PERHAPS BECAUSE so much junk gets attached to massive money bills in the hurried closing days of a congressional session, we are always pleasantly surprised to find that a good provision has been added as well. An amendment offered by Sen. Frank Lautenberg (D-N.J.) is just such a worthwhile, if little noticed, bit of legislative business.
In 1984 Congress increased criminal and civil penalties for insider trading, the fraud in which persons with supposedly closely held information about certain stocks are able to make money by trading before that information is made known to the public. While it is difficult to obtain convictions in these cases because the evidence of insider dealing is often circumstantial, Congress intended to send a strong message to traders that the offense is serious and will be punished accordingly.
In October, without any notice to Congress, the SEC or the public, the U.S. Parole Commission issued a new guideline on the granting of parole in insider trading cases. It provides that a person serving a sentence for this fraud involving as much as $1 million will be eligible for parole as soon as he begins serving his sentence. If the fraud exceeded $1 million, a prisoner would be eligible for parole in 12 to 18 months. Sen. Lautenberg noticed this announcement and objected. He pointed out that other white-collar criminals convicted of frauds involving $500,000 or more must serve 40 to 52 months before becoming eligible for parole and asked why inside traders should be treated with any more leniency.
The Parole Commission apparently views inside trading as similar to an anti-trust violation rather than a fraud, but the Securities and Exchange Commission staff does not. Neither, it is now clear, does Congress. Sen. Lautenberg's amendment suspending the new Parole Commission rule for six month was adopted as part of the continuing resolution.
Prisons are primarily for violent or chronic offenders, and white collar criminals -- especially first offenders -- can usually be punished in some other way. But in egregious cases where prison sentences are given, there is no reason to grant special parole benefits in one kind of fraud case and not another. This is particularly true in the case of insiders who are usually wealthy and prominent members of the community. The Parole Commission has six months to explain the reasoning behind the proposed new rule or take the wiser course of abandoning it entirely.