House Bill Would Ban Improper Trading in Congress

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 annually report their financial holdings and securities transactions in ranges of amounts.

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, who is chairman of the House Rules Committee.

A gap in the law occurred because it hasn't been made clear by courts whether the ban against insider trading under federal securities laws also applies to profiting from the use of legislative or government information, experts say.

The bill also would prohibit employees in the executive branch from profiting on nonpublic information in securities trading.

But J.W. Verret, an assistant law professor at George Mason University School of Law, said changes to congressional ethics rules and federal agency policies make more sense than enacting legislation that could hurt the ability of investment managers and pension fund trustees to get the best returns for investors. A provision of the bill bars private investors from trading on information obtained from government sources.

Currently, employees of the Treasury Department and Federal Reserve have an exemption that shields them from being held liable for insider trading under federal securities laws, and that wouldn't change if the proposed bill were enacted, Verret said.