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Congressional Leaders Talk STOCK Act

http://www.fool.com/investing/general/2012/01/30/congressional-leaders-talk-stock-act.aspx

Molly McCluskey
January 30, 2012

In his State of the Union address last week, President Barack Obama took a moment to lament the perception of the Capitol as an ineffectual place. He called for a renewed effort from elected officials to restore the public trust.

"Send me a bill that bans insider trading by members of Congress," he said, "I will sign it tomorrow."

There are two such bills already under consideration, both known as the STOCK Act: One, brought before the House of Representatives by Tim Walz, D-Minn., and Louise Slaughter, D-N.Y.; and the other, a combination of bills presented by Sens. Scott Brown, R-Mass., and Kirsten Gillibrand, D-N.Y. The merged Senate version recently passed the Senate's Homeland Security and Government Affairs Committee with by 7-2 vote. This afternoon, the full Senate will be voting on whether to open debate on the bill -- a major step toward finally passing it.

Support has been growing in both the House and the Senate. According to a spokeperson from Walz's office, the bill has an astonishing 253 co-sponsors in the House from both political parties, and that number could continue to grow as a result of the State of the Union address. But it may take more than 253 members of Congress and the president to get it passed.

"Bad policy, horrendous politics"
When reached for comment, the sponsors of both the House and Senate versions of the act say the same thing: Passing this act is essential. Congressional approval is at an all-time low, and the perception of insider trading, valid or not, doesn't help matters.

Adding insult to injury is the sheer length of time it took to get the Act noticed.

It was back in 2007 that Rep. Brian Baird approached Walz (then in his first term) about insider trading. "If you want to reform the government," Baird told Walz, "this is a good one."

Baird had introduced the act twice before, with co-sponsor Slaughter, but it hadn't gone anywhere. Once Baird showed Walz the financial returns of members of Congress, Walz was in. "To me, it was a statistical anomaly -- I mean, year after year. Either something was happening, or this was the greatest collection of investors seen in America."

When Baird left Congress in 2011, Walz took his place alongside Slaughter as the bill's champion. Walz said an initial concern was that insider trading would come to light through a scandal that would shake confidence in the government. Passing the act, he hopes, will prevent such a scandal.

"I'm not trying to be the moral policeman for my colleagues," says Walz, a former high-school teacher. "They always say, 'It's easy for you to say; you're poor. You're a teacher.' I say, 'No, I look like America.'"

Walz says that when he's home in Minnesota, people stop him on the street to encourage him to pass the act. "It is the populist mantra. If they're mad at anything, it gives them a focal point of what to go after, because it just seems, and as it is, so wrong."

"I think, first of all, it's really bad policy not to pass it," Walz said, "but I think it's horrendous politics not to pass it."

Any interest in reforming a broken system?
It's a sentiment Walz's co-sponsor of the act, Slaughter, shares. Her office has issued repeated statements encouraging Congress to pass the act. "Failing to pass the STOCK Act will send a clear signal to the American public that we have no interest in gaining their approval or reforming a broken system," Slaughter said in her testimony before the House Financial Services Committee in December.

In addition to her stance on congressional insider trading, Slaughter is also a staunch supporter of a STOCK Act that regulates the political intelligence industry, a collection of companies that gather and sell information about what's happening behind the scenes in Washington to hedge funds, mutual funds, and other financial institutions. The $100 million business is as prevalent as lobbying, but it currently has little oversight.

Changes to legislation and regulation can affect markets. So knowing what's coming down the pike can be a huge boon for portfolio managers. Political insiders who know, for instance, that credit card companies are about to be hit with swipe-fee limits or that financial companies are about to get a bailout can use such information. It's an advantage that most people don't have, and little is known about the industry dealing in such information.

"Political intelligence firms have all the potential for corruption that lobbying firms do, but none of the oversight," Slaughter has said.

Treatment of the political intelligence industry is a key difference between the act introduced in the House and the one in t