Should Members of Congress Be Permitted to Profit From Insider Information?

[WhoWee]

It was reported by 60 minutes that members of Congress may have benefited personally from information gained during the course of their work. This behavior is strictly prohibited on Wall Street - should the same rules apply to elected officials?

http://www.newsmax.com/InsideCover/pelosi-stock-insider-60minutes/2011/11/13/id/417848
"Former House Speaker Nancy Pelosi bought stock in initial public offerings (IPOs) that earned hefty returns while she had access to insider information that would have been illegal for an average citizen to trade with – even though it’s perfectly legal for elected officials, CBS’s "60 Minutes" reported Sunday night.

In a piece relying on data collected from the conservative Hoover Institution, "60 Minutes" revealed that elected officials like Pelosi are exempt from insider trading laws – regulations that carry hefty prison sentences and fines for any other citizen who trades stocks with private information on companies that can affect their stock price.

In the case of elected officials – this secret information ranges from timely details on lucrative federal contracts to legislation that can cause companies’ stocks to rise and fall dramatically. "
***
This story follows another account:
http://nation.foxnews.com/nancy-pelosi/2011/09/28/obama-gives-737-million-solar-firm-linked-pelosi-clan

"Obama Gives $737 Million to Solar Firm Linked to the Pelosi Clan"
****

Accordingly, members are calling for a probe:
http://www.newsmax.com/Headline/pel...g/2011/11/17/id/418450?s=al&promo_code=D8A9-1
"Lieberman, chairman of the Senate Committee on Homeland Security and Governmental Affairs, announced Wednesday that the committee would hold a hearing to examine how insider trading laws apply to Congress.

“Insider trading by members of Congress — if it occurs — is a serious breach of the public trust,” said Lieberman.

“No one in Congress should be enriching themselves based on information to which the general public has no access,” said Lieberman. “Our hearing will set the record straight about how existing laws and ethics rules apply to Congress and whether they are sufficient to prevent unethical market trading.”

In the House, Reps. Louise Slaughter, D-N.Y., and Tim Walz, D-Minn., who had already re-introduced the measure in March, issued a statement urging the bill to be taken up.

The insider trading probe gained steam with the publication of a new book, “Throw Them All Out,” by conservative author Peter Schweizer, a research fellow at Stanford University's Hoover Institution and one-time aide to Sarah Palin, who details alleged abuses by politicians on both sides of the House and Senate.

The book was heavily featured on Sunday’s "60 Minutes" with reporter Steve Kroft going after leaders of the two parties in the House on camera. Both Speaker John Boehner and former Speaker Nancy Pelosi denied they had done anything wrong."

 

[MarcoD]

Uh, this is a clear no, right?

It is only a tiny step to go from "Oh, I'll invest in XYZ since I know the stock is going up since that legislation will pass" to "Oh, if I buy stock of XYZ and I vote for that legislation then my stocks go up." In reality, the two are even indistinguishable.

Normally, you'ld get thrown out, or even jailed, for a conflict of interest in these cases?

 

[WhoWee]

Uh, this is a clear no, right?

It is only a tiny step to go from "Oh, I'll invest in XYZ since I know the stock is going up since that legislation will pass" to "Oh, if I buy stock of XYZ and I vote for that legislation then my stocks go up." In reality, the two are even indistinguishable.

Normally, you'ld get thrown out, or even jailed, for a conflict of interest in these cases?

Unbelievably, unlike the rules for traders, it doesn't appear to be cut and dry for elected officials. The reason I posted the second link was to expand the conversation beyond the obvious fix of requiring blind investment trusts for elected leaders and perhaps senior staff members.

What about family members - such as brother in-laws and second/third cousins - is it necessary for their business interests to be disclosed or (in an effort not to create a reporting nightmare) should cases of abuse by family members be prosecuted to the fullest extent of the law?

 

[Astronuc]

It was reported by 60 minutes that members of Congress may have benefited personally from information gained during the course of their work. This behavior is strictly prohibited on Wall Street - should the same rules apply to elected officials?

I think the rules should apply to elected officials. If it's wrong/illegal for Wall Street or anyone else outside of Congress, it should illegal inside of Congress. There should be no special exemptions in such cases for folks in government.

 

[MarcoD]

Unbelievably, unlike the rules for traders, it doesn't appear to be cut and dry for elected officials. The reason I posted the second link was to expand the conversation beyond the obvious fix of requiring blind investment trusts for elected leaders and perhaps senior staff members.

I checked it. This is only criminal behavior for the top officials in the Netherlands (they basically need to resign all conflicting positions and dispose of their stock), and partly prosecutable under normal law for other officials. If anyone finds out of conflict of interest, you're out though.

What about family members - such as brother in-laws and second/third cousins - is it necessary for their business interests to be disclosed or (in an effort not to create a reporting nightmare) should cases of abuse by family members be prosecuted to the fullest extent of the law?

