US Congressional Ethics Rules on Insider Trading

Some government officials--by virtue of their position to regulate industries, enact legislation, or render court decisions affecting businesses--have access to nonpublic, market-moving information that can give them an advantage in the stock market. A 2004 Georgia State study revealed that US Senators' stocks on average beat the market average by 12.3% annually.

Under current insider trading law, it is unclear whether government officials trading securities based on material, nonpublic government information are liable for insider trading. The executive branch has established laws [i.e. Executive Order 12674] with criminal or civil penalties against the use of nonpublic information gained on the job for personal financial gain.

The legislative and federal judiciary branches, however, have codes of conduct (from here on categorized as "rules,” which are not legally binding) or no rules at all addressing the use of material, nonpublic legislative or judicial information for personal financial gain.

The following chart compares the laws or rules (if any) that are in place against the use of material, nonpublic information gained from government work in the legislative, executive and judiciary branches, and the 132 independent agencies of the federal government.

For a moral perspective of congressional insider trading compared to traditional corporate insider trading, read an analysis by Stuart P. Green, JD, Professor of Law and Justice Nathan L. Jacobs Scholar at Rutgers School of Law.

"...Never use any information coming to him confidentially in the performance of governmental duties as a means for making private profit..."

Ethics Manual for Members, Officers, and Employees of the US House of Representatives (36KB) , 1992

In 1968, the Senate adopted a resolution creating the Senate Code of Conduct, which is a series of written internal rules of ethics defining behavioral standards for the Senate. Rule 37(1) of the Senate Code of Conduct states that ‘‘A Member, officer, or employee of the Senate shall not receive any compensation, nor shall he permit any compensation to accrue to his beneficial interest from any source, the receipt or accrual of which would occur by virtue of influence improperly exerted from his position as a Member, officer, or employee.’’

In 1993, the Senate Select Committee on Ethics published a manual of regulations called the Senate Ethics Manual to help Senators comply with the Code of Conduct and related ethics laws by issuing interpretative rulings and advisory opinions. The Senate Ethics Manual states that Rule 37(1) is "intended ‘as a broad prohibition against members, officers or employees deriving financial benefit, directly or indirectly, from the use of their official position[s].’”

The Senate Ethics Manual also states in its "Financial Disclosure" chapter (p. 124) that "Members should not 'be expected to fully strip themselves of worldly goods'— even a selective divestiture of potentially conflicting assets is not required. Unlike many officials in the executive branch, who are concerned with administration and regulation in a narrow area, a Senator exercises judgment concerning legislation across the entire spectrum of business and economic endeavors. The wisdom of complete (unlike selective) divestiture may also be questioned as likely to insulate a legislator from the personal and economic interests that his or her constituency, or society in general, has in governmental decisions and policy."

Senate Code of Conduct (116 KB) , 2011
Senate Ethics Manual (2.8MB) , 2003

• Food and Drug Administration (FDA)
• Environmental Protection Agency (EPA)
• Department of Defense (DoD)
• Office of the Permanent Representative to the United Nations
• Drug Enforcement Agency (DEA)
• Bureau of Alcohol, Tobacco, Firearms, and Explosives
• etc.

17 Executive Offices
(32KB)

• Office of the President
• Office of the Vice President
• Office of the First Lady
• etc.

Law

"...Employees shall not engage in financial transactions using nonpublic Government information or allow the improper use of such information to further any private interest..."

Executive Order 12674 (42KB) 1989
Executive Order 12731 (45KB) 1990

"The [US Supreme Court] Justices are not bound by the Code of Conduct [for United States Judges], but they look to it for guidance."

Spokesperson for the US Supreme Court Public Information Office in an email to ProCon.org, June 15, 2008

• Circuit Court Judges
• District Court Judges
• Bankruptcy Judges
• Court of International Trade Judges
• Magistrate Judges
• Tax Court *
• Court of Appeals for Veteran Affairs *
• Court of Appeals for Armed Forces *

* These federal courts are outside of the judiciary branch. They were established by Congress to carry out duties related to legislative branch powers.

Rule

"...Information acquired by a judge in the judge's judicial capacity should not be used or disclosed by the judge in financial dealings or for any other purpose not related to the judge's judicial duties..."

Code of Conduct for United States Judges (73KB) Sep. 2000

132 Independent Agencies**(73KB)

• Central Intelligence Agency
• Securities and Exchange Commission
• National Aeronautics and Space Administration (NASA)
• United States Postal Service
• Federal Reserve System
• United States Agency for International Development (USAID)
• etc.

** USA.gov, a US government information website, provided the following definition of independent agencies (accessed July 24, 2008):
"Independent establishments are created by Congress to address concerns that go beyond the scope of ordinary legislation. These agencies are responsible for keeping the government and economy running smoothly."

       Law

 "...Employees shall not engage in financial transactions using nonpublic Government information or allow the improper use of such information to further any private interest..."

Executive Order 12674 (42KB) 1989
Executive Order 12731(45KB) 1990

A Moral Perspective on Congressional v. Corporate Insider Trading

Stuart P. Green, JD, Professor of Law and Justice Nathan L. Jacobs Scholar at Rutgers School of Law, wrote in a 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."