Isn't insider trading already illegal for Congress?

[LadyShea]

I don't get this at all. Why are they having to debate something and make a new law when it is already illegal?

Senate debates insider trading ban for Congress | AP | 01/30/2012

[ImGod]

They've been discussing it a while, but it came to a head after this broadcast on 60 minutes.

ETA:

This study shows something is going on. http://insidertrading.procon.org/sou...ziobrowski.pdf

Especially interesting is this paragraph on page 15

Cumulative abnormal returns for the portfolio of stocks bought by Senators
are near zero for the calendar year prior to the date of purchase. After acquisition,
the cumulative abnonnal return rises over 25% within one calendar year after the
purchase date. The cumulative abnormal returns for the portfolio of stocks sold
by the Senators are near zero for the calendar year after the date of sale. However,
these same stocks saw a cumulative abnormal positive return of 25% during the
year immediately preceding the event date. These results suggest that Senators
knew appropriate times to both buy and sell their common stocks.

Basically, whatever they bought went up the next year and whatever the sold didn't return as much the year after. Hmmm.

[lisarea]

Thinking about the stock market and shit makes me angry and confused, so I hope all of you lazy motherfuckers not explaining this are happy with yourselves right now.

Effectively, yeah, insider trading is already equally illegal for everyone, technically, but the official explicit definition of insider trading and the rules for tracking trades is focused on specific groups of corporate insiders, and not on others who may also have the same or similar insider information.

So when you have insider information about the company you work for, you have a pretty well-defined blackout period, for example, when you have relevant information that might influence your decisions to buy or sell company stock; and any trades you make can easily be tracked.

I THINK (again, I am angry and confused!) that what this effectively does is expand the legal definition of 'insider' to include members of Congress who are privy to non-public information about the industries they regulate.

[LadyShea]

What did they bust Martha Stewart for?

I THINK (again, I am angry and confused!) that what this effectively does is expand the legal definition of 'insider' to include members of Congress who are privy to non-public information about the industries they regulate.

I think the definition includes anyone who is privy to non-public information. Being a regulator seems an automatic "insider", to me. Where's Matlock or someone?

[lisarea]

Originally Posted by LadyShea

What did they bust Martha Stewart for?

Actually, Martha Stewart got busted for lying to investigators. She was never convicted of insider trading.

I think the definition includes anyone who is privy to non-public information. Being a regulator seems an automatic "insider", to me.

Yeah, it is supposed to, but only corporate insiders are required to report their trades. I think the expanded definition of insider status is also fairly new and not well defined. Explicitly defining members of Congress as insiders would clarify that and make it easier to track.

Where's Matlock or someone?

He's right there eating corn chips like some kind of asshole. Why? Do you need advice about flattering hairstyles or something?

[LadyShea]

Originally Posted by lisarea

He's right there eating corn chips like some kind of asshole. Why? Do you need advice about flattering hairstyles or something?

Yeah, actually, for Lana.

Also, I wanted to know his legalizer opine.

[ImGod]

Originally Posted by LadyShea

What did they bust Martha Stewart for?

Wasn't it for getting hot tips insider from a broker in the back of her limo. I'm not sure what that had to do with the stock market.

I think the definition includes anyone who is privy to non-public information. Being a regulator seems an automatic "insider", to me. Where's Matlock or someone?

The problem comes from security clearances and/or vagueness in the law. Say you sat on the House Intelligence Committee (Ha-Ha) and learned that the Military had ordered hundreds of stealth helicopters that don't exist. So you in your normal stock selection routine, buy into Raytheon instead of Northrop Grumman based solely on past performance indicators (Cough-Cough). (Assuming Raytheon makes them of course.) How would a regulator know you bought Raytheon because of insider information on a product that doesn't even exist.

The military part is probably the easiest to track. But what about GE or BP and a new renewable energy credit on solar panels and wind turbines. They also sell lightbulbs, oil, aircraft engines, etc. So it would be more difficult to track.

The easiest solution would be to force them to freeze their trading activities while they serve.

[LadyShea]

The easiest solution would be to force them to freeze their trading activities while they serve.

That would be the best solution.

[lisarea]

Originally Posted by LadyShea

That would be the best solution.

Freezing all stock market trades of any kind would be pretty extreme, and pretty unlikely to happen.

And it turns out the Martha Stewart case might be pretty on point. Apparently her securities fraud charges were thrown out specifically because the prosecution was trying to argue that trading in Imclone was designed to boost stock in her own company, which I figure they were doing to establish her 'insider' status.

Judge Tosses Fraud Charge Against Stewart - TheStreet

Ha ha, you guys accidentally made some relevant points. You all feeling OK?

[ImGod]

Freezing their trading might be harsh. How about posting their coming trades online 1/2 hour before they are executed so Hedge funds could track them and remove some of their immediate gains. Long term they should be fine if it's a good investment, but it would definately remove their ability to buy significantly low or sell significantly high.

[chunksmediocrites]

Originally Posted by ImGod

Freezing their trading might be harsh. How about posting their coming trades online 1/2 hour before they are executed so Hedge funds could track them and remove some of their immediate gains. Long term they should be fine if it's a good investment, but it would definately remove their ability to buy significantly low or sell significantly high.

Uh... what? That doesn't make any sense.

