Is the STOCK Act a Toothless Paper Tiger?

Since the publishing of Breitbart editor Peter Schweizer’s book, Throw Them All Out, support for the STOCK (Stop Trading On Congressional Knowledge) Act to ban members of Congress from using private information for personal profit has jumped from four cosponsors to 131. Yet in the wake of yesterday’s Senate hearings on the subject, several Capitol Hill observers are asking: does the bill, in the present forms being considered, go far enough?

Hardly, say insider trading experts and Washington watchers.

UCLA Law Professor Stephen Bainbridge calls some versions of the bill under consideration “bizarre and toothless.” Equally unimpressed with the bill’s language is Atlantic Monthly senior editor Megan McArdle. “Will someone please guard the damn guardians?” writes McArdle.

One member of Congress who is pleased with the STOCK Act is Rep. Nancy Pelosi. Yesterday, Rep. Nancy Pelosi, who has come under fire for having acquired Visa IPO shares that resulted in a 203% profit while thwarting critical credit card reform bills, appeared to shrug off the urgency of passing the bill. “I would hope that it’s not as necessary as the whoop-de-doo over it makes it seem. But I do think that we all disclose what we do.” And Speaker of the House John Boehner’s comments yesterday seemed to leave open the question of whether such legislation is even needed. “The hearings are a step in the right direction to determine whether there’s a need for such a bill to move. We’ll let those hearings proceed,” said Boehner.

As for the official language used in the eventual bill, Rep. Pelosi said, “I’m sure they’ll come up with something that removes all doubt that this is something that is acceptable within the Congress, and when they do, to me it seems like it would fly through Congress.”

However, a closer look at the loophole-ridden language of the bill under consideration, says Peter Schweizer, reveals the need for several additional provisions not presently included in the STOCK Act.

First, political candidates and members of Congress should commit to placing their assets in a blind trust, says Schweizer. While many members of Congress do this voluntarily, most don’t. Whether through law or public pressure, says Schweizer, elected officials should reduce the appearance of a conflict of interest by establishing a blind trust.

Second, Schweizer says the bill must protect the Security and Exchange Commission (SEC) from budgetary or personal retaliation by the Congress for investigating its members.

Third, an effective bill must prohibit members of Congress and their staffs from passing along private information to family members, friends, or associates that could aid them in making lucrative stock purchases. That, says Schweizer, is not clearly codified in the existing legislation under consideration.

Finally, members of Congress should be required to provide greater transparency about their investments by publicly posting their stock trades within 48 hours of making them. As the New York Post noted yesterday, currently “the bills contain lawyerly loopholes, including a 90-day grace period on reporting stock trades and a narrow limit on trading proscriptions, making them applicable only to ‘pending or prospective legislative action’ involving the issuer of the securities.”

Whether these provisions will make it in to the eventual legislation remains to be seen. However, with Congress’s approval ratings at all time lows, members may have a vested interest in passing a bill with real teeth, not a “toothless paper tiger,” says Schweizer.

“We’re making real progress,” says Schweizer, “but citizens will need to keep the pressure on their elected officials to see to it that real reform becomes a reality.”