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November 29, 2014

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Congress takes up STOCK Act to address insider trading, low public approval rating

On Wall Street, hard and fast rules prohibit insider trading, securities fraud, and market manipulation -- the logic being that when you’re privy to as much information as stock brokers and investors are, you shouldn’t be able to game the system.

In Congress, ethical standards and the committees that enforce them are supposed to police representatives who engage in the same sort of behavior when it comes to lawmaking.

But the rules aren’t as hard and fast, and with trust of government at an all-time low, politicians in both parties want to ferret out bad actors with a law banning influence-peddling for financial gain.

As a result, the Senate has taken up the STOCK Act -- that’s “Stop Trading on Congressional Knowledge” -- and will vote this week on how to hold themselves to a higher standard.

It’s a move President Barack Obama called for in his State of the Union address last week.

“Send me a bill that bans insider trading by members of Congress, and I will sign it tomorrow,” he said. “Let’s limit any elected official from owning stocks in industries they impact. Let’s make sure people who bundle campaign contributions for Congress can’t lobby Congress, and vice versa.”

Republican contenders for the presidential nomination have been calling for an extension of the insider trading laws to members of Congress for the past several weeks -- a discussion that’s been amplified by intra-party heckling as Mitt Romney tries to cast his main challenger, Newt Gingrich, as an “influence peddler” during his time as a consultant to mortgage giant Freddie Mac -- a charge Gingrich denies.

But the issue had been circulating Congress long before that.

Sen. Scott Brown of Massachusetts, a Republican, filed the original STOCK Act in November. It effectively extended the same laws that apply to brokers, investors, and analysts to members of Congress.

Nevada Sen. Dean Heller was one of eight Republicans who signed on as cosponsors.

“It’s no secret that Congress has a track record of exempting themselves from the very laws it writes,” Heller said Tuesday. “Congress should not miss this opportunity to show the American people that it’s willing to live by the very rules that are imposed on the American people.”

Two days later, Sen. Kirsten Gillibrand of New York, a Democrat, introduced a slightly different version, collecting 29 co-sponsors, including three Republicans.

The version the Senate is now debating is spearheaded by Sen. Joe Lieberman of Connecticut, a Democrat-turned-independent, since he’s the senator in charge of the committee that oversees government affairs. But in substance, it’s a combination of the two by Brown and Gillibrand.

The major change in this bill has to do with what is called “nonpublic information” -- the sort of knowledge lawmakers and their staff pick up in their work on policy. Lawmakers have argued in the past, however, that because there is no express instruction to keep such information secret, it’s not really insider trading to act upon nonpublic knowledge.

The bill states that members of Congress and their staff cannot privately profit from nonpublic information.

“It’s just common sense that if you have holdings in a business, a corporation’s stock, that you shouldn’t be voting on anything in that regard,” Reid said last Wednesday. “It’s only common sense. And I’m disappointed it’s going to take a law to change that, but I’m happy to support such a law.”

The bill has its critics: UCLA law professor Stephen Bainbridge has argued that it is “toothless,” and while the bill does clarify what is prohibited, it doesn’t detail what lawmakers using insider influence might face as punishment, past the existing court penalties for such crimes. Neither does the scope of the circle of this bill include all kinds of influence that lawmakers can profit from, either during their service or in their post-political life: insider trading is addressed, lobbying is not.

Ninety-three senators voted in favor to move ahead with the measure Wednesday, and only two voted against.

Even with such an overwhelmingly bipartisan vote, congressional leaders were still pointing accusing fingers at each other over the STOCK Act Tuesday.

“It’s too bad we had to have cloture to allow us to go to the bill. It’s really unfortunate,” Reid said Tuesday, complaining of Republican threats to block the STOCK Act from progressing; a cloture vote is necessary to overcome the threat of a filibuster. “Here’s a bill that everybody has all this happy talk about what a great bipartisan bill it is. I have to file cloture to get where we are.”

Republican Leader Sen. Mitch McConnell didn’t trash the STOCK Act -- he voted in favor of proceeding to it Monday -- but did trash Democrats for pursuing it Tuesday.

“President Obama isn’t interested in this bill because it would address the nation’s most pressing challenges. Of course it won’t,” McConnell said Tuesday morning. “He’s interested because it allows him to change the subject. The more folks are talking about congress the less they’re talking about the president’s own dismal economic record.”

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