Capitol Crimes: Insider Trading and Congress

From The Economist:

FOR elected officials life in Washington, DC, holds many advantages. One is having a network of friends and associates who keep you well informed. But allegations have surfaced that politicians sometimes make use of this privileged access for personal profit.

Last month CBS television aired an episode of “60 Minutes” that accused several members of Congress of financial opportunism usually associated more with Wall Street than Washington. The reason they can get away with it is that insider trading is perfectly legal for members of Congress, at least according to Peter Schweizer, the author of the book “Throw Them All Out”, on which the CBS episode drew.

This has set off a fuss on Capitol Hill, as congressmen try to decide what the law actually allows. Some authorities doubt that the Securities and Exchange Commission (SEC) could successfully charge a member of Congress with insider trading, because it is unclear to whom congressmen owe a “fiduciary duty” and what qualifies as “material, non-public information” in a political context. These elements are clearer at companies, where insider-trading cases usually occur.

It is remarkable, though, that congressmen’s investments have been so laxly supervised. Members of Congress are not barred, for example, from owning shares in companies that are regulated by committees on which they sit. They are able to trade freely, even if they find out before anyone else about regulations or events that could affect specific industries or the stockmarket as a whole, such as a war, an executive order or a new law.

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