On March 28th, 2006, Congressman Brian Baird (D-WA) and Congresswoman Louise Slaughter (D-NY) introduced a historic bill to end insider trading on capital hill. Dubbed the STOCK act (Stop Trading on Congressional Knowledge Act), the bill was designed to end the centuries-old practice that our elected officials have enjoyed since the 18th century.
Did you know that the first recorded case of insider trading was in 1792 when William Duer, who was appointed Assistant Secretary under Alexander Hamilton, was borrowing money to speculate on the nation’s debt? He subsequently crashed the market and was nearly killed by an angry mob. He died in a debtors’ prison a few years later.
A century passed and nothing changed.
In 1933, the Massachusetts Supreme Court ruled that insider information was a “perk” in Goodwin v. Agassiz. In this case, the president of a mining company was told by a geologist that his mine was sitting on pay dirt. The president scooped up as many shares of his company as he could on the open market and profited immensely. The seller of the shares sued, claiming he wouldn’t have sold had he known what the buyer knew. The Supreme Court ruled in favor of the buyer and considered insider knowledge a “perk.”
Over the following decades, opinions slowly changed and ethics and standards committees met to address this complex issue. Laws were passed around “tipping,” “fraud” and “disclosure,” but major changes never happened.
Major overhauls were finally put on the table in 2006, aimed to end this widespread problem. But nothing happened. Support on Capitol Hill was thin. No surprise.
STOCK did not yet pass.
STOCK is reintroduced in 2007. Nothing happens.
STOCK is reintroduced in 2009. Nothing happens.
STOCK is reintroduced in 2011. Nothing happens.
STOCK is signed into law in 2012. Still, nothing happens.
Yes, the bill named after stopping insider trading failed to actually stop insider trading. Other than some minor changes, mostly involving transparency, nothing actually changed. The COVID pandemic turned out to be one of the most profitable times to be an elected official, and Nancy Pelosi is still gunslinging shares of NVIDIA like her life depends on it.
Highway robbery in broad daylight.
Congress has continued to beat Wall Street at its own game.
But maybe there is an end in sight.
Legislation is being proposed under Democrat leadership that bans lawmakers, their spouses, and senior staff from trading stocks.
In other words, there will hopefully be an end to middle-aged stay-at-home spouses speculating on endangered steel manufacturers, always at the perfect moment. (This actually happened in 2020, you can read about it HERE
This new legislation doesn’t mean lawmakers can’t invest; it just means they can’t invest using their inside knowledge. Lawmakers will still have the option to utilize qualified blind trusts for investing. This is a fair compromise for those that make the rules.
The legislation has seen support from both Democrats and Republicans, but it raises questions as to how spouses that are brokers will continue to work and demands more diligence for staffing to approve the trusts. The downsides are there, but are negligible considering the positive change. An end to this pervasive problem may finally be on the horizon.
Hopefully it passes.