Congressional Securities Trading

Copy Link

Fall 2020

Gregory Shill

University of Iowa College of Law, [email protected]

Follow this and additional works at: https://www.repository.law.indiana.edu/ilj
Part of the Law and Economics Commons, Law and Politics Commons, Legal Ethics and Professional
Responsibility Commons, and the Securities Law Commons

Recommended Citation

Shill, Gregory (2020) "Congressional Securities Trading," Indiana Law Journal: Vol. 96 : Iss. 1 , Article 7.

Available at: https://www.repository.law.indiana.edu/ilj/vol96/iss1/7

This Essay is brought to you for free and open access by the Law School Journals at Digital Repository @ Maurer Law. It has been accepted for inclusion in Indiana Law Journal by an authorized editor of Digital Repository @ Maurer Law. For more information, please contact

[email protected].

Recommended publications

The Lost History of Insider Trading

THE LOST HISTORY OF INSIDER TRADING Michael A. Perino* Common conceptions about the history of insider trading norms in the United States are inaccurate and incomplete. In his landmark 1966 book Insider Trading and the Stock Market, Dean Henry Manne depicted a world in which insider trading was both widespread and universally accepted. It was SEC enforcement efforts in the early 1960s, he contended, that swayed public opinion to condemn what had previously been considered a natural and unobjectionable market feature. For five decades, the legal academy has largely accepted Manne’s historical description, and the vigorous de- bates over whether the federal government should prosecute insider trading have assumed, either explicitly or implicitly, the accuracy of those views. This paper challenges that conventional wisdom and shows that the shift in insider trading norms began earlier than has previously been supposed and substantially preceded governmental enforcement efforts. Insider trading, while generally believed to be ubiquitous in turn-of-the-century stock mar- kets, was not universally condoned. In fact, the propriety of the practice at publicly traded companies was highly contested. Those debates coincided with the growth of public companies and an ongoing shift in views about how the stock market functioned. The early twentieth century debate over insider trading thus featured both modern arguments about property rights in information and the effect that insider trading has on stock market par- ticipation and older ideas about manipulation and market inefficiency that would generally not be accepted today. TABLE OF CONTENTS I. INTRODUCTION ........................................................................................ 952 II. INSIDER TRADING AT THE DAWN OF THE TWENTIETH CENTURY ..........
Insider Trading

TESTIMONY OF LINDA CHATMAN THOMSEN, DIRECTOR DMSION OF ENFORCEMENT US. SECURITIES AND EXCHANGE COMMISSION CONCERNING INSIDER TRADING BEFORE THE COMMITTEE ON THE JUDICIARY UNITED STATES SENATE DECEMBER 5,2006 U.S. Securities and Exchange Commission 100 P Street, NE Washington, D.C. 20549 Testimony Concerning Insider Trading by Linda Chatman Thomsen Director, Division of Enforcement US. Securities and Exchange Commission Before the U.S. Senate Committee on the Judiciary December 5,2006 Chairman Specter, Ranking Member Leahy, and Members of the Committee: Thank you for inviting me to testify today about insider trading involving hedge funds. Our laws against insider trading play an essential role in protecting our securities markets and in promoting investor confidence in the integrity of those markets. Rigorous enforcement of our current statutory and regulatory prohibitions on insider trading is an important part of the Commission's mission. I am especially pleased to testify together with Associate Deputy Attorney General Ronald Tenpas of the United States Department of Justice, and Richard Blumenthal, Attorney General of the State of Connecticut. The Commission, as you know, is a civil enforcement agency and we use civil sanctions to address insider trading. However, insider trading may also violate federal criminal law, as well as state securities regulations and other state laws. The respective histories of the SEC and the Department of Justice, as well as those of state attorneys general and securities regulators, demonstrate our collective commitment to prosecuting insider trading, civilly and criminally, under federal and state law. Our respective histories also demonstrate our collective commitment to working with each other.
Insider Trading & Disclosureupdate

November 2020 Volume 7 INSIDER TRADING & DISCLOSURE UPDATE In this Issue: Editors’ Remarks Editors’ Remarks 01 Welcome to the Thanksgiving 2020 issue of the Insider Trading & Disclosure Case Law & Market Updates update, Debevoise‘s periodic update focusing on recent legal, compliance and BMW Settles Charges of enforcement developments in the areas of insider trading, the management of Misleading Disclosures in material nonpublic information and disclosure-based matters. Rule 144A Offering Memoranda 01 SEC Enforcement Focus on In this Update, we highlight a rare SEC enforcement action arising in the Beneficial Ownership Reporting by Investment Advisors 03 context of a private securities offering against a foreign private issuer. Also SEC to Fund Managers: Take Care figuring prominently in this Update are two SEC enforcement actions that with Controls Over the Possession serve as a reminder to private equity and other investment managers about and Use of MNPI 06 the importance of vigilance relating to beneficial ownership reporting under SEC’s Division of Enforcement Reports Healthy Results for Section 13 and maintaining effective controls and procedures relating to the Fiscal Year 2020 07 possession and use of material non-public information, as well as an update U.S. Supreme Court’s Decision in Liu v. SEC may Significantly on the Supreme Court‘s decision in Liu v. SEC—which could have the effect of Limit Disgorgement in limiting the SEC‘s ability to seek disgorgement in insider trading cases—and Insider Trading Cases 10 updates on various SEC and disclosure-related developments. COVID-19 Guidance and Regulation S-K Simplification and Modernization: We hope that you find this Update useful and informative, and we look The Year in Review 13 forward to bringing you further news and analyses in future issues.
The Stock Act: an Independent Review of the Impact of Providing Personally Identifiable Financial Information Online

