For six years, Rep. Louise M. Slaughter pressed her colleagues to co-sponsor legislation that would ban them from using information they gleaned on Capitol Hill to guide their trades in the stock market.
Most lawmakers bristled, offended by the mere suggestion that they would ever engage in such behavior. Others politely listened but walked away — some as recently as last month. Slaughter (D-N.Y.) never expected to hear from them again.
But now, as the Senate Homeland Security and Governmental Affairs Committee prepares to hold the first of two congressional hearings on the topic, Slaughter’s Stop Trading on Congressional Knowledge (STOCK) Act has become an overnight sensation.
Slaughter has 127 co-sponsors, up from the nine she had on Nov. 12, the day before “60 Minutes” aired a piece highlighting investments that congressional leaders made in companies while legislative efforts were underway that may have affected stock values. The piece was based on “Throw Them All Out,” a book released last month by Hoover Institution fellow Peter Schweizer.
“I’ve never seen such an explosion of interest,” said Slaughter, who has served in Congress since 1987. “The day after it ran, when I went through the airport, the TSA agents were asking me about the bill. Suddenly, everyone was interested.”
The piece also sparked interest for the first time in the Senate, where Sens. Scott Brown (R-Mass.) and Kirsten Gillibrand (D-N.Y.) soon introduced separate bills.
Classic insider trading usually involves senior company officials who use their inside knowledge about their firms to benefit themselves financially. It is prohibited by law. No law explicitly prevents members of Congress from profiting on information they pick up in briefings about companies, industries or the economy.
All three bills propose to ban lawmakers and their staffs from using non-public information in making trades on Wall Street. Lawmakers and their top staffers would also be required to report securities transactions in excess of $1,000 within 90 days. Currently, members of Congress report annually, and many do not disclose the dates of trades.
The potential conflicts posed by lawmakers’ investments have received growing media coverage in recent years, in articles in The Washington Post, the Wall Street Journal and the Atlantic magazine. Schweizer said he decided to focus on congressional stock trades after reading a Post article in December 2010 about how Armed Services Committee members are allowed to own stock in major defense companies, even though they require presidential appointees to divest in any company that does at least $25,000 in business with the Pentagon.
“That cast everything into relief,” Schweizer said. “They can own stock in companies that are major defense contractors, and this guy over here has to sell his Coca-Cola stock? That got me angry.”
Of all the lawmakers who have joined with Slaughter in recent days, only Rep. Barney Frank (D-Mass.) has publicly acknowledged that he ignored her previous appeals and now regrets it. In a Nov. 16 letter to Rep. Spencer Bachus (R-Ala.), Frank requested a hearing on the issue before the House Financial Services Committee — now scheduled for Dec. 6 — saying he believed that he “neglected to act on a matter that I think is important in establishing confidence in our constituents that we are serving them faithfully.”
Indiana University law professor Donna M. Nagy, an expert in securities law, is scheduled to testify at Thursday afternoon’s hearing and will tell members of the Senate homeland security panel that she thinks Securities and Exchange Commission Rule 10b-5 already prohibits lawmakers from making insider trades.
Under the anti-fraud provision, Nagy said, congressional “insider information” would be treated as property of the United States. Prosecutors could make a fraud case against lawmakers who “secretly misappropriated government property for their own personal benefit,” she said.
Sen. Joseph I. Lieberman (I-Conn.), who will lead Thursday’s hearing, said he thinks that the SEC rule “clearly covers members of Congress and our staff,” but he added that he is open to something like the STOCK Act that “both deters such unethical behavior and punishes it when it happens.”
Lawmakers who were singled out by “60 Minutes” or Schweizer have challenged the assertions made against them.
Rep. Nancy Pelosi (D-Calif.) denied that she did anything improper in participating in a Visa initial public offering in 2008 at a time when credit card legislation was working its way through Congress.
Through a spokesman, Pelosi said she did not act on inside information or receive any special consideration from Visa. She also said she did not block any legislation on Visa’s behalf and was in the forefront of fighting for credit card reform.
“It’s nothing more than preposterous fantasy devoid of any fact,” Pelosi spokesman Drew Hammill said of Schweizer’s assertions.
Bachus denounced the implication that he had used insider information gleaned from a briefing with then-Treasury Secretary Henry M. Paulson Jr. He also said the book erred when it said he made a bet that General Electric stock would fall.
“The book is absolutely false and factually inaccurate when it states that I ‘shorted General Electric options’ and did so ‘four times in a single day,’ ” Bachus wrote in a statement to the publisher. “The truth is I bought call options on General Electric stock, which is an investment made when one thinks a stock will rise.”
Schweizer has admitted that he made a mistake on the GE trades. But he said his larger point about congressional conflicts of interest still stands. “Why is he allowed to set policy for the nation at the same time he does this kind of trading?” he asked.
Database editor Dan T. Keating contributed to this report.