Members of Congress and their aides would be banned from making securities trades using information they gained through their jobs under legislation its sponsors say has taken on new urgency as the government spends billions bailing out companies.
The bill proposed by Democratic Reps. Louise Slaughter of New York and Brian Baird of Washington would require lawmakers and their staff to disclose within 90 days the purchase or sale of stocks, bonds or commodity futures exceeding $1,000, except for transactions in blind trusts or mutual funds. Members of Congress currently must report their financial holdings and securities transactions in ranges of amounts once a year.
Slaughter and Baird testified on the proposal at a hearing Monday of the House Financial Services subcommittee on oversight.
"By explicitly prohibiting the improper use of sensitive information for personal gain, we will be taking an enormous step in providing transparency while preserving and strengthening public faith in our government and the democratic process," said Slaughter, chairman of the House Rules Committee.
Also appearing before the panel was David Kotz, inspector general of the Securities and Exchange Commission, whose office examined frequent stock trades by two SEC enforcement attorneys in a position to receive sensitive information about agency probes of public companies.
Federal prosecutors and the FBI have been investigating the SEC attorneys' transaction for possible illegal insider trading.
Slaughter and Baird said lawmakers often get early access to sensitive information that can significantly affect stock prices or the overall market, and should be subject to prohibitions against insider trading in the same way as officers and directors of public companies.
A 2004 study by Georgia State University showed that U.S. senators got returns on their investments that were about 25% higher than what average Americans earned.
With tens of billions of taxpayer dollars going to bail out big financial companies and automakers in the economic crisis, concern over congressional integrity is heightened, Slaughter and Baird said. Bank of America, Citigroup and General Motors have been among the bailout recipients.
Congress is now "so enmeshed in the operations of our financial markets that the potential for abuse ... is staggering," Slaughter told the hearing.
The latest congressional disclosure reports this spring showed that lawmakers, including those sitting on the House and Senate committees overseeing the financial bailout, had substantial holdings in the big banks that received rescue funds.
The bill also would prohibit people outside Congress from buying or selling stocks, bonds or commodity futures using nonpublic information obtained from someone in Congress or the executive branch of the government. Firms specializing in "political intelligence" that get their information directly from Congress would be required to register and file disclosure reports with the House and Senate like lobbying firms do.
Prospects for the legislation, which the two lawmakers first proposed in 2006, are unclear.
In the SEC case, Kotz found that the agency "has essentially no compliance system in place to ensure" that employees don't engage in insider trading.
Under Chairman Mary Schapiro, the SEC has taken steps to bolster protections against such improper conduct, including developing a new computer system for reporting and review of securities trading by all agency employees, and hiring a chief compliance officer.
Kotz said those steps were sufficient to address the concerns raised by the case involving the enforcement attorneys.