Home > 2012 Election, Capitalism, Crime, Democrats, Free Market, Government, Politics, Republicans > Insider Trading; Not for the Hoi Polloi

Insider Trading; Not for the Hoi Polloi

Nancy Pelosi

I made HOW MUCH from that tip?! Nancy Pelosi (D-CA)

So, beginning with a CBS, 60 Minutes exposé this past Sunday evening, politicians began scrambling to attempt to explain their habit of using inside information to make themselves rich. So far, the biggest names involved are: former Speaker of the House, Nancy Pelosi, Chief of Staff, Rahm Emmanuel, Senator Diane Feinstein, current Speaker of the House, John Boehner, and Representative Spencer Bachus. While the posts held by Pelosi and Emmanuel seem to lend the most leverage to playing the market unfairly, Bachus finds himself being held accountable by his own party. His seeming lack of knowledge of the stock market evaporated after he joined the House of Representatives.

Got a hot tip on how a new law’s fine print may affect a company, or how companies may benefit from pending legislation? Call your broker. While you are a member of the U.S. Congress, unbelievably, there is no rule against profiting. CBS.com notes, “Out of 975 federal entities, Congress and the Supreme Court are the only two that have no rules or laws prohibiting them from trading securities based on nonpublic information.” Things that have gotten traders on Wall Street hauled into jail, mean nothing to legislators in the United States. Raj Rajaratnam must be banging his head on his desk, knowing that he could have beat his insider trading case, if only he had run and won a Congressional seat first. For his efforts, Rajaratnam is estimated to have made somewhere around $19.7 million.

Raj Rajaratnam

A simple trader, found guilty of insider trading. Serving an 11-year prison sentence.

The massive amount of backlash against these practices has lead to Rick Perry producing a new advertisement saying legislators guilty of these practices should be thrown into jail. Senators Scott Brown(R-MA) and Kristin Gillibrand (D-NY) have introduced legislation to prevent Congressman from partaking of the money-making activities. The “Stop Trading On Congressional Knowledge” or STOCK Act of 2011, will be introduced today. It bars not only legislative members from profiting on their inside knowledge, but executive employees as well. That would apply to the former Chief of Staff, Rahm Emmanuel, who made a bundle dumping Fannie Mae stock before the agency crashed and burned during the sub-prime mortgage crisis.

It is far from a partisan issue – everybody, it seems, is taking advantage of the inside info. Spencer Bachus is said to have shorted the market in 2008, just as the entire market fall hard. Andrew Breitbart has both lead the charge, calling for Bachus’ resignation, and closely monitored ongoing information about all the indicated, enriched legislators. Senator Feinstein invested $1 million in a biotech start-up, shortly before the company received a $24 million government grant. The following year, the company held an IPO where they netted $85 million.

Even putting stocks into a blind trust may not be enough of a bulwark against trading on privileged information – all a legislator would have to do is call up the holder of the securities, and tip-toe around subject matter that would affect the portfolio. A sort of “wink-wink, nudge-nudge”, buy or sell signal. Plausible deniability would be the order of the day. In the past, there has been legislation introduced in the House of Representatives attempting to ban Congressional insider trading. It never received more than 14 supporters.

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