Peter Schweizer's book, Throw Them All Out, has been a topic of much discussion in Washington, in no small part because of shocking details about how congressmen trade stock based on their private knowledge of how legislation will affect markets. Amazingly, this is completely legal. As I put it in an editorial in the current issue of THE WEEKLY STANDARD, "At a time when Americans hate Wall Street with the fire of a thousand suns, behavior that would get a bank executive a perp walk and a jail sentence is business as usual in the nation’s capital."

Now that Schweizer's book has been getting lots of attention, the Washington Post reports that a bill to ban congressional insider trading that had been languishing is "suddenly popular." However, it seems not everyone in congress is too happy about taking away one of their lucrative perks. John Carney at CNBC reports New York senator Kirsten Gillibrand wants to radically alter the legislation in some unusual ways:

Nonetheless, it is shocking to see what Sen. Gillibrand is proposing to do to Sen. Brown’s bill. She’s basically proposing adding a clause that nearly cancels out the entire thing.

Here’s the language Brown proposed:

Not later than 270 days after the date of enactment of this Act, the Commission shall, by rule, prohibit any person from buying or selling the securities or security-based swaps of any issuer while such person is in possession of material nonpublic information relating to any pending or prospective legislative action relating to such issuer, if: (A) such information was obtained by reason of such person being a member or employee of Congress; or (B) such information was obtained from a member or employee of Congress, and such person knows that the information was so obtained.

That’s pretty straight forward. It orders the SEC to enact a rule that is actually a bit more strict — because it explicitly includes swaps — than the insider trading rules that apply to the general public. If a congressman or senator traded on information while in possession of material non-public information gained because he or she hold office, that lawmaker is in violation. If a staffer or other associate of a lawmaker trades on that information, they are also in violation.

Here’s what Gillibrand has proposed:

Not later than 270 days after the date of enactment of this Act, the Commission shall, by rule, prohibit any person from buying or selling the securities or security-based swaps of any issuer while such person is in possession of material nonpublic information relating to any pending or prospective legislative action relating to such issuer, if: (A)(i) such information was obtained by reason of such person being a member or employee of Congress; or (ii) such information was obtained from a member or employee of Congress, and such person knows that the information was so obtained;(B) the person acted with the intent to assist another person, directly or indirectly, to use the information to enter into, or offer to buy or sell the securities of such publicly traded company, based on such information.

Note: there’s a clear typo in this, as there’s no conjunction between clause (A) and clause (B). As Professor Bainbridge points out, the word “and” is almost certainly the missing conjunction.

The effect of this, however, is to gut the law.

So what exactly does this mean? Here's Professor Bainbridge:

This is just nuts. First, notice the lack of a conjunction between subsections (A) and (B). Presumably, that's just a typographical error. Essentially identical sections appear elsewhere in the Act to deal with derivatives and those sections include the conjunction "and" between their versions of subsections (A) and (B).



Second, and vastly more important, because the conjunction "and" is to be assumed, note that Congress member Abel will be prohibied "from buying or selling the securities or security-based swaps of any issuer while [Congress member Abel] is in possession of material nonpublic information relating to any pending or prospective legislative action relating to such issuer, if" AND ONLY IF [Congress member Abel] "acted with the intent to assist another person, directly or indirectly, to use the information to enter into, or offer to buy or sell the securities of such publicly traded company based on such information."



Read literally, 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.

Are these innocent typos? Well, before you answer that question note that Gillibrand's husband is awfully fond of trading stocks and options.

The old adage used to be that the most dangerous place in Washington was between a congressman and a camera. Now I'm beginning to think it's between a congressman and his portfolio.

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