A scaled-back ethics bill headed toward likely passage in the House on Thursday despite complaints from senators that Republican leaders had jettisoned several key provisions that won overwhelming Senate support last week.
House Majority Leader Eric Cantor (R-Va.) unveiled legislation that formally bans lawmakers and staff members from making financial trades based on non-public information they receive in their positions. Rather than holding an open, freewheeling debate, as the Senate did last week, House Republicans have put the ethics legislation on a fast-track schedule that forbids amendments and requires a two-thirds majority for passage.
Despite those restrictions, Republican and Democratic leaders pledged their support for their version of the Stop Trading on Congressional Knowledge Act, or Stock Act, on Wednesday, making its passage highly likely and setting up a showdown with the Senate over how to reconcile the competing measures.
Cantor nixed a provision that would have required a burgeoning K Street industry of consultants who glean inside information about legislative proposals, then alert their clients — hedge funds and other investment houses — about the likely outcome so they can buy or sell their stakes in advance. Unlike federally registered lobbyists, who disclose their actions and sources of income, the political intelligence industry has operated below the radar.
“It’s astonishing and extremely disappointing that the House would fulfill Wall Street’s wishes by killing this provision,” said Sen. Charles E. Grassley (R-Iowa), sponsor of the Senate-approved amendment. “The Senate clearly voted to try to shed light on an industry that’s behind the scenes.”
Instead, the House version will mandate a federal study of the industry — which has annual revenue of $100 million to $400 million — so recommendations can be made for legislative action next year. Laena Fallon, a Cantor spokeswoman, said the Grassley version “was extremely broad and its impact would have raised more questions than it answered” because it did not properly clarify who would have to disclose their actions, as lobbyists do.
In addition, the Cantor draft dropped a bipartisan provision that the Senate approved on a unanimous voice vote that would have restored some elements of federal corruption law that the Supreme Court unanimously rejected last year. This “honest services” provision served as the basis for the prosecution of lawmakers, lobbyists and former congressional staffers in connection with the investigation of lobbyist Jack Abramoff, as well as the prison sentences issued to Enron executives, but it was declared overly broad by the court.
A bipartisan group from the House and Senate judiciary committees had crafted language restoring some “honest services” provisions.
“If we are serious about restoring faith in government and addressing the kinds of egregious misconduct that we have witnessed in recent years in high-profile public corruption cases, Congress must act now to enact serious anti-corruption legislation,” Sen. Patrick J. Leahy (D-Vt.) said.
House GOP leaders have also forbidden a vote on an amendment to permanently ban line-item spending measures, instead preferring the current earmark moratorium. Rep. Jeff Flake (R-Ariz.) cited The Washington Post’s series this week on earmarking as reason to push a permanent ban.
“If we’re going to remedy insider trading, we ought to remedy this,” he said Wednesday.
Cantor added one measure that was meant as a political poke at Democrats, what aides call the “Pelosi provision,” because it restricts lawmakers from receiving access to initial public offerings of stock. Businessman Paul Pelosi, husband of House Minority Leader Nancy Pelosi (D-Calif.), participated in Visa’s IPO, purchasing 5,000 shares in the fall of 2008. Pelosi’s aides said the transaction was made through his regular broker and have since noted that she was a proponent of legislation in 2009 that the credit card industry opposed.
Pelosi’s spokesman, Drew Hammill, said that the bill was not the bipartisan measure that 285 members had co-sponsored and that Cantor had “considerably weakened” it but that Pelosi supported moving forward on the measure.
“Leader Cantor has put roadblock after roadblock up to slow this bill down, and it is now clear that the only way to heed the president’s call is to pass Cantor’s bill so we can get a conference committee where Democrats will strengthen the final legislation,” Hammill said.
The main thrust of the legislation remains intact, formalizing that insider-trading laws enforced by the Securities and Exchange Commission and other federal entities apply to those working on Capitol Hill and senior advisers in the executive branch. No case of congressional insider trading has been prosecuted, although some legal experts suggest current law would allow for it.
Two other measures that were added to the Senate bill have also been included in the Cantor draft: a requirement that lawmakers and senior executive branch aides disclose details of the mortgage on their primary residences, and a ban on bonuses for top executives at Fannie Mae and Freddie Mac.