Insider Trading is Legal If You Are In Congress

Posted: Nov 15, 2011 11:59 AM

Insider trading, the practice of selling stocks based on non-public information, is illegal for private citizens. But it isn't illegal for members of Congress. They can trade on information about regulations that are not public yet. Steve Kroft, of CBS News, sat down with Peter Schweizer from the Hoover Institution to discuss this practice.


Schweizer: There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it's not illegal, but I think it's highly unethical, I think it's highly offensive, and wrong.

Steve Kroft: What do you mean honest graft?

Schweizer: For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply.

Kroft: So congressman get a pass on insider trading?

Schweizer: They do. The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is-- is considering not reimbursing for a certain drug that's market moving information. And if you can trade stock on-- off of that information and do so legally, that's a great profit making opportunity. And that sort of behavior goes on.

Kroft: Why does Congress get a pass on this?

Schweizer: It's really the way the rules have been defined. And the people who make the rules are the political class in Washington. And they've conveniently written them in such a way that they don't apply to themselves.

The buying and selling of stock by corporate insiders who have access to non-public information that could affect the stock price can be a criminal offense, just ask hedge fund manager Raj Rajaratnam who recently got 11 years in prison for doing it. But, congressional lawmakers have no corporate responsibilities and have long been considered exempt from insider trading laws, even though they have daily access to non-public information and plenty of opportunities to trade on it.

It's worth a read in full. Nancy Pelosi participated in an IPO deal with Visa based on non-public information in the credit card regulations she pushed for, adamantly. Spencer Bachus made money betting against the housing market after closed door briefings with Ben Bernanke in 2008.

At Townhall, we frequently write about how regulations benefit big business at the expense of the little guy. It seems like a logical conclusion that it would also benefit the regulators. Hedge fund billionaire Raj Rajaratnam was given 11 years in jail and a $93 million fine for doing what members of Congress do legally every day.