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Sen. Gillibrand Trying to Gut Bill Banning Congressional Insider Trading?

2:59 PM, Dec 1, 2011 • By MARK HEMINGWAY
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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:

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