Congressional Insider Trading: Is It Legal?

Abstract

This paper addresses the concern the authors have surrounding the legislation that governs Congressional “insider trading”. While members of Congress can legally trade securities (with disclosure) for their personal account for financial gain, the authors believe that it is ethically wrong. This paper also addresses legal issues as well as the SEC position on why Congressional members are exempt from scrutiny or prosecution for insider trading. Since the last State of the Union Address and the call from President Obama for new legislative oversight that would provide visibility and rules designed to curb potential stock trading abuse by members of Congress, the Stop Trading on Congressional Knowledge (STOCK ACT) became law. However, the authors do not believe that the new legislation is sufficient. We contend that any privileged stock market trading activity or the passing of any “insider information” to others by Congress or the Senate for financial gain should be considered not only unethical but illegal. Finally, the paper also attempts to discuss why ethics, trust, and morality come into focus on this topic.