Is it illegal for lawmakers to trade shares on insider information they learned on the job?


WASHINGTON – Senator Richard Burr, RN.C., chairman of the Senate Intelligence Committee, said on Friday that he did not act on the basis of any non-public information when he sold shares last month, before the markets collapse due to the coronavirus.

Burr said he relied on information, not confidential information he received about the spread of the virus overseas. But suppose a member of Congress relied on this information to buy or sell stocks: would that be illegal?

The answer is probably no. The possible violation of insider trading laws based on a senator or congressman’s access to official information is something the courts have never clearly defined, and it would be difficult. for a prosecutor to put together such a case.

Federal law has long prohibited insider trading, making it illegal for an employee of a company to buy or sell stock based on proprietary information. The purpose of the provision is to prevent people in a business from having an advantage over foreigners.

This would clearly not apply to members of Congress, as they are not insiders of the company. But court rulings and regulations imposed over the decades have broadened the scope of the law. In the parlance of the Securities and Exchange Commission, it is a violation to trade stocks on the basis of “material, non-public information obtained in a relationship of trust.”

Congress appeared to apply this concept to itself when it passed the Stock Act in 2012. It amended the securities law to say that all senators and representatives have a duty of trust to the nation in matters concerns important, non-public information they obtain in the course of their official duties. This expanded existing ethics rules that prohibit members of Congress from using the information they obtain in the course of their official duties for private profit.

Lamar Smith, a Texas Republican in the House at the time, praised the legislation, saying, “The American people deserve to know that no one in any branch of government can take advantage of their office. Congress acted after a wave of reporting documented the sales of shares by members of the House and Senate based on information they learned about in their committees.

The law does not provide for a criminal sanction, but violators can face substantial fines.

Some proponents of the Stock Act believed that it clearly prohibited buying or selling shares on the sole basis of information that members of Congress learned on the job, because it made them subject to this rule of “trust or trust. of confidence ”- namely, their duty to the Public. But the concept has never been tested in court, and some former SEC officials have expressed doubts that members of Congress have a duty of confidentiality.

But even if this approach to insider trading law clearly applied to Congress, bringing criminal action would be difficult for prosecutors due to immunity under the speech or debate clause of the Constitution.

“They’ll never be prosecuted for that, if they have to break into a committee to find out if that’s where the information is coming from. It’s protected territory for speech or debate,” said Stan Brand, a Washington lawyer and former American. General Councilor of the Chamber.

Members of Congress can still be prosecuted for insider trading when the information they are acting on comes from a company, not through the legislative process. Former Rep. Chris Collins, a Republican from New York, was sentenced to 26 months in prison in January after admitting to revealing to his son insider knowledge about stocks in a drug company that were in danger of falling. Collins learned the information because he was on the company’s board of directors.

Burr said Friday he understood “the hypothesis that many could do in hindsight” about his transactions, and asked the Senate Ethics Committee to investigate the matter.


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