WASHINGTON – The Homeland Security and Governmental Affairs Committee plans to produce legislation that clearly prohibits Members of Congress from insider trading.
At a hearing called to examine legislative fixes to current laws governing insider trading by members of Congress and their staffs, Chairman Joe Lieberman, ID-Conn., said he hoped to pass a bill out of Committee before Congress adjourns for the Christmas holidays.
“Perceptions are important in public service,” Lieberman said. “If the law seems to allow members of Congress to take advantage of their public position for personal gain, the trust that needs to exist between the American people and our government will be further corroded than it already is.
“Since the applicable case law on insider trading for members of Congress is ambiguous, we should specifically proscribe it, so that members of Congress and their staffs do not make investments based on information they obtain as part of their jobs that is not available to the public.”
Ranking Member Susan Collins, R-Maine, said: “Recent press reports on “60 Minutes” and elsewhere demonstrate why we must explore the application of existing laws to Congress, and what actions may need to be taken to close possible loopholes that undermine the public’s confidence in this institution.
“Elected office is a place for public service, not personal gain. As demonstrated by the recent press stories, however, there are questions about whether lawmakers have been exempt – legally or practically – from the reach of our laws governing insider trading.”
The hearing was called after a 60 Minutes report on insider trading among members of Congress, which implied that Congress had exempted itself from laws governing insider trading.
In fact, no law specifically prohibits insider trading by anyone, including members of Congress. All investigations and prosecutions of insider trading are carried out based on broad anti-fraud provisions of the Securities Exchange Act of 1934.
The rules against insider trading encompass corporate insiders and others who have bought and sold securities based on “material, nonpublic information” they obtained and used in violation of a duty of trust. The ambiguity arises because some argue that courts might hold that members of Congress do not have the necessary fiduciary duty to the institution of Congress.
“Whether or not it is clear and conclusive that the SEC can act against members of Congress under its existing authority, there ought to be a law that explicitly deters such unethical behavior by members of Congress and punishes it when it happens,” Lieberman said.
Witnesses at the hearing included Senators Kirsten Gillibrand, D-N.Y., and Scott Brown, R-Mass., the authors of separate insider trading bills. Other witnesses were: Melanie Sloan, Executive Director of Citizens for Responsibility and Ethics in Washington; Donna M. Nagy, the C. Ben Dutton Professor of Law at the Indiana University Maurer School of Law; Donald Langevoort, the Thomas Aquinas Professor of Law at Georgetown University Law Center; John Coffee, Jr., the Adolf A. Berle Professor of Law at Columbia Law School; and Robert Walker, former Staff Director for both the House and Senate Ethics Committees.