Last updated on: 1/3/2012 2:09:48 PM PST
Should insider trading by Congress be allowed?
General Reference (not clearly pro or con)
Stuart P. Green, JD, Professor of Law and Justice Nathan L. Jacobs Scholar at Rutgers School of Law, wrote in his May 13, 2008 email to ProCon.org:
"People in many fields of endeavor are privy to valuable confidential information before it is made public: For example, business executives, investment bankers, and lawyers have access to information about impending corporate mergers and acquisitions; Judges, juries, and court personnel have access to information about the probable outcome of court decisions; and officials at the FDA [Food and Drug Administration], EPA [Environmental Protection Agency], and other administrative agencies have access to information about the likely outcome of regulatory proceedings. All of these individuals are prohibited by law from using such confidential information in the purchase and sale of publicly traded stocks. Likewise, members of Congress and their staffs are also privy to valuable confidential information not yet made public. They have information about the likely outcome of various votes, committee proceedings, and investigations. Such information can be extremely valuable to investors. Those who buy and sell stock on the basis of such non-public information will have an obvious advantage over those who lack such information. This is not the sort of information that even the most savvy and sophisticated investor would be able to obtain legally. From a moral perspective, such informational advantages are indistinguishable from those enjoyed in more familiar forms of insider trading."
May 13, 2008 - Stuart P. Green, JD
Elaine Sternberg, PhD, Principal of Analytical Solutions, wrote in her July 24, 2008 email to ProCon.org:
"Insider trading should not be illegal. To the extent that there are laws against it, however, they should also apply to government personnel (including legislators) who use government power to obtain nonpublic information."
July 24, 2008 - Elaine Sternberg, PhD
Sheila Kaplan, MA, Lecturer in the Political Reporting Program at the University of California at Berkeley Graduate School of Journalism, wrote in the article "Trust Busters" published in the Sep./Oct. 2005 issue of Mother Jones:
"Federal agency officials are generally prohibited from buying and selling stock in the companies they oversee. But Congress long ago exempted itself from ethics rules regarding investments. At one time this exemption made sense: Farmers wanted to be able to serve on the Agriculture Committee without selling their farms, for example. But many lawmakers now interpret this exception as carte blanche to invest after taking office.
...Some members, seeking to avoid the appearance of conflicts of interest, avoid buying stock or stow their assets in blind trusts. Others invest only in index funds or in diversified mutual funds. But a substantial share of House members and senators trade enthusiastically -- or, like Biggert [US Representative Judy Biggert (R-Ill)], permit their spouses and children to do so. An examination of the latest batch of financial disclosure reports, filed this summer for calendar year 2004, shows that dozens of lawmakers routinely buy and sell stock in industries they oversee, raising questions about whether they have an unfair advantage over the average investor."
Sep./Oct. 2005 - Sheila Kaplan, MA
[Editor's Note: Prior to Dr. Alan J. Ziobrowski's July 13, 2009 Con statement, he made the following Not Clearly Pro or Con statement in his May 2005 USA Today Magazine article "Stocks Soaring for Senators: Are Members of Congress Enjoying the Benefits of Insider Trading at the Expense of Taxpayers?"]:
"'Senators' stocks beat the market by 12%' blared a headline in the Financial Times. So what? Isn't beating the market what everyone tries to do?... Like corporate executives, senators also have access to valuable inside information. They are aware of likely changes in the tax laws, government contracts, research funding, trade negotiations, etc. Any of these may have profound ramifications for the various companies or industries involved. In addition, those in Congress have the power to help or hurt individual companies and industries by changing the laws. This also can impact share price.
Unlike corporate executives, congressmen can trade common stocks without restriction, buying and selling as much as they want whenever they want. They may vote on issues in which they have a personal financial interest. Furthermore, Senate members are not required to report their transactions to the Securities and Exchange Commission like corporate insiders...
In fairness, just because they have the power to earn 'unfair' profits in the stock market does not necessarily mean they use it. Two-thirds of senators do not trade stocks at all and, so far, not a single member has admitted trading stocks based on confidential information he or she obtained on the job. The evidence, however, is rather compelling. In beating the market by 12% per year, the chance that they merely are lucky is very small."
