The STOCK Act (Stop Trading on Congressional Knowledge Act) was passed into law last month, a full six years after first being introduced to Congress by Representatives Louise Slaughter of New York and Tim Walz of Minnesota. The act is fairly simple – elected officials and their staffs cannot use insider information procured in the normal course of their jobs to make a profit. The problem came to the attention of most Americans following a “60 Minutes” story on the issue related to the release of the Peter Schweizer book, “Throw Them All Out.” Both accounts demonstrated how some of the nation’s most senior elected officials made millions from trading decisions made with highly suspicious timing.
Among those cited in the book was California’s Senator Feinstein for a $1 million investment in Amyris only weeks before the Department of Energy awarded the “green” company a $24 million contract. This was the only stock investment made by the Feinstein’s that year. Speaker of the House, Nancy Pelosi, similarly received benefits from a $220,000 investment in the initial public offering of VISA while helping to defeat the Credit Card Fair Fees Acts of 2008 and 2009. Within two days, she made $100,000 from the investment. If she still holds that investment today, it is worth $615,000. Among the Senators who benefitted most from his access to information was Senator Kerry of Massachusetts earning millions from his unique ability to time buys and sells only weeks prior to significant upward or downward moves in many healthcare stocks. Despite widespread and apparent incidents of insider trading by those inside the Washington DC beltway, no charges have been brought against anyone despite clear evidence that inside information has been rampant.
It is interesting to note that while the Act begins to address the problem of insider trading in Washington DC, at the last minute, provisions meant to require heightened reporting requirements from firms in the “political intelligence” business were stripped from bill. The sale of “political intelligence” is an emerging business where these intermediary firms collect non-public information from their sources in Washington DC and sell that information to hedge funds and Wall Street. Also stripped from the final language of the STOCK Act were tools needed by law enforcement to better detect, investigate and prosecute public corruption. While Senators Leahy of Vermont and Grassley of Iowa urged Senators Reid and McConnell to reinstate the corruption elements that were stripped by Rep. Canter of Virginia, neither chose to act on this request.
Given that those in Congress and the Senate have investment portfolios that show average returns that are consistently 6% higher than the rest of the investing universe, one can guess at the reasons for this aberrantly high return relative to most Americans and investment managers. One of the fixes recommended but not incorporated in the bill was to have all elected officials and their staffs keep their stock portfolios in blind trusts so that decisions made in governance could not influence the value of their investments.
As Congress and the Senate continue to allow for the use of insider knowledge by political intelligence firms while intentionally failing to strengthen the hand of law enforcement, it is no wonder that many believe that the STOCK Act was no more than window dressing in an election year.
Most telling was Senator Lieberman being honored by a ballroom of corporate lobbyists only eighteen hours before the passage of the STOCK Act. Minutes prior to the passage of the watered down Act, Lieberman said, “This represents Congress at its best.” No wonder their approval ranking is only 12%.