The uproar over reports of insider trading among Congressional members has sparked efforts to remedy the problem of lawmakers profiting from their work in Washington. But senators at a hearing Thursday found that a solution may be more difficult to achieve than they thought.
The Senate Homeland Security and Government Affairs Committee held a meeting following a Nov. 13 60 Minutes report that looked into insider trading in Congress and found members legally trading stock using nonpublic information.
In response, the two bills were introduced, for the first time in the Senate, to prohibit Congressional members and employees from buying and selling securities or other financial instruments based on nonpublic information they receive while on the job.
But, as senators heard Thursday, insider trading is already a violation of law for members of Congress, despite the 60 Minutes report claiming that this is all legal for lawmakers.
The director of enforcement at the Securities and Exchange Commission makes clear that the commission has authority to prosecute such wrongful conduct, said Sen. Joseph Lieberman, a Connecticut independent and chair of the committee.
Quoting from the SEC's submitted testimony, Lieberman said that trading by congressional members or their staff is not exempt from federal securities laws including insider trading prohibitions.
The trouble with enforcing securities laws is that there is no explicit ban on insider trading. What can be prosecuted is insider trading that violates fiduciary duty or wire and mail fraud statutes.
Congress has left the formidable task of defining fraudulent insider trading to the SEC and federal courts with the U.S. Supreme Court as the final arbiter, said Donna Nagy, a law professor at Indiana University Maurer School of Law, according to her prepared statement.
The lawmakers who introduced the two insider trading bills--Sen. Kirsten Gillibrand, a New York Democrat, and Sen. Scott Brown, a Massachusetts Republican--defended the need for legislative fix.
Arguing that the current law already applies to members of Congress... I disagree. If it's in effect, why haven't they done something about these sorts of things, Brown said. There hasn't been one prosecution.
Still, there were panel members who argued that legislation can combat illegal trading in Congress, though suggested changes to pending bills.
I believe Congress should act, but narrowly, and I want to underline the words 'but narrowly,' said John C. Coffee, a law professor at Columbia Law School. Doing less is more.
The language of the legislation, he said, fails to address more common types of insider trading, like buying options, futures or swaps on a securities index. Rather than a long bill creating new statutes, Congress could simply add a one-line statute saying that members of Congress owe a fiduciary duty with respect to material nonpublic information they learn.
Legislation like that would avoid creating new terms and definitions that could be interpreted differently by federal courts around the country and ultimately settled at the high court.
That one sentence does it, Coffee said.