May 2005 - Alan J. Ziobrowski, PhD
Daniel Gross, AM, Senior Editor of Newsweek and Columnist for Slate Magazine, wrote in his May 21, 2007 article "Insider Trading, Congressional-Style," published in his Slate Magazine column "Moneybox":
"Given all the problems that demand congressional oversight and activity—the subprime lending mess, Iraq, the Justice Department—it's difficult to see why this far-reaching legislation [the Stop Trading on Congressional Knowledge Act], which would direct the Securities and Exchange Commission to punish violators, is necessary...
Even if Capitol Hill is plagued by widespread trading based on a perceived informational edge, it doesn't require the same sort of insider-trading charges that are filed against Wall Street malfeasants... In insider trading, the connection is direct, and the profit is sure.
But with legislation, the link between advanced knowledge of a senator's position on an issue and the certainty that a specific stock will benefit as a result is much more tenuous... A lot of things can happen: Multiple committees weigh in; there's the possibility of a filibuster or a veto...
Think about all the professionals who make their living peddling information about what goes on in Washington: law firms, consultants like this guy, lobbyists, and researchers pitching glorified tip sheets to investors. Oh, and news organizations. The 'political intelligence' shops aren't doing anything much different than, say, the Washington Post, National Journal, or the Wall Street Journal. After all, these companies employ Washington-based operatives who spend their days working government contacts to unearth information that isn't available to the public."
May 21, 2007 - Daniel Gross, AM
Jim Harper, JD, Director of Information Policy Studies of the Cato Institute, wrote in his Mar. 16, 2008 post "Sunlight Is the Best Disinfectant," on the Technology Liberation Front blog:
"A bar on congressional-insider trading would most likely cause one of the following results:
1. It would be honored in the breach;
2. It would lead to endless (perhaps politically motivated) investigations of our representatives and their staffs; or
3. It would force many or most congressional employees to withdraw from investing as a prophylactic against 2.
None of these would be easy and fair, and compliance would deprive congressional staff of normal sources of income and of participation in investment that keeps their experience and thinking in line with other Americans. The law would not provide investors comfort."
Mar. 16, 2008 - Jim Harper, JD
Jeffrey Alan Miron, PhD, Senior Lecturer and Director of Undergraduate Studies in the Department of Economics at Harvard University, wrote in his Mar. 28, 2006 article "Congress and Insider Trading," posted on his blog The Case for Small Government:
"Democratic lawmakers apparently want to ban insider trading by members of Congress and their staffs. Perhaps unsurprisingly, these groups have so far been exempt from the general prohibition against insider trading.
Rather than broadening the ban, however, Congress should repeal it entirely. The ban is problematic on efficiency and equity grounds.
The ban is inefficient to the extent it delays release of relevant information, since this means delayed adjustment of stock prices. Markets cannot allocate resources properly unless they know which companies are doing well or badly.
The ban is inequitable because some corporate executives trade on inside information despite the law. Thus the ban rewards dishonest insiders."
Mar. 28, 2006 - Jeffrey Alan Miron, PhD
Kirsten Gillibrand, JD, US Senator (D-NY), wrote in her Dec. 1, 2011 testimony for the US Senate Committee on Homeland Security and Public Affairs hearing on "Insider Trading and Congressional Accountability":
"Like millions of American’s all across the country, I was surprised to learn that insider trading by members of Congress, their families, or their staff, using non-public information gained through their Congressional work is not clearly and expressly prohibited by law and the rules of Congress.
The American people need to know that their elected leaders play by the exact same rules that they play by. They also deserve the right to know their lawmakers' only interest is what's best for the country, not their own financial interests.
Members of Congress, their families and staff shouldn’t be able to gain personal profits from information they have access to that everyday middle class families don’t. It's simply not right -- and we need to change it by ensuring the proper oversight and accountability is in place. Nobody should be above the rules.”