Yah, we had a case like this where a top official of a real estate firm made money by making his sister in law rich. It complicates it somewhat judicially, but he was prosecuted and fined some tens of millions.

I really doubt it is that different in the US though...

(Netherlands are a bit picky on this though. The conflict of interest questions extend to whether government officials may take high positions in industry they governed during previous terms. I.e., may a minister of energy become a head-honcho in an energy firm after his public career? I guess most of the US would find that a natural thing to do, a bonus for a career of public service, where most in the Netherlands don't like the conflict because of scenarios like: "If you'll do this for us, we'll give you that job with this .5 million salary.)

 

[WhoWee]

I think the rules should apply to elected officials. If it's wrong/illegal for Wall Street or anyone else outside of Congress, it should illegal inside of Congress. There should be no special exemptions in such cases for folks in government.

I agree, but we need to be realistic about how these people are compensated. If you listen to the testimony regarding Freddie/Fannie executives it brings this into focus. To summarize, the regulator asked Congress how do you expect to attract people competent enough to manage $Trillions and pay them Government level wages (instead of the $Millions being questioned)?

Keeping this in mind, I ask how can we expect members of Congress to serve an unlimited number of years and work for less than the amount paid to the President (who is limited to 8 years) and will earn book and speaking fees after leaving office?

I think we either need strict term limits (especially) in the House and/or pay them on an increasing basis - maybe increase their base annual compensation by $200,000 per consecutive term? I've long argued we should pay Senators at least $1 million annually - and punish bad behavior to the fullest extent of the law.

These steps might accomplish several things.
1.) Attract better talent
2.) Voters might look closer at candidates
3.) Eliminate need to seek outside sources of income
4.) Justify aggressive prosecution of bad behavior

 

[turbo]

You can vote a common citizen to Congress, and after a couple of terms if (s)he comes back home that "common citizen" is a millionaire. How can that be, if you have sent them to live on a relatively modest salary in one of the most expensive US cities to live in?

Bribery is endemic in DC. I don't care if its called "speaking fees" or strategic "advice" - it is bribery. I get lots of emails from Susan Collins and Olympia Snowe. Neither of them ever reply, so I have stopped trying. If I was one of the Koch brothers, I might get a reply (even a personal phone call) but these elected officials are doing nothing for me.

 

[Char. Limit]

The answer is obvious: of course not.

 

[russ_watters]

The question is: is it really insider information? The proceedings of Congress are public, right?

 

[Oltz]

Not at the committee level

 

[WhoWee]

The question is: is it really insider information? The proceedings of Congress are public, right?

Intelligence and Defense are typically closed. Also, the healthcare debate comes to mind - closed door sessions, now the "super committee".

 

[turbo]

Not at the committee level

Even their aides come back (if they do return) as millionaires. There is too much money to be made from insider information, and the greedy stay in DC to suck it up.

 

[MarcoD]

Even their aides come back (if they do return) as millionaires. There is too much money to be made from insider information, and the greedy stay in DC to suck it up.

But has this ever been investigated really? I mean, to make a profit from stock you need to invest a lot of money to get the, say, 5% of increased value. (Unless you are bribed or sell the information, of course.)

And that senators make money out of speeches is just the American way, right? I mean, this is normal for well-know MIT professors, who double or triple their salary that manner, so I guess it's normal for a senator, or any celebrity, too.

Also, Obama is expected to raise a trillion for his campaign; doesn't he make more money campaigning than being the president?

Also, I have no idea how an aid might become a millionaire from inside information, I'ld like to know the story. Do they even bribe the aides to get at the senator, or is it in provisions, or are bribes deemed a nice and expected addition to an aide's salary like a waitress's tip?

(To put this all into a humorous perspective: Putin makes $80K a year, Angela Merkel I assume is paid best in Europe at $280K and hardly has a US-like campaigning budget, and most professors, or celebrities, in Europe have a modest to decent salary. The US just pays better. Guess some bribery just comes with it?)

(No offense, btw. I just find it interesting to know how the world, or in this case the US, ticks.)

 

[WhoWee]

(To put this all into a humorous perspective: Putin makes $80K a year, Angela Merkel I assume is paid best in Europe at $280K and hardly has a US-like campaigning budget, and most professors, or celebrities, in Europe have a modest to decent salary. The US just pays better. Guess some bribery just comes with it?)

I wouldn't be too quick to pass the hat for Putin.
http://www.guardian.co.uk/world/2010/dec/01/wikileaks-cables-vladimir-putin-claims

"Vladimir Putin has secret assets hidden abroad, leaked US cables from the former secretary of state Condoleezza Rice allege. Citing opposition sources, Rice said Putin refused to install a strong successor when he stepped down as president in 2008 because he was afraid he could become the target of "law enforcement investigations".

