Legal Commentary

Insider Trading on Capitol Hill

By Jonathan H. Adler

The  WSJ has an investigative report in Monday?s paper showing extensive buying and selling of stocks by Congressional staffers who work for members of Congress with jurisdiction over the traded companies.

The Journal analysis showed that an aide to a Republican member of the Senate Banking Committee bought Bank of America Corp. stock before results of last year?s government stress tests eased investor concerns about the health of the banking industry. A top aide to the House Speaker profited by trading shares of Freddie Mac and Fannie Mae in a brokerage account with her husband two days before the government authorized emergency funding for the companies. Another aide to Republican lawmakers interested in energy issues, among other things, profited by trading in several renewable-energy firms.

The aides identified by the Journal say they didn?t profit by making trades based on any information gathered in the halls of Congress. Even if they had done so, it would be legal, because insider-trading laws don?t apply to Congress. . . .

An analysis of financial-disclosure forms for 2008 and 2009 compiled by the website LegiStorm shows that several hundred congressional aides bought or sold stocks. At least 72 traded the stocks of companies their bosses write laws for.

The disclosure only requires dollar ranges for stock holdings and capital gains, so it is impossible to calculate from them precisely how much aides make trading stock in dollar terms. (Some aides opted to give precise numbers to the Journal.) Still, because the disclosure forms specify the days when shares were bought and sold, the Journal was able to calculate the minimum profits that aides made in percentage terms.

Legislative staffers are not the only ones in the game. See Professor Bainbridge?s ?Insider Trading Inside the Beltway.?

Full post as published by The Volokh Conspiracy on October 11, 2010 (boomark / email).