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What is the STOCK Act?

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I’m not all that political but some things in Washington don’t make sense. Remember this guy? Raj Rajaratnam was the hedge fund manager who was sentenced to 11 years in prison for insider trading. Using information he received on companies like Goldman Sachs, Hilton, and Intel, he saved or made himself and his hedge fund $72 million using information that you and I have no access to.

That’s clearly a violation of securities laws and you and I, representing the little fish in the big Wall Street pond, applaud his prosecution and conviction. Since the SEC has started going after hedge funds and other larger fish, there are increasing reports that other big traders are cleaning up their act because they fear going to jail too. That’s a good thing! But here comes the irony.

Senator Kerry Inside Trading

You might know this guy. :) His name is John Kerry and he’s a senator from Massachusetts who made some handsome profits and avoided some large scale losses in a series of perfectly time stock trades around the Obama healthcare law. Although he claims that his investments are managed by a trust, having perfect timing as this article describes would make them the most famous, sought after investment advisers on the planet if they did this without the help of Kerry.

Assuming Kerry used this information for his own personal gain, he did nothing illegal. Rajaratnam went to prison and Kerry didn’t but all of that is changing thanks to the passage of the Stock Act.

What is the STOCK Act?

The STOCK Act does three things. First, it requires members of Congress to keep any confidential information confidential. This means that they no longer can make changes to their stock portfolio based on their knowledge until it is public information.

Second, no government official can use their position to gain access to the next hot IPO. Just because you’re a Congressmen (or women) you aren’t going to move up the list when Facebook shares are issued.

Last, any trade has to be disclosed within thirty days. This activity will be publically available and members of Congress and senior government officials will have to file reports electronically and in standardized form.

This bill took six years to pass and on three separate occasions, it was buried in committee but once people saw that they had lost money while their congressmen gained (thanks to a very public 60 Minutes piece), public outcry over insider trading became too loud for Congress to ignore.

It’s Not Perfect

The new law has loopholes but possibly the best part of the bill is the charge that Congress has to keep confidential information confidential. This, according legal scholars, allows the SEC to treat congressional insider trading the same as the Wall Street. Under the new law, John Kerry would eat lunch with Raj Rajaratnam if Kerry were to make those same trades today.

It’s not perfect but it’s a giant step forward and although members of Congress may have their arms folded in frustration, it’s long overdue.

What do you think? Should Congress be held to the same standards?

{ 7 comments, please add your thoughts now! }

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7 Responses to “What is the STOCK Act?”

  1. Kind of ridiculous that congress is allowed to pass laws that directly affect themselves! That would be like me doing my own performance eval. I wonder how I’d rate myself.. duh.

  2. Tim,
    Congress should absolutely be held to the same standards as Wall Street. This has been a long time coming. Let’s hope those loopholes don’t get exploited immediately or too often!

    -Christian L.

  3. Sam says:

    James Madison wrote the following in Federalist Paper #57: “[Congres] can make no law which will not have its full operation on themselves and their friends, as well as on the great mass of the society. This has always been deemed one of the strongest bonds by which human policy can connect the rulers and the people together. It creates between them that communion of interests and sympathy of sentiments, of which few governments have furnished examples; but without which every government degenerates into tyranny. If it be asked, what is to restrain the House of Representatives from making legal discriminations in favor of themselves and a particular class of the society? I answer: the genius of the whole system; the nature of just and constitutional laws; and above all, the vigilant and manly spirit which actuates the people of America, a spirit which nourishes freedom, and in return is nourished by it. If this spirit shall ever be so far debased as to tolerate a law not obligatory on the legislature, as well as on the people, the people will be prepared to tolerate any thing but liberty.”

    I can’t say it any better than that.

  4. Matt says:

    To bad they can’t have a trial for John Kerry, that would send a strong message. But hopefully he never gets reelected after misusing his power for his financial gain and then lying about it.

  5. Scott says:

    To be fair, it’s not just Kerry. They’re making an example of him, but there are many congresspeople who regularly have done this.

  6. Zanne says:

    I think that members of Congress should be held to a HIGHER standard! They are elected to their office to act in the public interest, not to line their pockets. They have trust to carry out, but they do not do their job. Frankly, if we made them do away with their special medical benefits, which are better than all other public employees, made them do without their special retirement, which vests in a shorter period than all other federal employees, and cut their pay and per diem, which is better than that of the rank and file federal employees, AND cracked down on profits made through influence peddling, you’d see a mighty exodus, and real savings in the Budget. My 2 cents…

  7. timparker says:

    Scott:

    Very true. I’ve read articles that said most of the senior members of Congress took part. Apparently, the more you moved up the Congressional ranks, the more money you made doing this.


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