Congress Exempts Most Federal Workers From Key Insider Trading Reporting Requirement

Tyler Durden's picture

Back in 2012, amid "intense pressure from Obama" including an appeal for its passage in his 2012 State of the Union address, Congress passed the Stop Trading on Congressional Knowledge (STOCK) Act (with 96-3 theatrical votes in the Senate, and 417-2 even more theatrical votes in the House) - a bill prohibiting the use of non-public information for private profit, including insider trading by members of Congress and other government employees. It is unclear why until 2012 it was perfectly legal for congress to trade on inside information, something we pointed out in May 2011 when we wrote that a "A Hedge Fund Comprised Of Junior Congressional Democrats Should Outperform The Market By 9%" as it turned out flagrant insider trading abuse occurred mostly within the democrat ranks of the House (compared to a mere 2%+ outperformance by Congressional stock trading republicans).

It turns out that any cynical skepticism regarding Congress' ability and willingness to police itself was well founded, as last night the House eliminated a "key requirement of the insider trading law for most federal employees, passing legislation exempting these workers, including congressional staff, from a rule scheduled to take effect next week that mandated online posting of financial transactions."

The reason why one will have to take Congress at its word that it is not breaking the law? Because apparently posting Congress' financial dealings online would be pose a "national risk" according to the National Academy of Public Administration.

Surely this explains why the bill was rushed and voted in the matter of hours: one can't have a debate over matters of "national security" especially if the financial well-being of Congress is at risk. As Washington Times recaps, "Senate Majority Leader Harry Reid, Nevada Democrat, introduced the bill on Thursday and had the chamber vote on it late that evening. The House took the bill up on Friday afternoon and passed it by unanimous consent, with no members objecting. Republican leaders did not give lawmakers the traditional three days to read the bill before holding a vote. One GOP aide told The Washington Times the three-day rule did not apply to Friday’s action because the bill came from the Senate, while another said the House moved quickly because of a Monday deadline for the new disclosure mandates to take effect."

In other words, while the STOCK Act passed nearly unanimously in 2012 just to show how "honest" congress is, the follow up legislation that effectively undoes the key reporting requirement of said anti-inside trading law passed just as unanimously, allowing congress to have its shady dealings cake, and eat its non-inside trading reputation too.

That both democrats and republicans rushed to pass this provision shows just how truly engrained the unwillingness for true transparency in Congress is.

Obviously, the justification spin for eliminating the key STOCK act provision was ready and just waiting to be unleashed:

House Majority Leader Eric Cantor's spokesman Rory Cooper told CNN the decision to enact new legislation now was in direct response to the study.

 

"In December when we extended the STOCK Act deadline for public disclosure of Financial Disclosures, we required a study by the non-partisan and independent National Academy of Public Administration. This was their recommendation, and the House and Senate agreed it was the best course of action for the time being," Cooper told CNN in a written statement.

In other words, according to the "nonpartisan and independent" NAPA, having Congressional financial documents online represents a national security risk. Because somehow terrorists will terrorize the US even more when they know on what days Nancy Pelosi bought and sold the S&P 500.

Federal employees began expressing concerns about the national security risks of posting personal financial information online soon after government agencies moved to implement the STOCK Act last year.

 

Online posting was supposed to begin August 31, 2012, but Congress passed extensions three separate times pushing off the compliance date.

 

In December, the last time the House and Senate approved another extension signed by the president, they also directed the National Academy of Public Administration (NAPA), a non-profit group of public management experts chartered by Congress, to study whether there were real security risks associated with putting this kind of financial information on the Internet.

...

Part of the law required that senior government officials’ financial disclosure reports — which they are already required to submit in paper — be made available online in a searchable, sortable format. The belief was that publishing them online would make it easier for reporters and the public to try to spot illicit dealings.

 

The online disclosure provisions had not yet taken effect, and Congress asked NAPA to review the law.

 

In a report release last month a five-member NAPA panel said online posting would mean more sensitive information about high-level government employees would be easily available, which would make identify theft easier.

 

An open, online, searchable and exploitable database of personal financial information about senior federal employees will provide easy access to ‘high quality’ personal information on ‘high value’ targets,” NAPA officials said in their report.

 

The Defense Department told NAPA that online disclosure would mean hostile nations would have easy access to sensitive personal information about top national security officials.

Because "hostile nations" have nothing better to do than trade alongside Congressmen with the usual 13F, 45-day delay. In the meantime, those who truly would benefit from this transparency: the media, or least those very few in the media who have not been bought by Congress just yet, and are willing to check which members of Congress are now actively breaking the STOCK law, will have their work cut out for them.

At least someone spoke up, although their objection will be promptly ignored and forgotten.

One advocacy group pushing for greater government transparency blasted the move, saying it “guts" the law.

 

"Not only does the change undermine the intent of the original bill to ensure government insiders are not profiting from non-public information, it sets an extraordinarily dangerous precedent suggesting that any risks stem not from information being public but from public information being online,” Lisa Rosenberg of the Sunlight Foundation wrote in a statement.

Yet, fundamentally all last night's accelerate revision to the STOCK act does is pray on the laziness of "terrorist" and, of course, reporters:

With this change those federal workers would still have to report any securities trades over the law's $1,000 threshold within 45 days. While these reports would be publicly available, they would no longer be posted online in a format that anyone can search or download.

So basically "hostile nations" can still access all the data, however it will be in paper format. And this avoids national security risks just how?

Of course, if indeed this is merely a bet on the laziness of the financial media, it is probably safe one. After all it appears that said financial media would rather spend hours discussing and lamenting the sad future of the financial media, especially how slideshows of kittens are part of the great profitability strategy... 

... than actually doing any financial media stuff, like reporting. After all why bother: one can always pray someone else will do the actual work, and everyone else can just do what modern "financial media" is so truly good at: CTRL-C and CTRL-V.