Congress Mulls Trading Curbs for Its Own
Tuesday, July 14, 2009
A congressional committee yesterday pushed for stronger curbs to prevent financial trading based on confidential information by lawmakers, their staff or other government officials.
Lawmakers and market experts said stronger limits are needed now that the government is playing a much bigger role in the private sector as a result of the financial crisis. They said it is much more likely that policymakers will know market-sensitive information about public companies.
"Congress and the federal government are now so enmeshed in the operations of our financial markets that the potential for abuse by members of Congress, congressional staff and federal employees is staggering," Rep. Louise Slaughter (D-N.Y.) said at a hearing of the oversight and investigations subcommittee of the House Committee on Financial Services.
Slaughter and Rep. Brian Baird (D-Wash.) have introduced legislation that would prohibit lawmakers and their staffs from trading stocks or engaging in other financial transactions based on information they learn in their jobs that is not also available to the public.
Currently, there is no prohibition.
Under the proposal, lawmakers and their staff would have to disclose any stock, bond or commodity trades exceeding $1,000 within 90 days. They also would not be able to pass confidential information to outsiders.
A vote on the legislation has not been scheduled.
There has been no specific evidence of insider trading by lawmakers or their aides. But suspicions surface from time to time. A 2004 study by a Georgia State University professor said senators got returns on investments 25 percent higher than ordinary investors.
And recent disclosures showed that many lawmakers have sizeable investments in the financial firms that have been bailed out over the past year.
Executive-branch employees are supposed to follow government ethics rules that prohibit trading based on nonpublic information. However, the conduct of two Securities and Exchange Commission employees came into question recently in an inspector general's report raising concerns about the timing and appropriateness of trades by the employees.
Inspector General David Kotz said this was indicative of a broken system at the SEC for ensuring that workers don't abuse their positions.
"The SEC had essentially no compliance system in place to ensure that its own employees, with tremendous amounts of nonpublic information at their disposal, did not engage in insider trading themselves," Kotz said yesterday.
The SEC issued a statement describing what it is doing to try to improve internal safeguards. "The employees at the SEC have a well-deserved reputation for integrity and professionalism," the statement says. "When fully implemented, these measures will further bolster our standing by helping to prevent not only an actual impropriety, but the appearance of one as well."
Kotz said the steps the SEC outlined would meet or exceed his recommendations.