RIP: Insider Trading in Congress

| Wed Apr. 4, 2012 12:17 PM EDT

Chalk one up for the reformers.

On Wednesday, President Obama signed into the law the Stop Trading on Congressional Knowledge (STOCK) Act, which bans members of Congress and their staffs from using non-public information to get a leg up in the stock market. The law also creates a system for tracking in real-time the stock deals of those walking the halls of Congress. The STOCK Act's passage marks a victory (of sorts) for the good-government group Public Citizen, a long-time advocate of banning congressional insider trading. Here's a useful White House fact-sheet with a full rundown of the law's provisions.

What the STOCK Act does not do is shine some much-needed sunlight on the so-called political intelligence industry. Political intelligence companies meet with lawmakers and their staffs and gather valuable information for Wall Street firms and hedge funds to use in their investment decisions. But a provision forcing these companies to register like lobbyists, included in the original STOCK Act, was stripped out by House Republicans. That explains the bittersweet celebration from Public Citizen's top lobbyist Craig Holman, a driving force behind the bill. "This is a good bill—the most significant ethics achievement of the 112th Congress," he said in a statement. "But it could and should be stronger, and legislation is pending to strengthen it."

The bill's passage marks the end of a years-long, little noticed fight by Holman and others to outlaw congressional insider trading and drag political intelligence firms into the open. What set the STOCK Act on the path to passage, though, was an explosive 60 Minutes segment on the issue last November. (You can watch it here.) Coached by Holman, 60 Minutes' Steve Kroft laid out how members of Congress appeared to make investments based on non-public information. Kroft named names, among them House Speaker John Boehner (R-Ohio); House Minority Leader Nancy Pelosi (D-Calif.); Rep. Spencer Bachus (R-Ala.), chair of the House financial services committee. (All the lawmakers denied any insider trading.)

The segment landed like a bomb in Congress. The number of co-sponsors to the STOCK Act leapt to 93. The Senate soon passed the full STOCK Act by a 96-3 vote.

Although the House would later pass a watered-down version of the bill, its passage is an important win for Holman and his allies. What's more, Rep. Louise Slaughter (D-N.Y.) has already introduced new legislation on political intelligence-gathering.