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Congressional insider trading ban gains momentum, but has far to go

Alleged insider trading by members of Congress, and its taint on the image of that already unpopular institution, continues to gain traction on Capitol Hill. Sen. Joe Lieberman, I- Conn., chairman of the Senate Homeland Security and Government Reform Committee, set the goal of Dec. 15 for a committee markup, or drafting session, on a bill to prohibit members of Congress and staffers from using knowledge gained from their jobs to trade in securities or to tip off others.

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“It’s not a simple legislative drafting matter,” he told reporters after the hearing which heard testimony from five expert witnesses on insider trading and congressional ethics. But he said, “I’m confident we can get a good part of this done by the 15th.”

Explaining the need for brisk action, he said, “We start with the obvious reality that Congress is at one of its low points in American history in terms of public trust.” And he added that a recent “60 Minutes” story that raised new questions “really affected people. I find people asking me about it as I’m at home going through the supermarket and taking a walk with my wife-- and being upset about it. I think it is something we ought to try to answer quickly.”

The House Financial Services Committee has set a hearing for next Tuesday on a parallel bill to outlaw congressional insider trading.

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Lieberman said Congress should first make it clear that under existing law, there is no exemption for members of Congress from the laws punishing insider trading. As one of the witnesses Thursday, Indiana University law professor Donna Nagy said, the “60 Minutes” broadcast erred in stating that congressional insider trading is “perfectly legal.”

But there is, Lieberman said, “an ambiguity about how successful a prosecution of a member of Congress would be for using insider information to make money. We ought to clarify that as quickly as we can.”

Pushing for the ban on congressional insider trading at Thursday’s hearing were two freshman senators who must face voters next year when they run for re-election, Sen. Scott Brown, R- Mass., and Sen. Kirsten Gillibrand, D- N.Y.

Each has sponsored separate bills which attempt to explicitly ban congressional insider trading.

Gillibrand told reporters, “it sounded from the chairman that he really wants to expedite it, get it out of committee which is exciting….I think we’ve got great momentum; the statement by the chairman was fantastic that he supports this and that he wants to do a markup in December.”

Nagy contended that congressional insider trading is already illegal under existing law. “I think it’s superfluous,” she said of the ban being proposed by Brown and Gillibrand.

But Brown noted that “there have been no successful prosecutions of members or their staff and I believe the uncertainty surrounding the existing legal framework provides an excuse for enforcement agencies (the Securities and Exchange Commission and the Commodities Futures Trading Commission) to avoid the politically difficult task of policing Congress, especially when Congress controls the purse strings” for those agencies.

But the proposal faces a long, twisting road before possible enactment.

One hurdle: to change a Senate rule to ban insider trading would require not just a filibuster-proof 60 votes, but 67, a problem of which Gillibrand seemed unaware. The Senate rules require 67 to make a change in the rules of the body. That super-majority might be a heavy lift.

Given this problem, Lieberman said, “What we would probably do is report out two separate recommendations: one would be legislation, the other would be an amendment to the (Senate) rules.”

He said the proposed rules change might have to be sent to the Senate Rules Committee. And that would add more delay to the effort. 

Another potential problem: the Constitution’s “speech and debate clause,” which says  members “shall not be questioned in any other place” for things they say in any speech or debate.

“There is an argument that because of the speech and debate clause, some prosecutions of members in the courts might be frustrated by saying you can’t prosecute a member of congress for something they learned in Congress,” Lieberman noted.

That obstacle would not exist if there were a change in Senate rules, since the Constitution gives Congress full power to discipline its own members. If the Senate rules banned insider trading, then the Senate could vote censure or expel those who broke the rule.

But the longer Thursday’s hearing went on, the more apparent the difficulties of drafting a clear rule became.

Ranking Republican on the committee, Sen. Susan Collins of Maine, said, “I think this is a more complicated issue than it first appears” because members of Congress not only acquire information in the course of writing laws, but regularly learn information – sometimes about specific companies – when talking to constituents, conducting investigations, or advocating on behalf of their home state and its industries.  “We have to make sure that when we do act we’re not having a chilling impact on the responsibilities of members of Congress to their constituents,” Collins said.

She suggested other options – instead of enacting an insider trading ban on members—that Congress ban its members of from trading in individual stocks, or that it require them to delegate investment decisions to a fund manager or to require that each senator’s assets be put in a blind trust.