Dear Congress: Please Stop Robbing Us

The salary of members of the United States Congress: $174,000.

Average annual benefits for retired members solely drawing from Civil Service Retirement System as of 2007: $63,696.

But the profits they can make by trading on inside information?

Priceless.

Here in the U.S., we're all quite familiar with the phenomenon of Congress taking our money and spending it on things we might prefer they not. It is, after all, Congress' job to raise revenues and spend them in the national interest. (It's right there in the Constitution -- Article I, Section 8, Clause 1.) What we're less familiar with is how Congress often appropriates investors' money through insider trading. That particular part of the job description isn't authorized anywhere in the Constitution. Problem is, it isn't forbidden there, either ...

For more than a year now, I've been doing my darnedest on Fool.com to raise public awareness of the problem of insider trading in Congress. As stock markets plunged and housing prices tumbled in 2008 and 2009, some of our elected representatives and their staffers went around shorting homebuilders and snapping up shares of short-the-Nasdaq ETFs.

And when Congress mobilized to shore up the economy with stimulus funds, some Congressional staffers were caught by the The Wall Street Journal trading shares of SunPower (Nasdaq: SPWRA  ) and Energy Conversion Devices (Nasdaq: ENER  ) , both of which stood to profit from alternative energy investments. Meanwhile, some of their bosses were shorting U.S. Treasuries -- all the while borrowing like banshees to bail out AIG (NYSE: AIG  ) , Citigroup (NYSE: C  ) , Bank of America (NYSE: BAC  ) , and the like.

I've also told you all about the strange fact that the same folks who set up a Securities and Exchange Commission to police malfeasance on Wall Street have established no similar rules to prevent their own trading on information gained in the process of passing laws that affect U.S. companies. And we've told you about the Stop Trading On Congressional Knowledge Act (that's right, the "STOCK" Act) that's supposed to fix this problem -- and how almost nobody in Congress seems interested in signing it. Why, I've even tried to kick start the process by embarrassing new Speaker of the House John Boehner into getting the bill through committee.

All to no avail.

Fourth time's the charm
I personally have penned three columns already on the subject, and while they've garnered a fair amount of praise, some Facebook success, and even an interview on Russian (!?) national television for me, they haven't yet done a lick of good toward getting the law passed. Well, here's hoping the fourth time's the charm. Because if you haven't heard, the STOCK Act is back under consideration before Congress this month.

Unfortunately, it's looking weaker than ever. To date, only six out of the 435 representatives sitting in the House today have cosponsored the bill that would prohibit Congressmen trading on inside information: Rep. Timothy Walz (MN) -- the bill's sponsor, along with Reps. Raul Grijalva (AZ), David Loebsack (IA), Louise Slaughter (NY), Niki Tsongas (MA), and Dennis Kucinich (OH).

Our job today is to give them a helping hand -- and make Congress hear that we're serious about this legislation. We know some of our elected representatives have their hands still stuck in the stock market cookie jar, we're mad as hell, and we're not going to take it anymore.

What you need to know
Congress is stuck in a time warp. For more than five years now, Rep. Slaughter (named above) has co-sponsored versions of this bill. And it couldn't come soon enough. A recent study by four university professors found that members of the House of Representatives beat the market by 6 percent from 1985 to 2001. An earlier study by the same group found that in the 1990s, U.S. senators outperformed the stock market by 12 percentage points per year. For context, that's twice as much outperformance as company insiders manage on average. Why, Warren Buffett and his Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) family of companies have only managed 10.8-percentage point annual outperformance during his tenure as company CEO.

Pardon my bluntness, but if these numbers are accurate, then it appears to me that either:

  1. Congress is home to some of the savviest stock-picking geniuses in the history of Mankind, or ...
  2. it's full of crooks.

On her congressional website, Rep. Slaughter quotes law firm partner and former SEC enforcer Thomas Newkirk, who points out: "If a congressman learns that his committee is about to do something that would affect a company, he can go trade on that because he is not obligated to keep that information confidential." There's no law against it. There's no duty of confidentiality to any particular person that's being breached. And barring censure by the House itself for acting "unethically," there's currently nothing anybody can do about it. (And I'd add, in the Senate even the censure thing doesn't work, because the U.S. Senate has not adopted the Code of Ethics for Government Service.)

