20 May Why Congressional Insider Trading Is Legal
Americans pride themselves in their impeccable system of government where no one is above the law, not even the lawmakers themselves. However, looking a little deeper into the reality of the situation, it is clear that there is a disparity in the same. US senators and lawmakers have always been a cut ahead than the average American citizen when it comes to the stock trade. The stock market does not crash immediately; it takes some time for the company and the board members to decide on the value of the stock. The lawmakers or senators are also part of the meetings that decide these, and therefore they have insider information on the issue.
Insider information is the information about a company’s stock or other important non-public information that is limited to only the highest-ranking corporates of the company. If this information is used for personal gain, it will create regional distrust in the people of the country and in public shareholders.
So Why is It Not Illegal Then?
That is the interesting part. Insider trading as of 2012 has been banned by the STOCK (Stop Trading on Congressional Knowledge) act. It was passed by the then President Barack Obama, and it was aimed at White collar crime in Washington. It dictated strict disclosure terms and regulations regarding congressman buying and selling securities for congressmen. At first, it worked perfectly, with members of the Congress posting that reads on a searchable database online. However, close to one year after the passing of the STOCK Act, an amendment was made removing the online disclosure clause. You can still see the working of a particular representative’s portfolio by going to the basement of the Cannon House office building in Washington DC. It is in a printed format and can still be considered a public disclosure statement.
Also, it is very difficult to distinguish between insider trading and pure luck. And most congressmen get away with insider trading by saying so. However, there was a case where Martha Stewart was convicted. She was not found guilty of insider trading, because she presented an alibi and said it was pure chance, but she had lied about one of the details and was convicted for that instead. So it is clear that insider trading goes on even though it is technically illegal.
As stated before, it is quite difficult to know if insider trading goes on. Maybe it might be luck, or maybe it isn’t, but the statistical analysis of the situation does not give congressmen the benefit of the doubt. So the only way to tackle this problem is by either making the stock trade traceable for Congressmen or banning it completely.