Dec. 1, 2011 - Kirsten Gillibrand, JD
Scott Brown, JD, US Senator (R-MA), wrote in his Dec. 1, 2011 testimony for the US Senate Committee on Homeland Security and Public Affairs hearing on "Insider Trading and Congressional Accountability":
"Simply put, members of Congress should be held to the same standard as the general public and should not be able to profit based on nonpublic information…
As members of Congress, we have access to information that the public does not; classified briefings, closed conference reports and personal conversations with government officials. All of these sources can give us nonpublic information that may have a significant value if traded upon. But not only do we access information, we create information and policy. When we act on legislation or negotiate legislative language, frequently that legislation has real financial consequences to an industry or company. Because we have access to and we create information, we must not betray the public’s trust by using it for our own personal gain.”
Dec. 1, 2011 - Scott Brown, JD
Peter Schweizer, MPhil, William J. Casey Research Fellow at the Hoover Institution, said in his Nov. 13, 2011 interview in the 60 Minutes news story "Congress: Trading Stock on Inside Information?":
"This is a venture opportunity. This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends, and your family... There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it's not illegal, but I think it's highly unethical, I think it's highly offensive, and wrong...
For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply... [I]f you sit on a healthcare committee and you know that Medicare, for example, is considering not reimbursing for a certain drug that's market moving information. And if you can trade stock off of that information and do so legally, that's a great profit making opportunity. And that sort of behavior goes on...
It's really the way the rules have been defined. And the people who make the rules are the political class in Washington. And they've conveniently written them in such a way that they don't apply to themselves.”
Nov. 13, 2011 - Peter Schweizer, MPhil
Henry G. Manne, SJD, Dean Emeritus at George Mason University and Adjunct Scholar at the Cato Institute, wrote in his June 29, 2008 email to ProCon.org:
"In my 1966 book [Insider Trading and the Stock Market] I said unequivocally that insider trading by any government officials on information received in the course of their work should be outlawed. The economic consequences of this trading on stock prices will be the same as any other informed trading, but there are many other aspects to the economic argument for legalizing insider trading generally that just will not pass the 'smell test' for government officials.
The compensation argument for corporate insider trading cuts in exactly the opposite direction for government officials. We do not want them to receive extra compensation or outside compensation for doing their jobs. And, of course, all too frequently their access to this information is merely another form of a bribe, and that sure as hell is not legal.
But proof will always be difficult (there are many ways government officials can hide the use of inside information, including using the information as a currency with which to pay off other contacts, thus avoiding buying or selling the securities themselves), and enforcement of any law against insider trading will be minimal at best. You can be sure that the SEC [US Securities and Exchange Commission] will not actively monitor Congressional trading, and the usual disclosure techniques will rarely elicit sufficient legal proof of a violation of the law.
Ultimately the only thing that will reduce the value of the use of inside information by government officials is for the government to be involved in far, far fewer matters than it is at present, thus curtailing the amount of valuable information the government can force out of citizens."
June 29, 2008 - Henry G. Manne, SJD
Alan J. Ziobrowski, PhD, Associate Professor in the Department of Real Estate at Georgia State University, wrote in his July 13, 2009 written testimony (32 KB) for the US House Subcommittee on Oversight and Investigation hearing on "Preventing Unfair Trading by Government Officials":
"With respect to H.R. 682 [Stop Trading on Congressional Knowledge Act], I confess I am neither an attorney nor am I an expert on insider trading. That having been said, I am generally supportive of making insider trading illegal for members of Congress and their staffs. It is likely to have some positive effect. However, historically speaking, convicting an individual of insider trading has always been a difficult task... In my view, the vast majority of insider trading goes undetected as evidenced by the fact that corporate insiders continue to earn significant abnormal returns despite the best efforts of the SEC to monitor their trading activities. Thus I am doubtful that making insider trading by members of Congress illegal will eliminate the problem."
July 13, 2009 - Alan J. Ziobrowski, PhD
Joseph Lieberman, LLB, US Senator (I-CT), wrote in his Dec. 1, 2011 opening statement for the US Senate Committee on Homeland Security and Public Affairs hearing on "Insider Trading and Congressional Accountability":
"[W]hether or not there is clear and conclusive evidence that members of Congress or our staffs have benefitted financially from insider information and whether or not the SEC believes it can act against members of Congress under its existing authority, there ought to be a law that explicitly deters such unethical, illegal behavior by members of Congress and punishes it when it happens…
Adopting a new law that explicitly makes insider trading by members of Congress illegal would strengthen the ‘foundations of our national policy’ and I hope, in a small way, help repair the breach that exists today between our government and our people.”
