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Senate Passes Insider Trading Bill for Members of Congress

Last Thursday, the Senate overwhelmingly (93-7) passed a bill that would prohibit lawmakers and staff from trading on non-public information obtained from private congressional briefings.  Whether legislators and staff are already subject to bans on trading non-public information is a matter of debate.  Robert Khuzami, Director of the SEC's Division of Enforcement, testified late last year that insider trading laws do apply to Congressmen, but also noted that the situation is "without direct precedent and may present some unique issues."  For example, to be guilty of insider trading there must be a breach for duty (such as the duty a corporate insider has to shareholders).  For Members of Congress, the question of whether and to whom a duty exists is more novel.  In other contexts, courts have held that there is a fiduciary relationship between elected officials and the United States.  However, without direct precedent it is unclear how a court would rule on this question.

The legislation also would require Members of Congress and their staff to disclose their stock trades within 30 days (currently, they make such disclosures once a year).  In addition, "political intelligence practitioners" would be required to disclose their activities for the first time.  Political intelligence practitioners are often hired by hedge funds and other investors to gather information about pending public policy changes.

The bill now goes to the House where a vote is expected this week.