Insider Trading | New NY 23rd

CRS Summary (Excerpts, read the whole thing here.)

Public Law No: 112-105 (04/04/2012)

Stop Trading on Congressional Knowledge Act of 2012 or STOCK Act  (Sec. 3) Requires the congressional ethics committees to issue interpretive guidance of the rules of each chamber, including rules on conflicts of interest and gifts, with respect to the prohibition against the use by Members of Congress and congressional employees (including legislative branch officers and employees), as a means for making a private profit, of any nonpublic information derived from their positions as Members or congressional employees, or gained from performance of the individual’s official responsibilities.

(Sec. 4) Declares that such Members and employees are not exempt from the insider trading prohibitions arising under the securities laws, including the Securities Exchange Act of 1934 and Rule 10b-5.

Requires the U.S. Judicial Conference to issue interpretive guidance of similar ethics rules, including the Code of Conduct for U.S. Judges, applicable to: (1) federal judges, and (2) judicial employees.

(Sec. 14) Declares that the transaction reporting requirements established by this Act shall not be construed to apply to a widely held investment fund (whether a mutual fund, regulated investment company, pension or deferred compensation plan, or other investment fund): (1) if the fund is publicly traded or its assets are widely diversified, and (2) the reporting individual neither exercises control over nor has the ability to exercise control over the financial interests held by the fund.

(Sec. 15) Denies Civil Service Retirement System (CSRS) or Federal Employees’ Retirement System (FERS) retirement benefits (other than a lump-sum reimbursement of personal contributions) to the President, the Vice President, or an elected official of a state or local government, if convicted of certain felonies.

Requires such an individual to recuse himself or herself whenever there is or there appears to be a conflict of interest with respect to the subject matter of the statement. Requires the individual, upon such a recusal, to notify the supervising ethics office and submit the relevant disclosure statement.

(Sec. 18) Amends the federal criminal code to subject to a fine or imprisonment of up to 15 years, or both, as well as possible disqualification from holding federal office, certain covered government persons, in addition to Member of Congress and congressional employees, who with the intent to influence, on the basis of partisan political affiliation, an employment decision or employment practice of any private entity: (1) takes or withholds, or offers or threatens to take or withhold, an official act; or (2) influences, or offers or threatens to influence, the official act of another.

Extends the meaning of “covered government person” (currently restricted to Members of Congress and congressional employees) to include the President, Vice President, an employee of the U.S. Postal Service or the Postal Regulatory Commission, or any other executive branch employee.

Read more about the STOCK Act here.

The executive branch of the Federal Government is responsible for enforcement of the STOCK Act. It isn’t clear if it is effectively enforced or not. Former Rep. Chris Collins (R-NY) resigned from Congress and pleaded guilty to insider trading in 2019. Others allegedly acted on insider information relative to Covid-19. Prosecution may be difficult unless there is a trail of evidence showing intent. There are calls for further reform. Here is one proposal:

CRS Summary

Prohibiting Insider Trading Act (Introduced in House 02/21/2023)

This bill prohibits Members of Congress (or their spouses) from holding or trading certain investments (e.g., individual stocks and related financial instruments other than diversified investment funds, investments in the federal retirement savings plan, or U.S. Treasury securities).

Generally, the prohibition applies seven days after the first day of a Member’s initial term, though for current Members, it applies on the first day of the second session of the 118th Congress. Additionally, the prohibition does not apply to assets held in a qualified blind trust.

Any profit stemming from a prohibited holding or transaction must be disgorged to the Treasury and may subject the Member to a civil fine. Additionally, a loss stemming from a prohibited holding or transaction may not be used as an income tax deduction.

Each Member must submit an annual certification of compliance to the supervising ethics office. The office must publish each certification on a public website and periodically audit Members’ compliance with the bill’s provisions.

Rep. Langworthy (R-NY) is a cosponsor of H.R. 1138, which currently has 4 cosponsors (3 are Democrats). It has little chance of becoming law. Notably, it would prohibit Members of Congress (or their spouses) from owning individual stocks. I think it goes beyond what’s reasonable.

This entry was posted in Blog. Bookmark the permalink.