Dec. 1, 2011 - Joseph Lieberman, LLB
Donald Langevoort, JD, Thomas Aquinas Reynolds Professor of Law at Georgetown University Law Center, wrote in his Dec. 1, 2011 testimony for the US Senate Committee on Homeland Security and Public Affairs hearing on "Insider Trading and Congressional Accountability":
"The idea that Members of Congress or their staffs can freely step ahead of ordinary investors to profit from information acquired as a result of their legislative roles is disturbing, to say the least. While current insider trading law is more potent with regard to such activity than some of the public commentary on this issue suggests, Congress should act to eliminate any doubt and state clearly that both the trading and tipping prohibitions apply to Members and staff. It would be extremely unfortunate were the SEC or prosecutors to bring an action and have the Member or staff person raise the defense, which they surely would, that service in Congress carries with it no fiduciary-like duty to respect governmental confidences. That would be the last headline Congress should want to see.
The SEC deserves resolution of this as well. An insider trading case against a Member (or even a powerful staff person) will always be a matter of great political sensitivity, likely to be brought only to the extent that the case—legally and factually—is very strong. The external pressures to bring such cases, or not bring them, will inevitably be great when any suspicions arise. Leaving any ambiguity as to the question of whether, and to what extent, the insider trading on Capitol Hill is unlawful is hardly an encouragement to those matters that deserve to be courageously investigated and pursued. Conversely, an explicit statement by Congress that its Members and staff are subject to a duty of trust and confidence would make plain, to the SEC and the American public, that Congress expects no special privilege or treatment with respect to the rules of fair play in the U.S. capital markets.”
Dec. 1, 2011 - Donald Langevoort, JD
Brian Baird, PhD, US Representative (D-WA), stated in his Mar. 20, 2006 press release, "Rep. Baird Testifies Before Rules Committee on Insider Trading" on his website:
"Clearly, the buying and selling of stock based on non-public information has the potential to profit some private parties at the expense of others who may not have access to this same information... I am very concerned that privileging a handful of investors with confidential information about congressional activity is not only a misuse of congressional office, but also undermines investor confidence in the fairness and integrity of the securities market...
As I have noted, buying or selling stock based on nonpublic information from Congress does not clearly run afoul of current insider trading laws. For this reason, I joined forces with Ranking Member Slaughter to introduce the Stop Trading on Congressional Knowledge, or STOCK Act, earlier this week to put an end to this troubling practice."
Mar. 20, 2006 - Brian Baird, PhD
Common Cause, Democracy 21, League of Women Voters, Public Citizen and US PIRG, wrote in their Mar. 4, 2009 letter regarding the Stop Trading on Congressional Knowledge (STOCK) Act to US Representatives Brian Baird, PhD, (D-WA), Louise M. Slaughter, MS, (D-NY), and Tim Walz, MS, (D-MN):
"...Common Cause, Democracy 21, League of Women Voters, Public Citizen and U.S. PIRG – strongly support passage of the 'Stop Trading on Congressional Knowledge Act' (H.R. 682)... The legislation would prohibit members of Congress, congressional staff and other federal employees from using non-public information obtained through their official duties for personal gain in the stocks and commodities markets. It would also prohibit private individuals and firms who attempt to mine such information from public officials to use it for insider trading. This legislation is critically important as the federal government increases its regulation and oversight – and invariably insider knowledge – of prospective business opportunities of banks and financial services companies...
With the federal government assuming a far greater role over the financial services industry, the opportunity and temptation for federal employees to cash in on their insider knowledge of legislation, rules and even business trends that can have a dramatic and immediate effect on the stock market will become all the more dangerous. Members of Congress and federal employees should be required to live by effective restrictions on insider trading."