A Report by a Panel of the NATIONAL ACADEMY OF PUBLIC ADMINISTRATION Submitted to the Congress and the President of the United States THE STOCK ACT: AN INDEPENDENT REVIEW OF THE IMPACT OF PROVIDING PERSONALLY IDENTIFIABLE FINANCIAL INFORMATION ONLINE March 2013 National Academy of Public Administration ® ABOUT THE ACADEMY The National Academy of Public Administration is a non-profit, independent organization of top public management and organizational leaders who tackle the nation’s most critical and complex public management challenges. With a network of over 750 distinguished Fel- lows and an experienced professional staff, the Academy is uniquely qualified and trusted across government to provide objective advice and practical solutions based on systematic research and expert analysis. Established in 1967 and chartered by Congress in 1984, the Academy continues to make a positive impact by helping federal, state and local governments respond effectively to current circumstances and changing conditions. Learn more about the Academy and its work at www.NAPAwash.org. March 2013 The STOCK Act An Independent Review of the Impact of Providing Personally Identifiable Financial Information Online Submitted to the Congress and the President of the United States PANEL David S. C. Chu, Ph.D.* Janice R. Lachance, Esq.* Martha Joynt Kumar, Ph.D.* Ronald Sanders, Ph.D.* Vice Admiral Lewis Crenshaw (Ret.)* *Academy Fellow Officers of the Academy Diane M. Disney, Chair of the Board Robert J. Shea, Vice Chair Dan G. Blair, President and Chief Executive Officer B. J. Reed, Secretary Sallyanne Harper, Treasurer Project Staff Joseph P. Mitchell, III, Director of Project Development Joseph Thompson, Project Director Doris Hausser, Ph.D.*, Senior Advisor Hannah Sistare*, Senior Advisor Suzanne Rich Folsom, Esq., Senior Advisor Neal O’Farrell, Senior Advisor Andrew Price, Research Associate _______________________________________________________________________ The views expressed in this report are those of the Panel.
Blog Posts2013 Springsummer V7

Table of Contents Feb 11, Gregg Fields. Burning Down the House: Dependency Corruption Issues in Credit Rating Practices ................. 4 Feb 18, Ted Gup. The Power of Disclosure: (What Power?) ............................................................................................ 8 Feb 20, Paul Thacker. The Slow Pace of Success in a "Do Something Congress" ....................................................... 11 Feb 21, Ken Silverstein and Brooke Williams. Membership Has Its Privileges: Donor Perks and the Atlantic Council .. 15 Feb 22, Donald W. Light. Synergies Between Moral Philosophy and Institutional Corruption ........................................ 18 Mar 07, Kirsten Austad and Aaron Kesselheim. Physicians and the Pharmaceutical Industry: Where does this Story Begin? ............................................................................................................................................................................. 20 Mar 8, Donald W. Light. Institutional Corruption and Countervailing Powers ................................................................. 24 Mar 09, Gregg Fields. John Reed: On the Value of Values ............................................................................................ 27 Mar 26, Sheila Kaplan. Lobbyist's Progress: An Interview With Jeff Connaughton ........................................................ 30 Mar 27, Daniel Weeks. The Fiscal Fallout: A View From Below ..................................................................................... 34 Mar
Cashing in on Capitol Hill: Insider Trading and the Use of Political Intelligence for Profit

