Insider Trading is Illegal -- Unless You're a Congressman

| by Public Citizen

Everybody knows that insider trading is illegal. Wall Street big wigs who get caught giving their cronies valuable information before it’s made public go to jail. Yet, those same rules don’t apply in the halls of Congress where members, their staffs and other federal officials can use the inside information they gather about upcoming legislation for their own financial gain.

Studies show that Congressional insiders do far better with their stock trades than you and I. A 2004 study found that investment returns for senators were 25 percent higher than for average investors. Alan Ziobrowski, a business professor at Georgia State University, analyzed more than 6000 stock transactions by members of Congress over a six year period and found that members outperformed the market by 1 percent a month and 12 percent a year, which Ziobrowski said was “way outside any random variation.” He and Craig Holman, Public Citizen’s expert on ethics and lobbying, talked about the issue on CNBC’s Street Talk and NPR’s Marketplace.

It’s not just the members of Congress and their staffs that are benefiting from insider information, either. From the NPR story:

The value of information that flows from the inner workings of Washington isn’t lost on Wall Street professionals.

Michael Bagley is a former congressional staffer who now runs the OSINT Group. Bagley sells access and research. His clients are hedge funds, and he makes it his business to mine Congress and the rest of Washington for tips.

All of this is why Holman says it’s important that Congress pass the “Stop Trading on Congressional Knowledge Act” (H.R. 682), which would make government officials abide by the same insider trading restrictions that everyone else faces. As the federal government increases its role in managing and regulating financial institutions, the need for this law becomes even more imperative, Holman said.