A deeply divided House committee debated Tuesday whether to pass a high-profile bill that would prohibit members of Congress from buying and selling stocks based on non-public information they learn about through their work on Capitol Hill.
Several panel members — backed in part by the testimony of a Securities and Exchange Commission official — said the measure is not needed because existing laws and congressional ethics rules ban such action. They also said they worry that the bill, known as the Stop Trading on Congressional Knowledge (STOCK) Act, could be used to unfairly tarnish members.
“I’m concerned that this could become a witch hunt,” Rep. Carolyn McCarthy (D-N.Y.) said during the two-hour Financial Services Committee hearing. “Members are not out to make a quick buck.”
The resistance prompted Rep. Tim Walz (D-Minn.), a key co-sponsor of the legislation, to chastise his colleagues.
“If you think 9 percent approval rating is bad, drag it out and don’t do anything,” he said.
The hearing struck a very different tone from one held last week on two similar bills before a Senate committee. Members of the Senate Committee on Homeland Security and Governmental Affairs said the bills should be retooled and quickly passed to restore the public’s confidence in Congress.
The Senate and House measures would ban members and their staffs from trading on information they learn about as they craft legislation. They also would require that stock trades be reported within 90 days.
Robert Khuzami, the director of the Security and Exchange Commission’s division of enforcement, said that current laws could be used to go after a lawmaker but that successful prosecution could be difficult. He recommended that a fairly simple bill be passed, which clearly states that members have a “duty of trust and confidence” not to use non-public information they come across for “private gain.”
The SEC rule that is traditionally applied to insider-trading cases hinges on fiduciary duty — a relationship of financial trust — that a company official has exploited in using sensitive, non-public information for personal gain.
“If we were to bring a case now, there is a risk that a judge could say that no such duty exists,” Khuzami said.
The bill should be strengthened in several areas, he said. Disclosure, he argued, should be filed electronically every few days and made available to the public in a searchable database.
He also said the measure should prohibit members and their staffs from tipping off friends, family members, lobbyists or others.
The first version of the STOCK Act was introduced in 2006. But it languished with little support until Nov. 13, the day a piece ran on “60 Minutes” 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 Peter Schweizer, a fellow at Stanford University’s Hoover Institution.
Both the Senate and House committees plan to revise their versions of the STOCK Act before the end of the year.