Tuesday, July 7, 2009

Bill Threatens Congress’ Shield From Insider Trading Laws

Current Law Allows Congress to Profit From Valuable, Non-Public Information Floating on Hill

By Mike Lillis

Reps. Brian Baird (D-Wash.) and Louise Slaughter (D-N.Y.) (house.gov)
Reps. Brian Baird (D-Wash.) and Louise Slaughter (D-N.Y.) sponsored a bill to prevent members of Congress from trading on information gleaned from working on the Hill. (house.gov)

Illustration by: Matt MahurinIn November of 2005, then-Senate Majority Leader Bill Frist (R-Tenn.) took to the upper-chamber floor with a major announcement. The Senate, he revealed, would soon put its full weight behind legislation creating a multi-billion dollar fund to settle lawsuits from victims of asbestos exposure — lawsuits that had already bankrupted several building supply companies.

"I am pleased to inform my colleagues that asbestos reform will be the first major legislation that we consider in late January when we return," Frist said at the time.

For most of the country, Frist's speech was the first notice of that strategy. But for some Wall Street investors, his plan was old news that translated into big money. Indeed, shares of the world's largest sheet-rock company, Chicago-based USG Corp., jumped more than $2 — and trading volume nearly tripled — the day before Frist delivered his announcement.

Somehow, someway, the message that Congress was moving to help companies like USG had dribbled onto Wall Street before the rest of the world knew a thing about it. And trading on such leaks, it turns out, is perfectly legal.

Now, a small group of Democrats, backed by a host of public-interest groups, wants to prevent the use of similar non-public information to guide investment decisions. Under the bill, sponsored by Reps. Brian Baird (D-Wash.) and Louise Slaughter (D-N.Y.), lawmakers and their staffs would be prohibited from trading in stocks, bonds and commodities markets based on insider knowledge gleaned from their everyday duties on Capitol Hill. The proposal would also prohibit the transfer of such information to other parties — a spouse; a brother-in-law; a political intelligence firm — who then use the information for trading purposes.

In a telephone interview last month, Baird said there's no clean evidence that such insider trading is endemic in Washington. "But in a town that trades on information," he added, the likelihood that it's happening is "almost a certainty."


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