What you can do about it
It's time we put an end to this. As of this writing, the STOCK Act has been sidelined, shuffled off to die in committee before the House's Subcommittee on the Constitution. If you believe it should see the light of day, and that Congressmen should be forced to publicly vote for or against their "right" to trade on inside information, here's what you should do:

First, click here to sign the petition in support of H.R. 1148, the "Stop Trading On Congressional Knowledge" Act.

Done yet? That was almost too easy! So how about getting even more involved? If you've got a moment, phone Rep. Trent Franks (AZ), the subcommittee's Chairman, and Rep. Mike Pence (IN), the Vice-Chairman:

Rep. Pence: (202) 225-3021

Rep. Franks: (202) 225-4576

Let them know that you want the STOCK Act (H.R. 1148) approved out of subcommittee and committee and sent to the House floor for a vote.

While you're at it, and in the interests of being completely bipartisan, give Rep. John Conyers a jingle as well. His number is (202) 225-5126.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool owns shares of Berkshire Hathaway and Bank of America, and has also shorted shares of Bank of America in a separate account. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


Read/Post Comments (49) | Recommend This Article (126)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 16, 2011, at 3:38 PM, TMFHousel wrote:

    Solid, Rich.

  • Report this Comment On June 16, 2011, at 4:09 PM, mattsmithsd wrote:

    Raj Rajaratnam and many others were sent to prison for insider trading on the stock market, yet congress is allowed to trade on insider information(?).

    Bernie Madoff copied a similar investment structure of Social Security & now serves life in prison for creating a ponsi scheme(?).

    Julian Assange is on trial for being a whistle-blower, yet the Gov. pays people to be whistle-blowers when it works in their interest(?).

    *We Are One Twisted Nation*

    !!!!!(I signed the petition)!!!!!

  • Report this Comment On June 16, 2011, at 4:24 PM, medicalquack wrote:

    This just blows me away as the commenter stated above, others go to jail for this. I do agree with you that our Congress does not use the tools they could have available for making better laws. They need high tech like IBM Watson, or least rent some space from the DOE for some high powered queries and have all look at the same information at the same time, then go off into committees as everyone is at the same starting area.

    They would be like starting at the 10 yard line instead of the 40 for a touchdown with information upfront and better educated. With speech recognition even the lowest common denominator we elect could participate too so nobody gets left out. Machine learning would go a long way for making better laws and faster too.

    Would like a break from all the 70s rhetoric we hear, such a waste of time. I say put big white boards up and port the information to mobile tablets so they could engage some intelligent debates. They just don't get it and with transparency all this stuff comes out just like you reported above, the rugs have sensors today:) If this bill received at least 1 tenth of the attention Weinergate did, we would be a few miles ahead.

    http://ducknetweb.blogspot.com/2011/05/digital-illiteracy-st...

  • Report this Comment On June 16, 2011, at 4:36 PM, Acesnyper wrote:

    Signed,

    awaiting the FBI no knock warrant.

  • Report this Comment On June 16, 2011, at 4:51 PM, 123spot wrote:

    Amen. And thank you, sir. Signed.

  • Report this Comment On June 16, 2011, at 5:01 PM, banteng wrote:

    I considered signing but ultimately chose not to. Why? Simple. Such legislation, if passed, would exist only as lip service. At best we'd place another layer of regulators to monitor Congress and other government officials then wonder years later why government is so big. If we want true transparency then force them to disclose all their trades real time. This should be simple enough to adopt and theoretically we, the public, will be able to then be privy to the same information.

  • Report this Comment On June 16, 2011, at 5:03 PM, TMFDitty wrote:

    For the record, I've just rung up all three Congressman named:

    Conyers says he supports the STOCK Act. Pence has never heard of it (although he's on the subcommittee *considering* it). Franks has a three-day old staffer manning his phone, who knows nothing about it.

    Ring 'em up, Fools, and let's tell them a little something about it.

    TMFDitty

  • Report this Comment On June 16, 2011, at 5:29 PM, GregLoire wrote:

    Realistically, I don't think the average voter understands this issue enough for anything to ever change.

  • Report this Comment On June 16, 2011, at 5:44 PM, TMFAleph1 wrote:

    Not to mention that they often have one or several family members working in their office.

  • Report this Comment On June 16, 2011, at 6:56 PM, Bert31 wrote:

    I don't get it. How are they robbing us? Aren't they using their own money? Are they investing with campaign funds? Are they investing with tax revenue?

