In a strange and unexpected twist, the Republican leader in the House of Representatives is now blocking progress on a bill that would definitively outlaw insider tradingby federal lawmakers.
The Republican sponsor of the bill in the House, Financial Services Chairman Spencer Bachus of Alabama, had scheduled a markup of the Stop Trading on Congressional Knowledge (STOCK) Act for next week. But on Wednesday, Majority Leader Eric Cantor of Virginia cancelled the markup session.
Cantor reportedly said he blocked the bill to give Congress more time to examine the issue. Critics of the move, however, fear that any delay could kill the bill entirely.
Some version of the the STOCK Act has been bouncing around Capitol Hill for six years. But recent attention to the issue of Congressional insider trading, following reports from CNBC's Eamon Javers and a "60 Minutes" report, brought the bill out of stasis and made its passage into law seem likely. If the latest delay pushes the bill into next year, it may become lost in election-year politics.
Trading by lawmakers based on non-public information about legislation falls into what many see as a loophole in insider trading regulations.
Although corporate insiders are banned from trading on non-public information about their companies, congressional representatives and senators may not be banned from trading on non-public information about legislation or regulation. The legal issue is disputed by scholars and regulators.
The head of the enforcement division of the Securities and Exchange Commission recently argued that congressional insider trading is already banned. But he admitted that no legal action has ever been taken against a member of Congress.
Studies have shown the investment portfolios of House members and Senators consistently outperform the market by significant degrees, suggesting they are either miraculously bright and lucky investors or using their access to non-public information when trading. Financial experts regard the idea that it is just luck or investing smarts as laughable.
Congressman Walter Jones, a North Carolina Republican, said Cantor's move is "absolutely unacceptable" and described Cantor as "petty," according to The Hill.
The bill may have fallen victim to backroom politics. Apparently lawmakers on Capitol Hill believe Bachus is rushing through the bill because he was one of the prime subjects of the "60 Minutes" piece on congressional insider trading.
In a Wednesday meeting described by one source as “extremely direct”
and by another as “very blunt,” Cantor (R-Va.) ripped into Bachus, explaining in no uncertain terms that it was unacceptable for Bachus to mark up the bill without having run it by GOP leaders and other chairmen with jurisdiction over its provisions. ...
Bachus, clearly anxious to create a good-government portfolio in the wake of a “60 Minutes” piece on his stock trades — some of which netted five-figure gains in a single day — put the STOCK Act on the fast track. ... Cantor delivered the cease-and-desist order on behalf of GOP leaders, other chairmen and rank-and-file lawmakers on both sides of the aisle who were concerned that Bachus could help give the bill life by having the committee approve it. ...
Cantor apparently prefers to whack Bachus behind closed doors, as his office offered up a rather understated version of events when asked about the exchange.
“A large group of bipartisan members of the committee felt the legislation was flawed and being recklessly moved solely in response to media pressure,” Cantor spokesman Brad Dayspring said. “Members of both sides of the aisle wanted more time to gather information and develop appropriate alternatives.”
Cantor's move to block the markup is stirring outrage. Professor Stephen Bainbridge, of the UCLA School of Law, has been a vocal supporter of banning insider trading by lawmakers. He recently wrote:
Why is Congressman Eric Cantor blocking this basic good-government reform? Does Cantor believe that congressmen should be allowed to inside trade with impunity? Does Cantor not realize that congressional insider trading raises serious issues of ethics, corruption, and even the potential for bribery? Does Cantor not see that the current de facto exemption of Congress from the draconian penalties for insider trading it has imposed on everybody else is fundamentally unfair?
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