You could just explicitly ban insider trading for members of Congress, require them to disclose stock transactions w/in 30 days, and attach investigation and prosecution of violators via SEC and the DoJ. As well as penalties within Congress via the Ethics Committee. Which is what the STOCK Bill would do if it becomes law.

[ImGod]

Originally Posted by chunksmediocrites

Uh... what? That doesn't make any sense.

You could just explicitly ban insider trading for members of Congress, require them to disclose stock transactions w/in 30 days, and attach investigation and prosecution of violators via SEC and the DoJ. As well as penalties within Congress via the Ethics Committee. Which is what the STOCK Bill would do if it becomes law.

Of course, but there are almost always holes looped into bills like these.

In the world of micro-trading, any advantage they had to buy a stock and make money on the rise/fall in pricing due to their "prior to the press announcement" knowledge would be removed by some computer nerd tracking their online trade requests. Nerds are one reason that day trading is hard.

Making them state what they are doing publicly puts more information into more hands in the larger market. So if congressman Imahole comes out of an energy subcomittee meeting and suddenly puts in a bid for $100,000 of penny stock of a solar panel maker on the verge of bankruptcy a large hedgefund may see that as a sign that the company may be getting a large government subsidy. The risk of buying the stock goes down with more information. Funds could trade on the same information and quickly reduce returns to normal by spreading the increased gains between hundreds of thosands of people hoping to retire someday; instead of leaving them to Imahole and his buddies.

I know if they posted their investment decisions on line prior to executing them, I'd keep a simple spreadsheet and make a mutual fund out of the same holdings, since they make better return on investments than normal investors while in congress.

[seebs]

It's fancier than that. So far as I know, I'm allowed to trade Intel stock however I want, because while I might have information, what I have is relatively general knowledge -- I'm not an executive, I'm an employee of a subsidiary.

[chunksmediocrites]

Originally Posted by LadyShea

I don't get this at all. Why are they having to debate something and make a new law when it is already illegal?

Senate debates insider trading ban for Congress | AP | 01/30/2012

Insider trading is illegal, and that applies to anyone who engages in the act. However:
Wonk Blog at Washington Post: FAQ: the crackdown on insider trading in Congress

2) Isn’t there already a general ban on insider trading? Why would we need a separate law for Congress? In practice, the federal ban on insider trading has generally applied to “insiders” within a private firm who use nonpublic information for investment purposes. No member of Congress has ever been prosecuted for insider trading based on knowledge gleaned from the legislative process, although federal authorities once investigated Sen. Bill Frist (R-Tenn.) for selling stock of a hospital company founded by his father. The STOCK Act amends the law to make it explicit that inside congressional knowledge that could affect the price of a stock is also illegal and subject to enforcement by the Securities and Exchange Commission, among others.

Here's Robert Walker at Roll Call. He affirms that insider trading is already illegal, and then casts doubt on the usefulness of the STOCK ACT.

Under the bill, a Member or employee who trades in securities based on material, nonpublic information will be deemed to have engaged in insider trading if that information “was obtained by reason of such person being a Member or employee of Congress,” regardless of whether any other specific duty of confidentiality may be deemed to exist.

Some argue that this approach is too broad, that it will not only deter improper “insider” trading but could well deter most other, perfectly legitimate, buying and selling of securities by Members and staff, or force them to put their assets in cumbersome blind trusts. To which others may, in reply, offer a resounding chorus of: “So what? If people want to serve the public they should be willing to sacrifice private financial interest.” Yes they should, but to what degree? With super-strictures on their financial decision-making such as those that may be imposed by the STOCK Act, will government service attract the best and the brightest, or even the pretty good and the fairly smart?

First prize goes to his use of the specter of how this might deter our best and brightest from engaging in public service. That there is mighty

Here's a transcript of a discussion involving Mr. Walker and others on the Diane Rehm show. Some caveats are offered to how things are different for Congressional members currently.

MR. BRODY MULLINS
10:14:30
Well, Robert is exactly right when it comes to the prohibition on insider trading applying to members of Congress. But there's a couple of important distinctions. One is that the traditional rules of an investor or a member of Congress getting money from a publicly traded company, information that's market moving that is non-public and is traded in violation of a duty is clearly illegal insider trading by whoever does it.
REHM
10:14:57
You got to be plainer about that description, Brody.
MULLINS
10:15:01
Well, what I'm saying is that the legal SEC definition of insider trading applies to members of Congress, but we're talking about something a little bit separate, which is not information that members of Congress get from publicly traded companies but information that members of Congress get about government activities that could affect publicly traded companies. And that's where you get a little bit of a bank shot so that many people think that the rule -- that traditional rules don't apply. Rob might disagree with that, and he has in testimony before.
MULLINS
10:15:30
But the fact of the matter is that the chairman or the chief enforcement official of the Securities and Exchange Commission came to Capitol Hill to testify in this. And he said, you know what, I think I could probably prosecute a case, but I'm not positive because I think there's a chance that a judge could have a separate opinion on how these rules apply. And, therefore, it could get -- his case could get overturned. And, therefore, he said we should have a bill to make this very clear that members of Congress can't trade on this information.

Anyway, hope some of that helps. Personally I'm fine with stricter and explicit rules for members of Congress.

[Dingfod]

Maybe it would be better if they just weren't allowed to trade stocks while they're in office.