  • Report this Comment On June 16, 2011, at 7:16 PM, pedorrero wrote:

    As long as I'm drawing up a fantasy world how about:

    Our elected reps are subject to all the laws they impose upon us peons (as far as possible, and I assure you they have tons of exemptions right now.)

    Specifically, if you are in a powerful position, all your assets go into a blind trust for the duration? (This is done for top executive positions, but apparently not Congress.)

  • Report this Comment On June 16, 2011, at 8:08 PM, vidar712 wrote:

    @TigerBloodWarlok

    You are right, they aren't using tax payer money to profit off of insider information, so they aren't screwing over America.

    They are using insider information to profit off of other investors. So, only investors could be hurt by these actions. Only people who own stock, (or a mutual fund, like in my Grandma's 401K) would be hurt by these actions.

    If an elected official is taking part of grandma's nest egg (before she pays taxes), what is wrong with that?

  • Report this Comment On June 16, 2011, at 8:14 PM, buffalonate wrote:

    Insider trading should be legal. Why? Because no one is harmed by it. It is a pointless law and you need to find something else to rant about.

  • Report this Comment On June 16, 2011, at 8:51 PM, Bert31 wrote:

    OK just curious because from the title of the article it sounded like they were doing something illegal, like robbing people. But are you saying that because a few senators shorted some stocks because they thought the economy was going south, that is robbery?

  • Report this Comment On June 16, 2011, at 9:33 PM, TMFDitty wrote:

    @TigerBloodWarlok: Let me tweak your characterization slightly:

    "A few senators shorted some stocks because they thought the economy was going south [... and they were passing legislation which benefitted some companies, injured others, bailed out some companies, did not bail out others, regulated some companies, left others unregulated -- and they alone knew which were the "some" and which were the "others".]

    It's this trading on "Congressional knowledge" that the legislation aims to outlaw.

    TMFDitty

  • Report this Comment On June 16, 2011, at 9:38 PM, thomasaw wrote:

    To add to the above. What would stop a senator or congressman from sponsoring legislation that purposely benefits his stock portfolio. Any money that is made using this knowledge is at the expense of someone else.

  • Report this Comment On June 16, 2011, at 10:54 PM, banteng wrote:

    But it's a little more than just insider trading. These people have the ability to create laws that can make their investments that much stronger. How else do you explain their significant gains on average?

    Another interesting point that wasn't mentioned in this post - they found that senior members hands down had better numbers than junior members. The possible reasons are countless but it's theorized that a big reason is senior members had the pull to make sure beneficial laws were passed.

    Attempting to regulate this is pointless. It would never be enforced and would probably be incredibly difficult to prove. Forcing them to freeze their assets would never fly either. But make every transaction they make known to the public the minute they hit "confirm"? I think that's feasible and cheaper.

  • Report this Comment On June 17, 2011, at 12:31 AM, davidm8797 wrote:

    Well if that isn't a conflict of interest - shorting the market while claiming to be making efforts to prevent it from collapsing....?

    And these are the same guys who shake their finger at Goldman execs for buying CDS's? Shameful

  • Report this Comment On June 17, 2011, at 1:59 AM, 11x wrote:

    If Washington and Benjamin Franklin were alive to see this... shameful. They limited the power of the President but forgot to limit the power of congress and senate... lesson for the next revolution.

  • Report this Comment On June 17, 2011, at 2:40 AM, mtf00l wrote:

    There will be no revolution, move along...

  • Report this Comment On June 17, 2011, at 7:52 AM, blacklab13 wrote:

    Must be nice to have these perks.. Insider knowledge and trading. Then, getting away with it. A very nice salary and benefits for life, for both the congress person and their spouse. Authorizing pay raises for themselves. All on the backs of the US public.. The least they could do is to come by and offer a kiss after getting screwed us this much.

    Some of these Elected officials make rotten CEO's look real good..

  • Report this Comment On June 17, 2011, at 9:06 AM, buffalonate wrote:

    They didn't do anything to Representative Rangel for his 10 violations of law so I highly doubt this law would ever be enforced.

