The Stock Act

by on August 26th, 2010
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Perhaps the Occupy Movement has no defined agenda, and perhaps their outrage is undirected, but when the outrage of a few individuals causes others to question their own outrage, the outcome can be positive.

It is true that many of the occupiers are angry at those who possess power and wealth. They have been betrayed as peasants with pitchforks, deadbeats wanting more entitlements at the expense of those who have worked to earn their money. It is indeed easy to shout at the king from outside the castle. At the deeper heart of the occupy movement is anger, fueled by the knowledge that rules which apply to most of us do not always apply to all.

Enter the STOCK Act. Until last week, this was a little known piece of legislation that would make it illegal for members of Congress to trade their personal accounts based on information not available to the public.

What? Isn’t this illegal now?

For you and I, yes, but not for Congress. The rules apply to corporate employees or officers, and it indeed illegal for them to place stock trades based on information the rest of us do not yet have. It is even illegal for them to call a friend and give him the information. Just ask Martha Stewart. She spent 5 months in jail for just that. Her four counts carried a maximum penalty of 20 years.

Had her phone call been from her senator, everything would have been fine.

The Security and Exchange Commission defines ILLEGAL INSIDER TRADING as “Buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.” (www.sec.gov)

According to its own website, the SEC performs about 50 enforcement actions each year related to illegal insider trading, a rate which has carried only slightly in the past 7 years.

Not one of these actions was performed against a member of the legislative branch. The way the rules are written, they just don’t apply. Maybe it’s the part about having a relationship of trust and confidence.

Since this little legal glitch is so obviously wrong to the rest of us, and is in fact the very definition of corruption, a bill has been introduced each year for the last three congresses called the STOCK Act (It stands for Stop Trading On Congressional Knowledge). Each year, it gets sent away to some lesser committee, where it dies before ever reaching the house floor. Last week, this years House version only had 9 cosponsors, and it seemed that history was doomed to repeat.

As of the writing of this article, I count 63 between the House and the Senate. The last update was 4 hours ago. So what made Congress decide to police itself all of a sudden?

Thank the media, for once. A story broken by CBS 60 Minutes last week detailed numerous allegations of suspicious insider trading by members of Congress, both Republicans and Democrats. Both the current and previous speakers were implicated. The Chairman of the powerful House Financial Services Committee, Spencer Bachus, was outed for making trades immediately after secret briefings, buying funds that would profit when the market imploded, while the rest of us sat blissfully unaware.

Of course all Congressmen who cared to comment denied any wrongdoing. They didn’t do anything illegal, and no one could prove that they had. CBS went on to talk about insider land deals, and other investment opportunities that might be perceived as political favors. One of the more famous was the IPO for Visa – Speaker Nancy Pelosi was allowed to purchase 5,000 shares, which profited $100,000 on day one. This author tried and tried to get in on that action for a month in advance, but wasn’t able to buy a single share until the rest of John Q. Public.

It’s unclear how deep this scandal goes, if it can even be defined as such, but they are all in a race now to cosponsor, to appear as one of the good guys. It is likely that this issue will pass with broad bi-partisan support. Certainly no one will want to explain in November why he or she voted against it. Perhaps it won’t see a vote until after the election. Heaven forbid that any of the issues would actually influence the elections.

So while the Occupy Movement continues forward with no agenda items, it appears that it may have succeeded anyway.


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