Congressional Insider Trading: Will Someone Please Guard the Damn Guardians?

By Megan McArdle

Presumably thanks to the 60 Minutes story that ran a few weeks ago, Congress is finally looking at passing a bill aimed at Congressional insider trading.


Unfortunately, insider trading expert and first-class blogger Professor Bainbridge says that the version they've taken up is, to quote him "bizarre and toothless":


Read literally, the bill prohibits insider trading by members of Congress only if the member not only personally trades on the basis of such information but also tips the information to "another person" with intent to aid that other person to use the information to trade for personal profit.

Suppose, for example, a Member of Congress learns nonpublic information at a confidential closed door hearing. The Member uses that information to trade for personal profit. But he never assists "another person, directly or indirectly, to use the information to enter into, or offer to buy or sell the securities of such publicly traded company based on such information." Read literally, because it requires "the person" who is prohibited from insider trading to "assist another person," Gillabrand's version of the STOCK Act would not prohibit such trading.

Worse yet, because Gillibrand's version of the STOCK Act requires "the person" who is prohibited from insider trading to "assist another person," it would not apply in the converse situation in which somebody gives a member of Congress information with intent to assist the member to trade!

One is constrained to ask, in terms rarely deployed on this blog, what the fuck?

Perhaps it's a drafting error.  Unfortunately, when it comes to policing their own ethics, all of Congress's errors seem to run in the same direction.

This article available online at:

http://www.theatlantic.com/business/archive/2011/12/congressional-insider-trading-will-someone-please-guard-the-damn-guardians/249349/