  • Report this Comment On June 17, 2011, at 10:59 AM, TMFDitty wrote:

    Good work, Fools! We passed the 500 signatures mark 14 minutes ago. Keep clicking, keep calling.

    http://www.change.org/petitions/pass-the-stock-act-4

    TMFDitty

  • Report this Comment On June 17, 2011, at 12:47 PM, Blackhawks44 wrote:

    What a great article. These scumbags need to be arrested

  • Report this Comment On June 17, 2011, at 12:56 PM, BlazerMania wrote:

    Signed.

  • Report this Comment On June 17, 2011, at 12:57 PM, chomp20x wrote:

    I signed the petition, and called! Hopefully everyone does the same!

  • Report this Comment On June 17, 2011, at 1:27 PM, harispicks wrote:

    Am shocked to see out of all the people who come here for information....there arent more people commenting on this or saying whether they agree with this or not...

  • Report this Comment On June 17, 2011, at 1:28 PM, AlanWest wrote:

    Like no other time in history, the whole world is now embroiled in chaos and catastrophe most similar to a world war. We have been basically stripped of our rights, options and opportunities like refugees of an occupied defeated country.

    People need to gather their family and friends together and begin caching food, water and other supplies in order to outlast the economic and environmental collapse that will play out slowly over the next couple years.

    http://www.familysurvivalcenter.com/supplies.htm

  • Report this Comment On June 17, 2011, at 2:02 PM, Darwood11 wrote:

    I signed it, and sent this message:

    "Pass this bill. If you REALLY want consumer confidence to improve, and with it, the economy, it will begin with this bill. Passage will be evidence that the congress is willing to operate first for the benefit of the citizens of this great country. If this bill fails, it will be evidence to the contrary.

    It's time for congress to begin doing "the right thing" and this is the opportunity."

  • Report this Comment On June 17, 2011, at 2:10 PM, FoolNutt wrote:

    Seriously, this is not a calamity that you make it out to be. Sure Congressmen shouldn't do "insider trading" if that is what this really is. But, you're talking about 635 people and maybe a 1,000 staffers, so we're not talking about the entire federal government. Government employees are held to strict conflict of interest rules and those who are involved with financial assets of the government have to disclose all their holdings annually to the Office of Government Ethics. Even if you could classify this as 'insider trading," which I think is a stretch because they are still taking a chance that the legislation will not really effect the particular investments, the impact of their trading couldn't possibly have a major impact on the market.

  • Report this Comment On June 17, 2011, at 2:42 PM, noryakerson wrote:

    I signed and will dig into this a bit more. I don't care that we're talking a small group of people here. They are public servants, given their jobs by the people, people who believe they will represent their interests. They shouldn't be feathering their own nests. They get a decent salary and great benefits. If they want the confidence of the American people, they need to behave like morally attuned individuals and not a bunch of thieves.

  • Report this Comment On June 17, 2011, at 2:57 PM, whyaduck1128 wrote:

    This legislation will never reach the floor of the House, let alone be passed. John Boehner, a man of great avarice and little imagination, rules the House with an iron fist and a head to match.

  • Report this Comment On June 17, 2011, at 6:38 PM, TMFDitty wrote:

    ^

    Funny you should mention Speaker Boehner...

    http://www.fool.com/investing/general/2010/11/11/an-open-let...

    TMFDitty

  • Report this Comment On June 17, 2011, at 7:44 PM, hbofbyu wrote:

    I really don't know how we can expect anything better from a group of egotistical, vainglorious opportunists whose self control does not even extend beyond the bounds of their own penis.

    The sad thing is that this says just as much about the people who elect them.

  • Report this Comment On June 17, 2011, at 11:08 PM, MadoffCoalition wrote:

    Rich,

    As a Madoff Victim, I fully understand your frustrations in trying to make the public aware of the information you have written about.

    I am writing this anonymously because Madoff victims are asking Congress to help them and I don't think it would benefit us to publicly support what you're saying.

    However, i do support your efforts and I did sign your petition. Please sign one to help Madoff victims (SIPC and the SEC are NOT truly protecting investors, despite a federally mandated statute). We are trying to get Congress to support a bill that was introduced that would ensure that all Americans can feel safe in their investments.

    There seems to be a lot broken in our country and unfortunately, the innocent hard working citizens are paying the price. It seems we are held to a much higher standard than those that govern us and those that enforce the existing laws.

    Good luck in your quest, Please don't give up the battle...