Mar. 4, 2009 - Common Cause
League of Women Voters
Stephen M. Bainbridge, MS, JD, William D. Warren Professor of Law at the University of California, Los Angeles (UCLA) School of Law, wrote in his Mar. 30, 2006 post "Insiders on the Hill" on TCSDaily.com (Technology Commerce Society Daily):
"A few thoughts:
1. Stock trading by Congressmen and their staffs presents a double-edged conflict of interest. They may vote on the basis of their trading plans or trade on the basis of their voting plans...
2. Congress has lots of access to confidential information, but one key source is its power to investigate. Do we want Congress 'investigating' companies so that members or staffers can get stock tips?
3. Congressional insider trading is a real problem... A study of trading by US Senators found that they were earning rates of returns from stock trading that would make Warren Buffet proud. The study's authors found that 'the senators also appeared to know exactly when to buy or sell their holdings. Senators would buy stocks just before the shares suddenly would outperform the market by more than 25%.' As every investor knows, you can't do that sort of thing routinely without having access to nonpublic information...
Congress often exempts itself from the laws that apply to everybody else. In most cases, we might infer that it is the laws in question that are a bad idea. In this case, however, it is the Congressional exemption that is the bad idea. This gaping conflict of interest needs to be staunched."
Mar. 30, 2006 - Stephen M. Bainbridge, MS, JD
Andrew T. George, JD, Graduate of the University of Virginia School of Law, wrote in his article "Public (Self)-Service: Illegal Trading on Confidential Congressional Information," published in the Winter 2008 Harvard Law Review:
"It is difficult to imagine a more obvious betrayal of the public trust. It is even more difficult to imagine that such behavior could be completely legal. But that is exactly the conventional wisdom today. Trading on congressional knowledge seems intuitively unfair, but it is almost universally believed to be legal by securities attorneys, legal academics, and even members of Congress...
[I believe, however] that under the 'misappropriation theory' of insider trading, trading on material nonpublic congressional information is already decidedly illegal."
Winter 2008 - Andrew T. George
Matthew Barbabella, Editor of the Yale Law Journal, Daniel Cohen, financial consultant, Alex Kardon, Editor of the Yale Law Journal, along with Peter Molk, Articles Editor of the Yale Journal on Regulation, all JD candidates at Yale Law School, wrote in their paper "Insider Trading in Congress: The Need for Regulation" posted on the Social Science Research Network (SSRN) website and last updated on Feb. 9, 2009:
"We suggest that Congressional insider trading should be regulated... There is credible evidence that Congressional insider trading has occurred in the past, and that the current patchwork of laws and norms is inadequate to stop its future practice. There is also a presumption, based on the feelings of Americans and the obvious analogy to corporate insider trading, that Congressional insider trading is inequitable and should be illegal. The best arguments for corporate insider trading are not applicable enough to Congressional insider trading to overcome this presumption. Thus, the legality of Congressional insider trading constitutes an unfortunate gap in securities law—one that should be filled by an amended version of the STOCK [Stop Trading on Congressional Knowledge] Act, or some other similar regulation."
Feb. 9, 2009 - Matthew James Barbabella
Thomas Lee Hazen, JD, Cary C. Boshamer Distinguished Professor of Law at the University of North Carolina at Chapel Hill School of Law, wrote in his June 4, 2008 email to ProCon.org:
"...I think that there is a major flaw in the current securities laws which do not provide a statutory definition of insider trading. I have long believed that such a definition should be adopted and would certainly favor a definition that would make it clear that governmental officials would be covered as well."
June 4, 2008 - Thomas Lee Hazen, JD
Peter J. Henning, JD, Professor of Law at Wayne State University Law School, wrote in his May 3, 2008 email to ProCon.org:
"Members of Congress and their staff should be prohibited from trading on information related to the status of pending legislation and other policy initiatives by Congress. This type of information is just as important to the markets as internal corporate information, such as earnings or possible acquisitions. It is appalling that Congress does not explicitly prohibit such trading."
May 3, 2008 - Peter J. Henning, JD
Alan J. Simpson, President of Communication Links, Inc., wrote in his June 13, 2008 email to ProCon.org:
"Politicians have used their positions and knowledge to line their pockets since the Stone Age. Some like Vice President Cheney have taken it to new heights. The question also begs an answer for 'Should Congress be allowed to receive bribes, or contributions to insert already written sections from Lobbyists into legislation?' This is the ultimate form of insider trading, where the group that benefits drafts the legislation, and of course quietly let's themselves and friends position their investments to maximize financial gain long before the information is even before the legislature... Insider trading by any means should be illegal for any members of Government."
