WASHINGTON -- Key congressional committees plan to vote Dec. 14 on legislation clarifying that members of Congress can be prosecuted for insider trading.
That means it's possible the full House and Senate could vote early next year on the proposal, called the STOCK (Stop Trading on Congressional Knowledge) Act.
With polls showing Congress' approval ratings at historic lows, lawmakers are rushing to address what Republican Rep. Ed Royce of California characterized Tuesday as a "perception of crony capitalism.''
The panels that will vote on the STOCK Act on Dec. 14 are the Senate Homeland Security and Governmental Affairs Committee and the House Financial Services Committee.
Almost all of the 173 House members cosponsoring the legislation signed on following a 60 Minutes broadcast last month reporting that congressional lawmakers can enrich themselves through investments without fear of prosecution.
"We are living at a time (when) the American people do not trust Congress,'' Republican Rep. Walter Jones of North Carolina said at a Tuesday hearing held by the House Financial Services Committee. "As members of Congress, it is incumbent on us to follow a strong honor code.''
The insider trading legislation was criticized at the hearing by some Democratic and Republican lawmakers. Some said it would be too restrictive and some want even more stringent rules.
The House bill would prohibit members of Congress and their employees from disclosing nonpublic information on "any pending or prospective legislative action relating to any publicly traded company.''
It also would:
•Require the Commodities Future Trading Commission and Securities and Exchange Commission to establish rules banning insider trading.
•Require lawmakers to publicly report any trades of more than $1,000 within 90 days.
•Require people who gather so-called "political intelligence'' from the federal government to register as lobbyists.
Two Senate bills — one introduced by Sen. Kirsten Gillibrand, D-N.Y., and one introduced by Sen. Scott Brown, R-Mass. — are modeled after the House version, which was first introduced in 2006 by Rep. Louise Slaughter, D-N.Y. and then-Rep. Brian Baird, D-Wash.
Until the 60 Minutes report, the proposal never had more than 14 House sponsors or even one Senate supporter.
As of Tuesday, Gillibrand's bill had 20 cosponsors and Brown's bill had seven cosponsors.
"Thousands of people across the country have been peacefully protesting to break the intimate relationship between Wall Street and Washington, D.C.,'' Slaughter testified Tuesday. "Enacting the STOCK Act will prove that Congress is capable of reforming its internal operations and will help ensure members are held to at least the same standards as everyone else when it comes to insider trading.''
But some lawmakers aren't convinced.
Federal anti-fraud laws that ban insider trading already cover members of Congress and their staffs, several lawmakers noted Tuesday.
Members of Congress already report every stock transaction in annual financial disclosures, noted Rep. James Renacci, R-Ohio. He wondered how doing that four times a year -- the equivalent of the legislation's 90-day disclosure requirement -- would help the Securities and Exchange Commission with enforcement.
Robert Khuzami, the SEC's director of enforcement, told Renacci that a more up-to-date searchable database would help. But he acknowledged his agency has only 1,300 enforcement agents covering "35,000 regulated entities'' as well as members of the public.
"If we put more resources on insider trading, there will be less somewhere else,'' Khuzami said. "It's a zero sum game.''
Khuzami told Democratic Rep. Al Green of Texas the SEC has never decided against pursuing a case against a member of Congress because of ambiguity in current law.
New York Democratic Rep. Carolyn McCarthy of Long Island said the STOCK Act could leave lawmakers vulnerable to "a witch hunt.''
"It's flawed, and everybody knows it,'' said Rep. Emanuel Cleaver, D-Mo. "I hope there's another way of doing this.''
Cleaver suggested alternative approaches, such as letting lawmakers put their investments into blind trusts handled by professional investment managers, or having the SEC issue guidance letters advising individual lawmakers on what's legal.
Two Republican freshmen, Reps. Sean Duffy of Wisconsin and Francisco Canseco of Texas, have proposed letting lawmakers choose between a blind trust and reporting financial transactions more frequently.
Duffy's legislation would require reporting them within three business days. Canseco's proposal, which would change the internal rules of the House, would require reporting them within five business days after the end of each month.