The Senate on Monday began its most substantial debate on congressional ethics in nearly five years, a proposal that would formally prohibit insider stock trading on Capitol Hill and bring the chamber’s financial disclosure laws up to date with technology.
On a wide bipartisan vote of 93 to 2, senators agreed to begin debate on legislation that would ban members of the House and Senate, as well as their staffs, from enriching themselves by using “any non-public information derived from the individual’s position” in Congress. The legislation follows several media reports last year that showed lawmakers and their staff members had financial holdings in corporations while they were involved in sensitive congressional negotiations that could affect the bottom line of those industries.
Promoted for several years by backbench House members who could not find co-sponsors for their bill, the STOCK Act is considered a politically important vehicle for lawmakers to demonstrate their ethical fortitude. Its main champions are a pair of junior senators, Scott Brown (R-Mass.) and Kirstin Gillibrand (D-N.Y.), who won special elections last year and are running for full terms. Other incumbents facing difficult elections have jumped on board.
The legislation has the rare backing of President Obama, Senate Majority Leader Harry M. Reid (D-Nev.) and House Majority Leader Eric Cantor (R-Va.).
“Right now, the American public has no confidence in Congress. . . . You need to instill basic confidence that we play by the same rules,” Gillibrand told reporters Monday.
During floor debate, Brown noted that some legal experts contend that the Securities and Exchange Commission could “theoretically” prosecute insider trading at the Capitol. However, he added, “the state of law right now is very unsettled.”
The ethics debate — the chamber’s first since its rules were rewritten in 2007 — is likely to last several days and the legislation could be amended. Its main focus is to make clear that “members of Congress and employees of Congress are not exempt from the prohibitions” of SEC laws prohibiting insider trading. In addition, the legislation would require the Senate to file its annual financial disclosure forms in an electronic way that is easy to search, an attempt to erase the chamber’s anachronistic ways to file paper forms.
Another key item provides for an investigation of so-called political intelligence operations. In a report last month, the Wall Street Journal illustrated how hedge fund managers scored meetings with key lawmakers negotiating pieces of the health-care legislation in the days leading up to its public introduction, learning about its scope before the general public did. The meetings were set up by a former lobbyist now working for hedge funds searching for ahead-of-the-curve information about legislation.
One group, Integrity Research Associates, estimates that the political intelligence industry brings in more than a $100 million annually. Current law requires that only those who are working to influence legislation must register as federal lobbyists — as opposed to those who are trying to glean the outcome and trading on that knowledge.
The House is expected to take up the legislation next month, although Cantor’s office said Monday that its version will have some distinctions. The House bill is likely to ensure that Congress and the executive branch have the same restrictions and also expand the prohibitions of “insider” enrichment to include land deals and other financial transactions beyond stock trades.