Washington — With public approval at an all-time low, Congress is beginning work on a new ethics law aimed at rooting out insider trading.
But some say it’s not tough enough, and others say it’s not needed.
The Senate began debate on the Stop Trading on Congressional Knowledge, or STOCK, Act, today, which would bar members of Congress from trading stocks based on nonpublic information obtained on the job.
On Monday, the Senate voted 93-2 to move the bill forward, and it’s expected to win approval in both houses of Congress. President Obama has said he will sign it.
Connecticut’s lawmakers support the act unanimously, and Sen. Joe Lieberman, a Connecticut independent, is in charge of marshaling the legislation through the Senate.
But the STOCK Act was first introduced in 2007 and has languished for years.
It finally got a boost from a CBS “60 Minutes” show broadcast Nov. 13 that said members of Congress get a pass on insider trading. The show said party leaders and committee chairmen often invest in businesses about to be affected by pending legislation.
“The segment was much criticized as too harsh and inaccurate by some legislators, but it turns out the public was alarmed and unhappy,” said Larry Sabato, a political science professor at the University of Virginia.
“This is a Congress with an 11 percent job approval rating, so it can hardly afford to ignore signs of public unhappiness,” Sabato said.
Connecticut’s lawmakers did not sign on as supporters of the STOCK Act until the “60 Minutes“ piece aired.
“I was troubled by media reports about members of Congress exploiting their positions for personal gain,” said Sen. Richard Blumenthal, D-Conn.
Lawmakers are now required to report stock trades — and the selling and purchase of any asset — annually on their financial disclosure reports. The STOCK Act would require any transactions to be reported within 30 days.
Lieberman invoked Thidwick the Moose, a character in a 1948 Dr. Seuss book, as he asked his colleagues to avoid killing the bill with irrelevant amendments.
“Other animals in the forest wanted to lodge in his enormous antlers, and he welcomes them until finally there is too much there, and his antlers fall off and they all fall to the ground,” Lieberman said. “We don’t want this wonderful bill, which really does accomplish some very important things, to be so loaded up that it falls by the wayside.”
According to their latest financial disclosure reports, which cover 2010, some Connecticut lawmakers have invested in individual stocks.
Lieberman reported holdings in IBM and Johnson & Johnson. Rep Jim Himes, D-4th District, disclosed he owned stock in Cisco Systems, Intel, Kraft Foods, Microsoft and Alcatel.
But most Connecticut lawmakers, including Lieberman and Himes, reported investing in the stock market largely through mutual funds.
Blumenthal, for example, ranked 8th in Capitol Hill newspaper Roll Call‘s list of the 50 wealthiest members of Congress. Blumenthal and his wife have millions of dollars invested in mutual funds.
Since a mutual fund invests in dozens of companies, it’s sometimes difficult for an investor to be aware of all of them.
“It does not imply that you don’t know about these companies, but to say (lawmakers) who hold mutual funds always know their holdings is stretching the argument,” said Chinmoy Ghosh, a head of the finance department at the University of Connecticut’s School of Business.
To Rich Smith, senior analyst for The Motley Fool, a financial-services company that says it champions stockholder values, the STOCK Act isn’t tough enough.
The Motley Fool said an analysis of stock market transactions in the weeks before TARP (the federal Troubled Asset Relief Program) became law in October 2008 — a time when the fate of many financial companies rested in lawmakers’ hands — members of Congress made a total of 318 trades in financial companies. That compares with 115 trades made during the same period of 2007.
“In the days and weeks leading up to the 2008 banking bailout, members of Congress ramped up their trading of financial services companies,” Smith said. “This much is clear. It may not be a ‘smoking gun’ proving insider trading for personal financial gain, but it certainly doesn’t look good.”
Smith would like the bill to require lawmakers to report their transactions in publicly traded securities within 48 hours of executing each transaction
Others say lawmakers can only be shielded from unethical — or illegal — trades by setting up blind trusts for their investments.
But Sen. Tom Coburn, R-Okla., one of the few lawmakers opposed to the bill, says nothing needs to be done.
He says existing law prohibits members of Congress from insider trading.
“We’re fixing a problem we don’t have,” Coburn said. “What (the STOCK Act) does is assume that we are crooks rather than we’re not.”
Rep. John Larson, D-1st District, said the STOCK Act is needed.
“This bill once and for all eliminates any ambiguities in the law that might make it difficult to prosecute a member of Congress for insider trading,” Larson said.
The House is expected to take up the STOCK Act in the next few weeks.