to this post when he was much younger: The Lavender Hill Mob, 1951.
In it he is a bank clerk with INSIDE information.
Using that inside info he and his buddies steal a gigantic number of big gold bars (212 of them) …..ironically all those bars in those days only amounted to $1 million dollars!

Now in the OP Peter Schweizer noticed:

scholars looked at 6,000 stock trades by U.S. senators, and what they found, shockingly, was that while the average American tends to underperform the market averages, the average corporate executive beats the market by 5% a year and the average hedge fund beats the market by 7 to 8% a year. This study found that U.S. senators beat the market by 12% a year…

How did that compare with Hillary Clinton’s cattle futures?
She made a $100,000 in profit on a $1,000 investment.

“If the natural tendencies of mankind are so bad that it is not safe to permit people to be free, how is it that the tendencies of these organizers are always good? Do not the legislators and their appointed agents also belong to the human race? Or do they believe that they themselves are made of a finer clay than the rest of mankind?”

― Frédéric Bastiat, The Law 1850

@Nan G:

I would imagine that an expose’ on recent investment transactions by members of congress and the WH, say, for the last 20 years, would result in evidence pointing to highly increased activity by government officials in the fields and industries related to particular bills being discussed that eventually get passed. The discussion phase of the different bills is the important part, the after action, like votes in committee and floor votes not so much. And, I would guess that this particular activity is not solely the domain of any one political party or ideology.

Now, essentially that is what the study that Schweizer, in Dr. J’s OP was talking about. Unfortunately, it is not a widely known study, though in my opinion it should be. One has to wonder if others, maybe friends and others these politicians rely on are thrown a bone once in a while simply to keep it quiet. I mean, can you imagine the sales of, say, the New York Post, or Time magazine, if the study was published in such, and the situation further looked into, resulting in the truth coming out along with names? Something like that could possibly revive a magazine like Time, making it a relevant publication again.

Of course, one could delve even deeper into the aspects of this by looking at trade volume overall in a particular industry related to a piece of legislation being voted on, along with the returns realized over time, like one year, and compare that to only the trade volume of congresspeople, or government officials, prior to the vote on that same legislation, and what returns those congresspeople, or government officials realized over time.

The study above only looked at overall stock performance over time between different groups. That suggests impropriety, but doesn’t prove it. A further study into specific industry, and related legislation would most assuredly prove the impropriety. What kind of outcry from the masses would that set off?

Bad government- politicians line their pockets.
Good government- politicians line their pockets and the economy is growing.

I laugh at Claire McCaskill(D) Mo. She and her husband enriched themselves on government subsidies and loan guarantees for senior housing and care centres. Her corporate jet has the John Kerry syndrome of evading taxes. She is now against earmarks. An election is coming up. What a hypocrite? Term limits are a must.

@johngalt: You had yourself a great coach, there jg.

Gee. Asking the fox to guard the hen house doesn’t work? Shocking.