New York, NY – Last week, CNN uncovered a loophole in the recently passed STOCK Act which allows the spouses and children of legislative and executive branch employees to potentially profit from insider trading.
Last April, President Barack Obama signed into law a bipartisan bill called the Stop Trading on Congressional Knowledge (STOCK) Act. As part of that new law, any trades of $1,000 or more made on or after July 3rd have to be reported to the House and Senate within 45 days of the trade tacking place. However, CNN discovered that the House and Senate have two completely different interpretations of that rule.
Last month, the Senate Ethics Committee released a written guideline explaining that senators and staff, and their spouses and dependent children all have to file reports after they make stock or securities trades.
However, the House Ethic Committee disagreed with this interpretation. It released a 14-page memo to House members and aides covered by the law saying that their spouses and children are not covered by the reporting requirement.
The Office of Government Ethics, which oversees all federal executive branch employees, agreed with the House interpretation. Consequently, it informed executive branch employees that their spouses and children also don’t need to file these periodic reports.
Senate Co-Sponsors of STOCK Act Respond
After CNN told Massachusetts Republican Senator Scott Brown, one of the co-sponsors of the Senate version of the bill, about the House Ethics Committee’s different interpretation, Brown quickly wrote a letter to the House leadership expressing his concern and frustration about this apparent discrepancy.
“It is deeply troubling that the House of Representatives and Executive Branch would attempt to operate under a substantially weaker interpretation than the Senate,” Brown wrote, demanding that the House adopt the Senate’s view and require all spouses and dependents to begin reporting stock trades.
After also finding out about this loophole, Sen. Kirsten Gillibrand (D-NY) the other co-sponsor of the senate version of the STOCK Act, also criticized the House decision not to include congressional spouses and children.
“I think it’s wrong, and I think it’s unfortunate because the reality is the whole point of this legislation is we should play by the exact same rules as every other American citizen, and when all of America looks at Washington, they know it’s broken.”
The Crux of the Problem
Apparently, the original Senate version of the bill included a provision that covered spouses and children. However, when the House version was written, the language was changed so that spouses and dependent children weren’t subject to the new reporting requirements.
When writing its ruling, the Senate Ethics Committee decided to stick with the spirit of the law that senators originally intended. The House Ethics Committee, on the other hand, decided to create its ruling based on the letter of the law, which included not requiring spouses and children to report financial transactions in a timely fashion.
So What’s the Big Deal?
Ultimately, the STOCK Act was created to increase public confidence that Washington insiders live by the same rules that the rest of their constituents do. As a result, the law included a requirement that legislative and executive branch employees need to report their trading activity in a timely manner, so that any potential link between material information gathered from their jobs could easily be linked to actual trades.
However, the elimination of this requirement for the spouses and dependent children of House and Executive Branch employees makes it appear as if Washington continues to live by a different set of rules than the rest of the public where they can continue to benefit financially from material information gathered as a result of their jobs.
What’s the Next Step?
When contacted by CNN, House Majority Leader Eric Cantor’s office insisted that it did nothing to change the intent of the STOCK Act. However, the majority leader’s office conceded that it had made changes to the House bill that effectively took out the requirement for spouses and children to file these reports.
Cantor’s office maintains that the change was inadvertent, but explained that they promise to remedy the problem.
“It was not the intention of the House to differ with the Senate-passed bill with respect to application to spouses and dependent children. We did not believe at the time that we had differed from what the Senate had done,” spokesman Doug Heye told CNN.
Mr. Heye said that after learning about the difference between the House and Senate Ethics Committee’s rulings on the bill from CNN, they are now looking at ways to fix the bill so that it will be clear that spouses and dependent children of House members and their aides, and executive branch employees, all implement the law the way Senate sponsors originally intended.