01 Jun Insider Trading Rules That Do Not Apply To Congress
What is Insider Trading?
Insider Trading involves the trading of a public company’s stock by someone who has inside information which is not available to the general public about that particular stock. This knowledge is usually known only to the high ranking officials of a particular company. This information is known as insider information and is only legally available to the highest-ranking corporates of a company. However, it is illegal to be found in the hands of other officials inside the company or if a public person knows about it.
Do Members of Congress Know the Stock Rates and Can They Use This Information?
The Stop Trading On Congressional Knowledge (STOCK) Act prohibits members of Congress from using insider information for personal gain. However, the members of Congress, as individuals, are allowed to trade. It is possible for members of Congress to note stock rates before they increase or decrease. Ine disadvantages public stockholders and increases distrust among the general public.
However, there is a clear dilemma here. It is quite difficult to make out if Members of Congress use non-public information for the stock market exchange. Just because the Stop Trading On Congressional Knowledge Act prohibits the members of Congress from using non-public information for stock exchange does not mean they don’t. There is often a large amount of money on the line, and the risk of getting caught is very low. A study conducted by the New York Times suggested that almost a quarter (or 25%) of all public company deals involve some kind of insider information. The Security and Exchange Council (SEC) can only do so much with so many resources, and so, they pursue the cases large enough or those that they consider legally viable. Also, the legal system may take years to arrive at litigation regarding cases like these.
On February 13, 2020, Senator Richard Burr, chairperson of the Senate Intelligence Committee, sold a large number of his shares, gathering something between $628,000 and $1.72 million USD. Roughly a week later, the market crashed. Senator Kenny Loeffler started selling her personal holdings on January 24, the day after an all-Senate meeting. Interestingly, her husband is the chairperson at the New York Stock Exchange. The most frustrating part is that they can simply say that they got lucky and get away with it.
So like stated before, it is quite difficult to convict members of Congress for insider trading. The only way to stop insider trading is by prohibiting Congress members from stock trading.