House Passes Bill Banning Insider Trading by Members of Congress

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Courtesy of New York Times:

WASHINGTON — The House of Representatives overwhelmingly passed a bill on Thursday to ban insider trading by members of Congress and to impose new ethics requirements on lawmakers and federal agency officials.       

The 417-to-2 vote occurred less than three weeks after President Obama demanded such action in his State of the Union address. The Senate approved a similar bill by a vote of 96 to 3on Feb. 2.

The lopsided votes concealed deep disagreements over details of the legislation, which now goes back to the Senate. The two chambers could try to work out their differences in a conference committee or through informal negotiations.

House Republican leaders eliminated a provision of the Senate-passed bill that would, for the first time, regulate firms that collect “political intelligence” for hedge funds, private equity funds and other investors. Under the Senate bill, such firms would have to register and report their activities, as lobbyists do. In place of this requirement, the House calls for a study of whether to require the registration of people who collect political intelligence for the use of investors.

The swift response and the debate in both chambers showed how defensive and anxious lawmakers have become about the low esteem in which Congress is held. Its public approval rating has sunk below 15 percent.

“We need to stop the insidious practice of insider trading, giving members of this body an unfair advantage over Americans who sent us here to represent them,” said Representative Kathy Hochul, Democrat of New York. “Let us begin the long process of restoring the faith of the American people in this institution.”

Representative Louise M. Slaughter, Democrat of New York, who has been pushing ethics legislation since 2006, said, “It appears that the House Republican leadership could not stomach pressure from the political intelligence community, which is unregulated and unseen and operates in the dark.”

Senator Charles E. Grassley, Republican of Iowa, who wrote the proposed disclosure requirement, denounced “the chutzpah” of House Republican leaders, who he said had “wiped out any chance of meaningful transparency for the political intelligence industry.” He said he would fight to restore the requirement.

The House majority leader, Representative Eric Cantor, Republican of Virginia, said the political intelligence section of the Senate bill was flawed.

“That provision raises an awful lot of questions,” Mr. Cantor said Thursday on the House floor. “There is a lot of discussion and debate about who and what would qualify and fall under the suggested language that came from the Senate. That is why we are calling for a study.”

The chamber’s Democratic leader, Representative Nancy Pelosi of California, said the House-passed bill had “serious omissions” and was “much diminished” from the Senate version. She supported it as a way to advance the legislation, but said, “I don’t want anyone to interpret the strong vote for it to be a seal of approval.”

Some Republicans described the bill as an overreaction, but voted for it anyway, saying they could not easily explain their concerns to a restive public. The votes against the bill were cast by Representatives John Campbell of California and Rob Woodall of Georgia, both Republicans.

The bill is known as the Stock Act, or the Stop Trading on Congressional Knowledge Act. The Senate version was written by members of both parties. The House version was prepared by Republican leaders — Democrats said they had not been consulted — and it was debated on the House floor under a rule that precluded amendments.

House Republicans had their own reasons for supporting the bill.

Representative Lamar Smith, Republican of Texas and chairman of the House Judiciary Committee, said: “The risk of government self-dealing is heightened by the huge growth in recent years of the federal government and its increasing entanglement with the private economy. Big government can move markets. That’s why we need strong rules to reassure the public that decision makers are not enriching themselves by investing based on insidThe bill would prohibit members of Congress from trading stocks and other securities on the basis of confidential information they receive as lawmakers. It makes clear that the insider trading ban in federal law applies to members of Congress and their aides and to officials in the executive and judicial branches of the Moreover, the bill requires members of Congress to disclose the purchase or sale of stocks, bonds, commodities futures and other securities within 30 to 45 days of transactions. The information would be posted on the Web.

A similar disclosure requirement would apply to thousands of federal employees in the executive branch, including the White House, cabinet departments and independent agencies.

The House added a provision to prohibit members of Congress and executive branch officials from receiving special access to initial public stock offerings because of their positions. Republicans said the provision was inspired by an investment in the initial public offering by Visa Inc. in 2008 by Ms. Pelosi, who was then the speaker of the House.

The legislation, as passed by both houses, would deny federal pensions to members of Congress who are convicted of felonies involving public corruption. It would also require lawmakers to disclose the terms of mortgages on their homes.

Ms. Slaughter and Representative Tim Walz, Democrat of Minnesota, led the charge for the legislation in the House.

“The perception is that members of Congress are enriching themselves,” Mr. Walz said. “That’s not only an affront to our neighbors, that we are not playing by the rules. It is a cancer that can destroy the democracy.”

Federal securities law does not explicitly exempt members of Congress, but experts disagree on whether and when lawmakers may be found to have violated the law. The bill is meant to eliminate any ambiguity.

The legislation says that lawmakers have “a duty arising from a relationship of trust and confidence” to Congress, the federal government and citizens of the United States — a duty they violate by trading on nonpublic information.

Explaining his vote against the measure, Mr. Campbell said, “This is an ambiguous bill that could potentially and unintentionally cause constituents and members of Congress to break the law by simply asking or answering a question about the prospects of federal legislation.”

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