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Elected Dirty Dealers

CHICAGO – Imagine that you are an elected member of the United States House of Representatives in the middle of the debate on the health-care reform act that was passed in 2010. In a House committee meeting, you learn before anyone else that a proposed public-insurance option – a program that would compete with private insurance – will not be included. This information will have a large impact on health-care companies’ stock prices. Can you trade these companies’ shares before it is made public?

Morally, it is difficult to separate this example from traditional cases of corporate insider trading. Yet no law prohibits the practice. The US Congress – the legislative branch of the country’s government – effectively exempts itself from the normal rules of insider trading. Congress and the US Supreme Court are the only federal agencies whose employees may, without restrictions, trade stocks based on non-public information. All other US government employees who traded on privileged information of the type described above would be acting illegally.

Not only can members of Congress legally trade on confidential information; they do, despite the potential cost to their reputations. The US television program 60 Minutes recently reported that several current members of Congress allegedly used confidential information that they acquired on the job for personal gain. While the nexus between the privileged information and the trading is difficult to prove (as it is in most insider trading cases), the timing is highly suspicious.

But it is difficult to challenge this congressional “privilege” in the US, in part because insider trading is an ambiguous concept under US law, with no statutory definitions of the terms “insider,” “inside information,” or “insider trading.”