Putin's objective at the time was to secure his "alleged illicit proceeds", the cables from her office said."

 

[MarcoD]

I wouldn't be too quick to pass the hat for Putin.

Yah, I know that, and the Putin-Berlusconi connection. But what I don't know, I don't know, right? I won't put it beyond Putin he made a few million, but he hardly behaves in public like he owns the $40Bn rumored. No idea, still more interested in the US than known corrupt states.

 

[BobG]

You can vote a common citizen to Congress, and after a couple of terms if (s)he comes back home that "common citizen" is a millionaire. How can that be, if you have sent them to live on a relatively modest salary in one of the most expensive US cities to live in?

Bribery is endemic in DC. I don't care if its called "speaking fees" or strategic "advice" - it is bribery. I get lots of emails from Susan Collins and Olympia Snowe. Neither of them ever reply, so I have stopped trying. If I was one of the Koch brothers, I might get a reply (even a personal phone call) but these elected officials are doing nothing for me.

Reported outside incomes of government officials (and all outside income of the official themselves has to be reported, although income earned by their spouse and dependents doesn't have to be reported).

Ron Johnson from Wisconsin has an impressive outside income (more than $10 million in 2010).

Sonia Sotomayor's outside income is fairly impressive, as well, at $3.5 million in 2010.

Donald Payne of New Jersey also had outside income in excess of $1 million in 2010.

After that, outside income starts dropping off pretty fast. You have less than 10 Congressmen and Supreme Court Justices making more than $300,000 in outside income.

Then again, if their outside income is from bribery, I guess they wouldn't be reporting it?

On the other hand, quite a few politicians come from families with a lot of money and the connections that go with it - which certainly does make it easier to get elected in the first place (i.e - many weren't exactly the 'common man' in the first place). Given that, I'm almost surprised their outside income isn't higher.

Added to a salary of around $175k per year for Congressmen, they aren't exactly hurting. But they're not pulling in as much money as professional athletes.

 

[mege]

I thought insider trading was insider trading, regardless of whom was doing it. The act of using non-public information is what was illegal (from my understanding).

Before this story, if you would have asked me, I thought it already was illegal for people in congress to act, financially, based on that privledged information.

 

[chiro]

I thought insider trading was insider trading, regardless of whom was doing it. The act of using non-public information is what was illegal (from my understanding).

Before this story, if you would have asked me, I thought it already was illegal for people in congress to act, financially, based on that privledged information.

They get a waiver from those laws.

There was one congressman called Brian Baird who tried to introduce a bill that actually got rid of this, but surprise surprise, it got nowwhere.

If you are interested in the bill its HR 1148 (the bill to make congress follow the rules like the rest of us).

 

[TheStatutoryApe]

I've only done a quick search but from what I found Congress members are not exempt from insider trading laws they simply are not considered to fall into the legal definition of an "insider" for the purpose of those laws.

Of course if an elected or appointed official is found to be using their position for profit they can be impeached for abuse of office. The issue I see with subjecting them to insider trading laws would be that as government officials they may at any time receive information from any number of sources on any number of corporations as part of their job. We would basically have to prevent them from investing at all to make sure that they are not using that information in an unethical fashion.

 

[mheslep]

The question is: is it really insider information? The proceedings of Congress are public, right?

Yes, but the backroom deliberations are not. So the process can be deliberate in private, which is fine, buy or sell stock based on the outcome of the deliberations, which is not fine, and then hold a committee or floor vote on the preordained outcome.

 

[mheslep]

I wonder if the immunity from insider trading law enjoyed by elected representatives applies to their staff? How about lobbyists and members of the press also at the elbow of politicians whose job it is to ascertain their probable actions?

 

[WhoWee]

I wonder if the immunity from insider trading law enjoyed by elected representatives applies to their staff? How about lobbyists and members of the press also at the elbow of politicians whose job it is to ascertain their probable actions?

The term "insider trading" will undoubtedly come under attack as this moves forward - perhaps we should use the term "privileged information" as it relates to persons not affiliated with a specific company or their legal representatives.

 

[ThomasT]

The term "insider trading" will undoubtedly come under attack as this moves forward - perhaps we should use the term "privileged information" as it relates to persons not affiliated with a specific company or their legal representatives.

Why are congress members exempted from conforming to a certain (pretty important, it seems to me) rule while everybody else is required to conform to it?

 

[Vanadium 50]

Why are congress members exempted from conforming to a certain (pretty important, it seems to me) rule while everybody else is required to conform to it?

Because they write the rules.

 

[DoggerDan]

Because they write the rules.

Reminds me of a Barry Manilow song. How strange is that?

 

[WhoWee]

Reminds me of a Barry Manilow song. How strange is that?

This is my favorite Congressional song - Barney Frank - "Banking Queen" (prepare to laugh).