WASHINGTON -- Members of Congress and their aides would be banned from making securities trades using information they gained through their jobs under legislation its sponsors say has taken on new urgency as the government spends billions bailing out companies.
The bill proposed by Democratic Reps. Louise Slaughter of New York and Brian Baird of Washington would require lawmakers and their staff to disclose within 90 days the purchase or sale of stocks, bonds or commodity futures exceeding $1,000, except for transactions in blind trusts or mutual funds. Members of Congress currently must annually report their financial holdings and securities transactions in ranges of amounts.
Slaughter and Baird testified on the proposal at a hearing Monday of the House Financial Services subcommittee on oversight.
The bill also would prohibit employees in the executive branch from profiting on nonpublic information in securities trading.
But J.W. Verret, an assistant law professor at George Mason University School of Law, said changes to congressional ethics rules and federal agency policies make more sense than enacting legislation that could hurt the ability of investment managers and pension fund trustees to get the best returns for investors. A provision of the bill bars private investors from trading on information obtained from government sources.
Currently, employees of the Treasury Department and Federal Reserve have an exemption that shields them from being held liable for insider trading under federal securities laws, and that wouldn't change if the proposed bill were enacted, Verret said.
Also appearing before the panel was David Kotz, inspector general of the Securities and Exchange Commission, whose office examined frequent stock trades by two SEC enforcement attorneys in a position to receive sensitive information about agency probes of public companies.
Federal prosecutors and the FBI have been investigating the SEC attorneys' transaction for possible illegal insider trading.
Slaughter and Baird said lawmakers often get early access to sensitive information that can significantly affect stock prices or the overall market, and should be subject to prohibitions against insider trading in the same way as officers and directors of public companies.
A 2004 study by Alan Ziobrowski, an associate professor at Georgia State University, showed that U.S. senators got returns on their investments that were about 25 percent higher than what average Americans earned.
The latest congressional disclosure reports this spring showed that lawmakers, including those sitting on the House and Senate committees overseeing the financial bailout, had substantial holdings in the big banks that received rescue funds.
Prospects for the legislation, which the two lawmakers first proposed in 2006, are unclear. Rep. Dennis Moore, D-Kan., the subcommittee chairman, told reporters the panel would have to consult with the House Judiciary and Ethics committees before proceeding.
In the SEC case, Kotz found that the agency "has essentially no compliance system in place to ensure" that employees don't engage in insider trading.
Under Chairman Mary Schapiro, the SEC has taken steps to bolster protections against such improper conduct, including developing a new computer system for reporting and review of securities trading by all agency employees, and hiring a chief compliance officer.
Kotz said those steps were sufficient to address the concerns raised by the case involving the enforcement attorneys.