SEC warns on congressional insider trading ban

Reuters News
Posted: Dec 06, 2011 2:04 PM
SEC warns on congressional insider trading ban

By Aruna Viswanatha

WASHINGTON (Reuters) - An explicit ban on insider trading by federal lawmakers could narrow existing law covering the conduct, a top Securities and Exchange Commission official warned on Tuesday.

Any changes need to be "carefully calibrated" so that they do not hurt insider trading prosecutions outside of Congress, enforcement director Robert Khuzami told a House panel.

The House Financial Services Committee on Tuesday considered legislation that would prohibit members of Congress and their staff from trading in securities or commodities based on non-public information gleaned through their jobs.

The bill has languished in Congress for the past five years, but saw renewed interest after a recent television report on "60 Minutes" that found some lawmakers profited from inside information.

The chairman of the House committee, Spencer Bachus, was one of the lawmakers singled out by the report for trading stock options after a Treasury briefing about the economic collapse in 2008. At Tuesday's hearing, he said he would schedule a markup of the legislation.

"In practice, we have never seen these rules applied to Congress," said Representative Louise Slaughter, a Democrat from New York who introduced the bill. "We want to remove any current ambiguity."

"We are trying to set the bar higher for members of Congress," said Representative Timothy Walz, a Democrat from Minnesota who co-sponsored the bill.

While the SEC prosecutes insider trading under general anti-fraud provisions, the agency has never used the laws to go after members of Congress.

The bill could narrow some existing laws, Khuzami said.

The proposed legislation targets information related to pending legislation, for example, and might exempt information obtained through a regulatory briefing, he said.

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Khuzami suggested lawmakers instead create an explicit fiduciary duty between members of Congress to keep information gained on the job confidential and not use it for private gain. The agency would be able to use that general duty to go after insider trading in Congress, he said.

"Highlighting a duty by members of Congress ... is the simplest way to go," he said.

The existing proposal had support in the single digits before the 60 Minutes report, but won 171 co-sponsors in recent weeks, Slaughter said.

A Senate panel considered similar legislation last week.

(Reporting by Aruna Viswanatha; editing by Matthew Lewis)