COMMENT CASHING IN ON CAPITOL HILL: INSIDER TRADING AND THE USE OF POLITICAL INTELLIGENCE FOR PROFIT † BUD W. JERKE Government officials have recently been scrutinized for using information acquired in the performance of their official duties to gain market-trading ad- vantages. Lobbyists have similarly been criticized for collecting material non- public political information from Capitol Hill contacts and selling it to their clients—notably hedge funds—who presumably use the information in their market transactions. Is this insider trading? Most likely not. Should it be? A few members of Congress have responded by introducing legislation in the past three Congresses that would bring trading on this “political intelligence,” by government insiders and outsiders, under the umbrella of the federal securities laws. Unsurprisingly, the legislation has failed to garner significant political support. But a renewed fervor for “cleaning up” Washington ushered in by the Obama Administration, coupled with the current economic crisis, has reinvigo- rated the campaign. The legislation was reintroduced and received a hearing in 2009. In addition, recent academic scholarship is now calling for the pas- sage of this legislation in order to bring trading on political intelligence under the federal insider trading regime. This Comment takes issue with the insider trading approach. It argues that the federal securities laws are an inappropriate and ineffective legal me- chanism for remedying issues of political ethics. First, as it pertains to govern- † J.D. Candidate, 2010, University of Pennsylvania Law School; B.A., 2004, The George Washington University. The author thanks Professors William W. Bratton, Jill E. Fisch, and William C.
Congressional Insider Trading: Is Misappropriation Appropriate?

1 CONGRESSIONAL INSIDER TRADING: IS MISAPPROPRIATION APPROPRIATE? By Adam Warri 2 INTRODUCTION There is no shortage of scandals within the realm of the political world—bribery, affairs, miscounted votes, being linked to prostitution rings—the list goes on and on. But there is one ongoing scandal that both the public and lawmakers continue to overlook— Congressional “insider trading.” A five-year study conducted from 1993 to 1998 shows that senators in that time period beat the market by an average of 12.3%.1 This number is quite staggering when considering the fact that corporate insiders during that same time period were only able to outperform the market by 7.5%.2 This means that senators were outperforming the who’s who of the market by nearly 5%.3 Furthermore, the study shows that senators not only knew the stocks to pick, but knew exactly when to buy and when to sell. “[T]he prices of common stocks bought by Senators tended to stagnate prior to purchase, soar after purchase, and then stagnate again after sale.”4 No doubt these facts have a fishy aroma, but perhaps senators are simply more sophisticated in anticipating trends than the rest of the market participants—to the tune of 12.3%. This author, however, would argue that these skewed results are due to the fact that senators, along with other Congressional officers, have a significant advantage over the average trader because they are able to obtain and use material, non-public information gleaned from their Congressional position to pursue profitable trades in the market.
Culture and the Regulation of Insider Trading Across Countries

Culture and the Regulation of Insider Trading Across Countries Brandon Cline, Claudia Williamson, and Haoyang Xiong Abstract This paper explores the association between culture and the cross-country financial regulation. Specifically, we examine how individualism influences the regulation of insider trading. We find that more individualistic countries regulate insider trading activities more heavily. This result is robust to the use of different instrumental variables. We further find that the positive relation between individualism and insider trading regulation is independent of particular political institution, suggesting that individualistic values directly shape people’s preferences over the regulation on insider trading activities. More importantly, we study the economic consequences of both individualism and insider trading regulation. We show that individualism leads to a better economy, and it chooses the regulation that has a positive impact on market outcomes. Keywords: Culture, Individualism, Insider trading regulation, Democracy 1 1. Introduction The regulation of insider trading varies tremendously across countries. For example, the Securities and Merchandise Market Law of Guatemala stipulates that “any person who has access to privileged information should refrain from making operations with any type of securities…persons who contravene the provisions will be sanctioned with fines of five thousand to fifty thousand units.” While in the U.S. the situation is way different. According to the Insider Trading Sanctions Act of 1984, communicating or purchasing or selling a security while in possession of material nonpublic information would violate the law or result in liability. The court shall have jurisdiction to impose a civil penalty not exceeding three times the profit gained or loss voided.
On the American Paradox of Laissez Faire and Mass Incarceration

ON THE AMERICAN PARADOX OF LAISSEZ FAIRE AND MASS INCARCERATION Bernard E. Harcourt∗ What we come to believe — so often, in reality, mere fiction and myth — takes on the character of truth and has real effects, tangible effects on our social and political condition. These beliefs, these hu- man fabrications, are they simply illusions? Are they fantasies? Are they reflections on a cave wall? Over the past two centuries at least, brilliant and well-regarded thinkers have proposed a range of theories and methods to emancipate us from these figments of our imagination. They have offered genealogies and archaeologies, psychoanalysis, Ideologiekritik, poststructuralism, and deconstruction — to name but a few. Their writings are often obscure and laden with a jargon that has gotten in the way of their keen insights, but their central point contin- ues to resonate loudly today: our collective imagination has real effects on our social condition and on our politics. It is important, it is vital to question what passes as truth. Any sophisticated listener, for instance, would have understood immediately what Barack Obama was doing when he declared on the campaign trail in 2008 that “[t]he market is the best mechanism ever invented for efficiently allocating resources to maximize production.”1 Or when he quickly added, “I also think that there is a connection be- tween the freedom of the marketplace and freedom more generally.”2 Obama was tapping into a public imaginary, one reflected at the time by the overwhelming belief, shared by more than two-thirds
Evidence from Illegal Insider Trading Tips