June 13, 2008 - Alan J. Simpson
Louise M. Slaughter, MS, US Representative (D-NY), stated in her May 16, 2007 press release "Reps Slaughter & Baird Introduce Legislation to Prohibit Insider Trading on Capitol Hill," on her website:
"Insider trading is unethical whether it draws on information obtained from Congress or from companies themselves. Members of Congress and federal employees often know what is happening before everyone else. They have access to incredibly sensitive information that can have a dramatic effect on the stock market. The potential for the improper use of that information is very real."
May 16, 2007 - Louise M. Slaughter, MS
Jane Elizabeth Hughes, MA, MBA, Professor at the Neil D. Levin Graduate Institute of International Relations and Commerce at the State University of New York, wrote in her Mar. 24, 2009 email to ProCon.org:
"When discussing decisions that fall into moral and legal gray areas, I often ask my students: How would this look on the front page of the New York Times? If the answer is 'terrible,' then my advice is simple: don't do it. I think it's clear that insider trading by members of Congress does not pass this test. The fundamental principle underlying laws on insider trading is the notion that financial markets should be a fair and even playing field, not one where certain huge titans have unreasonable advantages over the widows and orphans. While we all know that the reality of financial markets is far less benign, this is not a good reason to abandon the principle altogether. We don't give up on speed limits because many people routinely ignore them...
Similarly, the argument that we shouldn't bother legislating against insider trading by Congress because it would be impossible to enforce is worrisome. If we applied that principle to all laws, we would be veering toward anarchy. Moreover, as the Historical Timeline suggests, insider trading is difficult but not impossible to enforce. Indeed, the SEC [US Securities and Exchange Commission] and NYSE [New York Stock Exchange] have developed sophisticated technology to spot insider traders...
Finally, it is worth noting that public scorn of Congress has never been lower. The public trusts its congressional representatives less than it does used car salesmen; less than 20 percent of the American people approved of the job Congress was doing in September 2008. This distrust is firmly rooted in both the perception and the reality of congressional antics over the past decade or so. Surely congressional representatives have ample opportunity to enrich themselves after they leave office; they should not require the benefit of insider trading to do so while they are serving at the will of their people.
The principle of a fair playing field is and should remain sacred (tarnished though it may be). There's no excuse for abandoning it."
Mar. 24, 2009 - Jane Elizabeth Hughes, MA, MBA
Rick Wartzman, Director of the Drucker Institute at Claremont Graduate University, wrote in his Mar. 26, 2009 email to ProCon.org:
"I can't begin to imagine how anyone could justify members of Congress buying or dumping stock on the basis of non-public information they've learned by virtue of their positions as lawmakers. These folks are sent to Washington for the public good, not for private gain."
Mar. 26, 2009 - Rick Wartzman
The Seattle Post-Intelligencer editorial board, wrote in its Mar. 30, 2006 online opinion article, "Insider Trading: Congress for Sale":
"Congress enacted the Securities Act of 1933, which required registration of publicly traded companies -- making more information open and available to the public. A year later, Congress added more protections for investors. One of those provisions made it illegal to trade stock by corporate insiders who were privy to special information that could help or hurt a stock.
After this generation's corporate scandals, Congress passed Sarbanes-Oxley in 2002 to improve corporate governance and audit independence. But one of the measures added reporting requirements and tougher standards for insider trading.
Unfortunately, Congress forgot itself. It remains perfectly legal for a member of Congress to buy and sell stocks based on information that's not available to the public...
'This is simply wrong that members of Congress can exchange information...and get rich on it,' says Rep. Brian Baird, D-Wash., who is co-sponsor of a bill [the STOCK Act] to prohibit insider trading by members of Congress and their staffs...
We think Baird's right. Even if a congressional insider trading ban comes seven decades too late."
Mar. 30, 2006 - Seattle Post-Intelligencer