The Chicago Tribune editorial page believes that legislative efforts to ban congressional insider trading, such as the STOCK (Stop Trading On Congressional Knowledge) Act, are simply an exercise in “damage control” and “window dressing” to shield Rep. Spencer Bachus (R-AL) and others mentioned in a 60 Minutes investigative report, based on Breibart News editor Peter Schweizer’s bestselling book, Throw Them All Out.
From the Chicago Tribune:
The measures under consideration strike us as window dressing. We suspect the push for new rules is about protecting the reputations of Bachus and others spotlighted in the news.It sure does seem that being a member of Congress carries benefits beyond the salary. The New York Times reported this week that the median net worth of the members rose 15 percent from 2004 to 2010, when the median net worth for all Americans dropped 8 percent.
But spare us a phony effort to “reform” the rules. The public won’t buy it. And the public has even greater reason to be disgusted with Congress, starting with a national debt of $15 trillion and climbing.
A Breitbart News exclusive report revealed that Rep. Spencer Bachus’s options trading records during the summer and fall of 2008’s debates over the Troubled Asset Relief Program (TARP) were curiously well-timed with market trends. Specifically, from July to November 2008, Rep. Bachus executed at least 40 options trades that resulted in as much as $50,000 in capital gains. As Peter Schweizer revealed, Rep. Bachus’s position as the Chairman of the House Financial Services Committee gave him access to high-level private meetings and phone conversations with then-Treasury Secretary Henry Paulson, as well as other senior financial officials.
A spokesman for Rep. Bachus, Jeff Emerson, said the Alabama congressman’s trades did not represent an ethical dilemma. “There is no conflict of interest,” said Mr. Emerson. “He [Rep. Bachus] asked the Ethics Committee if he could do this, and they said there’s no problem.”
As the Chicago Tribune editorial notes:
The Wall Street Journal reported that Bachus made more than 200 trades in stocks and options during 2008, the year of the financial crisis. His recent activity included bets on Apple Computer, the Nasdaq 100 index and a portfolio of Chinese stocks.
Bachus told The Journal he never took advantage of insider information. But to avoid any appearance of impropriety, he said he has stopped trading. Bachus also helped revive a long-dormant bill that would place additional restrictions and disclosure requirements on Congress beyond established insider-trading laws.
That sounds like damage control.
Instead of seeing the Bachus example as a justification for a ban on insider trading by members of Congress, however, the Chicago Tribune believes such legislation is unnecessary because “contrary to some news reports, the Securities and Exchange Commission has affirmed that members, their families and staffs are subject to the anti-fraud provisions of the law governing insider trading.”
The trouble with that logic, say some proponents of bills barring members of Congress from using nonpublic, material information to inform their private investments, is that it ignores the fact that Congress controls the SEC’s budget, and therefore holds a powerful instrument for possible political retribution. This, critics say, explains why the Securities and Exchange Commission has never brought an insider trading charge against a sitting member of Congress.
Former Alaska Gov. Sarah Palin is among those who believe that the SEC’s reliance on Congress for funding makes it a poor enforcer of insider trading laws for members of Congress. As Gov. Palin wrote in a USA Today op-ed:
Some said there was no need for new laws or action because the Securities and Exchange Commission could prosecute members of Congress under existing laws against insider trading.
But under current law, there is no way the SEC will ever go after a powerful congressman or senator. The SEC never has, even though insider trading prohibitions have existed since the 1930s. Here’s why: Congress sets the SEC’s budget, and senators approve the head of the SEC. Congress uses its power of the purse strings to threaten federal agencies that get in their way.
Gov. Palin points out that in 2006, Congress threatened the Justice Department with budget cuts when the FBI, acting on evidence that former Rep. William Jefferson (D-LA) was accepting bribe money, got a search warrant to enter then-Rep. Jefferson’s office. Similar budgetary retributions, argues Palin, are likely if Congress fails to pass a law explicitly banning members of Congress from using private information to enrich themselves:
Does anyone really think the SEC under current law will have the courage to investigate the insider trading in Congress? Remember that this corruption (and failure to deal with it) encompasses both sides of the aisle. We fool ourselves thinking we can trust an agency dependent on Congress for its budget to investigate Congress.
I hate the idea of more laws, but because our politicians have shown a failure of ethical leadership, we must reassert the rule of law through strong new legislation that holds Congress accountable and prevents retaliation against whistle-blowers and regulatory agencies investigating corruption.
Still, the Chicago Tribune doesn’t see it that way. They argue that laws such as the STOCK Act, or the more recently introduced RESTRICT (Restoring Ethical Standards, Transparency, and Responsibility in Congressional Trading) Act by Rep. Sean Duffy (R-WI), are superfluous because existing laws are sufficient to keep members of Congress honest.
Lawmakers and their staffs are going to have discussions with company officials or finance experts from the private sector to make effective policy. There’s no reason members of Congress shouldn’t invest in the market — as long as they follow existing laws on dealing with insider information. If more elected officials experienced how market forces work to establish prices, respond swiftly to new developments and discipline those who get greedy, America would profit.
If members of Congress engage in illegal insider trading, enforcement tools are available to the SEC and Justice Department. Let’s use them.
Congress is set to resume discussion of a ban on congressional insider trading when Congress returns. In the end, the legislative outcome may prove both the Chicago Tribune and supporters of insider trading laws correct: while such bills may be merely “window dressing” and “damage control” to protect politicians’ image, the potential for budgetary retaliation against the Securities and Exchange Commission by members of Congress makes a an explicit ban on insider trading vital and necessary.