Insider Trading Ban for Lawmakers Clears Congress
By ROBERT PEAR
Published: March 22, 2012
WASHINGTON — The Senate gave final approval on Thursday to an ethics bill that bans insider trading by members of Congress, clearing the measure for President Obama, who called for such legislation in his State of the Union address two months ago.
The legislation was adopted by unanimous consent after the Senate voted, 96 to 3, to end debate on the bill, which was approved in the House last month by a vote of 417 to 2.
Senator Joseph I. Lieberman, independent of Connecticut and the chief sponsor of the measure, said it was “the most significant Congressional ethics legislation we’ve adopted in at least five years.”
The lopsided votes showed lawmakers desperate to regain public trust in an election year, when the public approval rating of Congress has sunk below 15 percent.
The bill prohibits members of Congress from trading stocks and other securities on the basis of confidential information they receive as lawmakers. It makes clear that the insider trading ban in federal law applies to members of Congress and their aides and to officials in the executive and judicial branches of the federal government.
In addition, the bill requires lawmakers to disclose the purchase or sale of stocks, bonds, commodities futures and other securities within 45 days of transactions, rather than once a year as they now do. The information will be posted on the Web.
Thousands of federal agency officials, including many at the White House, will be subject to similar reporting requirements.
The bill — the Stop Trading on Congressional Knowledge Act, or Stock Act — originated in the Senate. But House Republican leaders rewrote it, and the Senate on Thursday accepted the changes.
Watchdog groups and some lawmakers said the changes had weakened the bill by killing two important provisions that were added last month after a freewheeling debate on the Senate floor in early February.
One provision would have regulated a growing industry that collects “political intelligence” from political insiders for the use of hedge funds, mutual funds and other investors. The second provision dropped from the bill would have given prosecutors powerful new tools to pursue public corruption cases.
The Senate majority leader, Harry Reid, Democrat of Nevada, said Republicans had blocked efforts to go to a conference to negotiate differences with the House.
A handful of lawmakers, led by Representative Louise M. Slaughter, Democrat of New York, have tried for years to enact restrictions on stock dealing by members of Congress. Their efforts drew little support until new attention to the practice last year — coupled with election anxiety — prompted a flood of backing for the idea and support from Mr. Obama.
The renewed push for the legislation was led by two of the newer senators, Scott P. Brown, Republican of Massachusetts, and Kirsten E. Gillibrand, Democrat of New York.
“Those who make the laws should live under the same laws as everyone else,” said Mr. Brown, who like Ms. Gillibrand is running for re-election.
Senator Susan Collins, Republican of Maine, who helped write the bill, explained the surge in support. “At a time when public confidence in Congress is at an all-time low,” Ms. Collins said, “we must remove any doubt that the law and rules against insider trading apply to members of Congress.”
Federal securities law does not explicitly exempt members of Congress, but experts disagree on whether and when lawmakers may be found to have violated the existing insider trading ban. The bill is meant to eliminate ambiguity, though lawyers said prosecutions would still be difficult.
The legislation says that lawmakers owe “a duty arising from a relationship of trust and confidence” to Congress, the federal government and citizens of the United States, a duty they violate by trading on “material nonpublic information.”
The Office of Congressional Ethics is investigating the buying and selling of stock options by Representative Spencer Bachus, Republican of Alabama, who is chairman of the House Financial Services Committee. He predicted last month that he would be exonerated.
The bill passed by Congress also requires lawmakers and executive branch officials to disclose the terms of mortgages on their homes. It prohibits them from receiving special access to initial public stock offerings. And it will deny federal pensions to members of Congress who are convicted of felonies involving public corruption.
But the proposed regulation of “political intelligence” firms was scrapped, over the objections of Senator Charles E. Grassley, Republican of Iowa. Mr. Grassley said that people who troll for political intelligence and sell it to Wall Street should register and disclose their clients, as lobbyists have long been required to do.
Rejection of this proposal was “a victory for Wall Street and a defeat for the American people — a victory for the hedge funds and big banks that like the secrecy of the status quo,” Mr. Grassley said.
However, critics, like the House Republican leader, Eric Cantor of Virginia, said the definition of political intelligence was exceedingly vague. As a result, they said, the registration requirement could have applied to people seeking information from their members of Congress about the status of legislation.
Mr. Lieberman, chairman of the Homeland Security and Governmental Affairs Committee, said he wanted to know more about political intelligence gathering. “There may be a problem here,” he said, “but it needs more thoughtful study,” to ensure that regulation would not infringe on First Amendment rights.
Under the bill, the comptroller general of the United States will conduct a one-year study of “political intelligence and the extent to which investors rely on such information.”
The three no votes were cast by Senators Richard M. Burr of North Carolina, Tom Coburn of Oklahoma and Mr. Grassley, all Republicans.
Mr. Grassley said he supported the insider trading ban, but wanted to restore his proposal on political intelligence.