Gillibrand wants a “bill with teeth”

Yesterday, the U.S. Senate held their first-ever hearing on so-called insider trading practices among members of our own Congress.  “It has recently been highlighted that if you or I were to make stock market trades based on non-public material information that altered the prices of those stocks, and we knew it, we’d be thrown in jail. But, our friends in Congress are 100% excluded from precisely such laws,” explained Dylan on yesterday’s show.

In fact, New York’s own Sen. Kirsten Gillibrand was one member to introduce a bill examining the issue.  Sen. Scott Brown (R-MA) has also introduced a bill to make it explicitly illegal for lawmakers to trade on non-public information.  As WNYC describes them:

The two Senate bills share most of their language, but their differences could have broad consequences. Some watchdog groups and legal professors have expressed concerned that, as written, Gillibrand’s bill is actually weaker than Brown’s. 

UCLA Law Professor Stephen Bainbridge called Gillibrand’s bill “bizarre and toothless” on his blog. “Read literally,” he wrote, “the bill prohibits insider trading by members of Congress only if the member not only personally trades on the basis of such information but also tips the information to ‘another person’ with intent to aid that other person to use the information to trade for personal profit. 

Gillibrand acknowledged that there are technical language flaws in her bill, but she said in the Senate hearing that they will be fixed to comply with its intention of her bill: to make insider trading by members of Congress, or passing on stock tips, illegal.

According to MSNBC.com, Sen. Brown noted that “there have been no successful prosecutions of members or their staff and I believe the uncertainty surrounding the existing legal framework provides an excuse for enforcement agencies (the Securities and Exchange Commission and the Commodities Futures Trading Commission) to avoid the politically difficult task of policing Congress, especially when Congress controls the purse strings” for those agencies.

As Dylan said on the show:

“The American people need to know that their elected leaders play by the exact same rules that they play by.  We should be held to the same, and quite frankly, I think a higher standard than the members of the general public and should not be able to profit based on non-public information.

So, not only are our elected officials above the laws they write, they’re turning a profit in the process at the expense of every other major capital market participant, and in the process, breaching the very trust in America’s once-vital capital markets. Senator Scott Brown, who was co-sponsoring a Senate bill points to research showing that US Senators’ common stock portfolios beat the market on average by 12% a year between 1993 and 1998.

Only Bernie Madoff had numbers like that. Those numbers are twice as good as corporate insiders, executives, CEO’s, who run their own companies, and invest their own money if their own companies.

What’s worse, during this period, the average portfolio underperformed you and me by 1%. And it was the first decade in the history of the stock market in which there were no returns whatsoever. It’s a big reason why the collective net worth of our lawmakers has spiked 25% in the past few years while ours continue to decline.

No wonder Congress has been trying to keep it a secret. There are some on the Hill who have been trying unsuccessfully for years to close the giant loophole we’re discussing.  It has recently picked up steam and there will be no shutting up for the following reason.

Here’s Dylan’s segment with Jack Abramoff, former lobbyist and Author of “Capitol Punishment: The Hard Truth About Washington Corruption From America’s Most Notorious Lobbyist.”  They were joined by Peter Schweizer, author of Throw Them All Out: How Politicians and Their Friends Get Rich off Insider Stock Tips, Land Deals and Cronyism That Would Sent the Rest of Us to Prison.