Journal of Financial Economics 125 (2017) 26–47 Contents lists available at ScienceDirect Journal of Financial Economics journal homepage: www.elsevier.com/locate/jfec Information networks: Evidence from illegal insider trading R tips Kenneth R. Ahern Marshall School of Business, University of Southern California, 701 Exposition Boulevard, Ste. 231, Los Angeles, CA 90089-1422, USA a r t i c l e i n f o a b s t r a c t Article history: This paper exploits a novel hand-collected data set to provide a comprehensive analysis Received 20 April 2015 of the social relationships that underlie illegal insider trading networks. I find that in- Revised 15 February 2016 side information flows through strong social ties based on family, friends, and geographic Accepted 15 March 2016 proximity. On average, inside tips originate from corporate executives and reach buy-side Available online 11 May 2017 investors after three links in the network. Inside traders earn prodigious returns of 35% JEL Classification: over 21 days, with more central traders earning greater returns, as information conveyed D83 through social networks improves price efficiency. More broadly, this paper provides some D85 of the only direct evidence of person-to-person communication among investors. G14 ©2017 Elsevier B.V. All rights reserved. K42 Z13 Keywords: Illegal insider trading Information networks Social networks 1. Introduction cation between investors ( Stein, 2008; Han and Yang, 2013; Andrei and Cujean, 2015 ). The predictions of these mod- Though it is well established that new information els suggest that the diffusion of information over social moves stock prices, it is less certain how information networks is crucial for many financial outcomes, such as spreads among investors.
Minimized the Strategic National Stockpile: the $5.3 Trillion Question for Pandemic Preparedness Raised by the Ventilator Fiasco †

How “Maximizing Shareholder Value” Minimized the Strategic National Stockpile: The $5.3 Trillion Question for Pandemic Preparedness Raised by the Ventilator Fiasco † William Lazonick and Matt Hopkins* Working Paper No. 127 July 21st, 2020 ABSTRACT With just 4.2 percent of the world’s population, the United States had, as of July 21, 2020, 26.0 percent of its confirmed Covid-19 cases and 23.1 percent of its deaths. The magnitude of the tragedy raises the critically important counterfactual question of how the United States as a nation would have fared had there been competent and committed political leadership in place when, during January 2020, intelligence indicating the severity of the unfolding pandemic became available. A partial answer to this question lies in identifying the organizational and technological capabilities to develop, produce, and deliver “countermeasures”—personal protective equipment (PPE), ventilators, diagnostic tests, therapies, and vaccines—that a prepared federal administration would have been able to mobilize to respond to the pandemic. Main repositories of the necessary † The Institute for New Economic Thinking provided the main funding for this research. Additional support to William Lazonick came from the Open Society Foundations and Canadian Institute for Advanced Research, and to Matt Hopkins from his PhD scholarship as SOAS University of London. We acknowledge comments of Tom Ferguson and Ken Jacobson on previous drafts of this essay. * The Academic-Industry Research Network. Corresponding author: William Lazonick at [email protected]. Lazonick and Hopkins capabilities are government agencies and business firms, with the development, production, and delivery of countermeasures heavily reliant on government-business collaborations (GBCs).
The Challenges of Prosecuting Congressional Insider Trading by Robert K

Portfolio Media. Inc. | 111 West 19th Street, 5th Floor | New York, NY 10011 | www.law360.com Phone: +1 646 783 7100 | Fax: +1 646 783 7161 | [email protected] The Challenges Of Prosecuting Congressional Insider Trading By Robert K. Kelner, Peter Koski and Clayton Bailey (June 18, 2020, 5:32 PM EDT) Allegations that U.S. senators traded on confidential briefings about COVID-19 have brought new enforcement attention to the rarely used Stop Trading on Congressional Knowledge, or STOCK, Act. In a sign of significant escalation, last month the FBI reportedly seized the mobile phone of Sen. Richard Burr, R-N.C., in connection with one such investigation, even as the U.S. Department of Justice announced it was closing investigations into Sens. Kelly Loeffler, R-Ga., Jim Inhofe, R-Okla., and Diane Feinstein, D-Calif. The FBI also reportedly served a warrant on Apple Inc. seeking data stored in Burr's Robert K. Kelner iCloud account. The STOCK Act, first enacted in 2012, prohibits members of Congress and other government officials from trading on material nonpublic information "derived from such person's position as a Member of Congress or employee of Congress or gained from the performance of such person's official responsibilities."[1] While these allegations may resemble traditional insider trading, the challenges for prosecutors are unique and exacting. Charges under the STOCK Act have never been brought against a member of the legislative branch, and prosecutors face at least Peter Koski two potentially existential challenges due to the nature of legislative work. First, the U.S.