  • Report this Comment On June 17, 2011, at 11:12 PM, MadoffCoalition wrote:

    Do you feel your investments are safe? They are NOT. Please read what Cong. Scott Garrett has done to help investors and sign the petition to support his efforts.

    http://tinyurl.com/petition757

  • Report this Comment On June 18, 2011, at 12:29 PM, David369 wrote:

    Good article and the one you ref on Boehner was good too. Funny in a sad & scarey way since it reflects the morals of the people who run our nation.

    When Pres Carter was elected he put his business (peanuts) in a trust during his term to try to distance himself from it so it wouldn't look like he would use his position to improve his business. Kind of honest of him, what was he thinking?

    Some people say "what the heck" if a few congressmen make trades on knowledge or ability to influence the market. I don't care if it is one person and the law might be useless but it is the principle of the thing. If people like us go around with the attitude that "hey, congress is crooked anyway, so what" well, then it is our own fault to let them get away with it. They are not going to really police themselves on "minor" stuff (or even medium stuff). Yeah passing this might be a long shot and might not mean anything if passed but you have to start somewhere.

    I expect big changes in congress when politicians are not allowed to run for office and only average middleclass people are allowed to hold Congressional offices. Campain funds should be limited to $70,000 to pay for travel expenses for debates and interviews one year before the election. I figure this will happen shortly after I win the lottery (or maybe the same day I find several large diamonds in my back yard).

  • Report this Comment On June 18, 2011, at 7:07 PM, Bert31 wrote:

    Just curious where is your link to the open letter to Nancy Pelosi while she was speaker of the House? Surely you pressed this issue with her while the Democrats had a super majority? The bill was first introduced in 2006 and you guys are attacking Boehner for not addressing it?

  • Report this Comment On June 19, 2011, at 6:53 AM, waynelerrigo wrote:

    how do we get this on Facebook?

  • Report this Comment On June 19, 2011, at 6:54 AM, waynelerrigo wrote:

    oopps...found it

  • Report this Comment On June 20, 2011, at 12:26 AM, jfhosick wrote:

    Great article - signed the petition. Keep this in front of your readers as a lot of people don't keep up with what our so-called leaders in Washington are up to. I contacted my congressman - but that is like asking the fox to watch the chicken house.

  • Report this Comment On June 20, 2011, at 11:02 AM, TMFDitty wrote:

    Petition update: We're now at 899 signatures. 101 to go before we max out Change.org's little status bar.

    http://www.change.org/petitions/pass-the-stock-act-4

    Keep clicking, keep calling, and Fool on!

    TMFDitty

  • Report this Comment On June 20, 2011, at 10:46 PM, irvingfisher wrote:

    Where can I find a job as a staffer before this farkatke bill gets passed?

  • Report this Comment On June 21, 2011, at 1:29 PM, TMFDitty wrote:

    Petition update: We just ticked over the 1,000 signatures mark. Thanks, everyone!

    TMFDitty

  • Report this Comment On June 22, 2011, at 4:41 PM, DJDynamicNC wrote:

    I'm proud to support you and Congresswoman Slaughter (she represents my district, and I'm frequently grateful for this), but good luck getting sensible ethics regulations through a Republican House. Boehner is the guy who once handed out lobbyist checks on the House floor during a vote, just in case his cronies forgot who they were actually working for.

  • Report this Comment On June 23, 2011, at 9:21 AM, doncoyoteok wrote:

    The solution is for Congress to stop writing so much special interest legislation. The further solution is for people to stop voting for those Congressmen. Stop voting for people who promise this and promise that and see taxpayers' dollars as one big grab bag for them to play with.

  • Report this Comment On June 25, 2011, at 9:37 AM, Pilot2012 wrote:

    TERM LIMITS !

  • Report this Comment On June 25, 2011, at 8:42 PM, dillon53 wrote:

    It's been a while that I found out Congress is allowed insider trading. WHAAAT? That couldn't be!

    One of the most important rules I learned and was tested on for Series XYZ was just this very punishable insider trading crime. It was compared with speeding by a school bus with its stop sign out.

    Who does Congress think they are? Where's the good example here?

    I say legalize insider trading for all or absolutely none!

  • Report this Comment On November 21, 2011, at 3:02 AM, rdub76 wrote:

    Everyone wonders why congress wants to regulate business so much. They can make fortunes regulating certain industries and then double down by having the bureaucrats write exceptions for ther buddies.

    Also I tried to sign the petition at Change.org and it kept finding a reason to keep me from signing it. I gave up.

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