Drain the Swamp

by Trevor Lowenthal

Following the 2006 congressional corruption scandal, then-Speaker of the House Nancy Pelosi called to “drain the swap” to turn the tide of an otherwise ugly affair.

Two years later, she pocketed $100,000 during Visa, Inc.’s initial public offering based on inside knowledge of a failed credit card bill.

Hypocrisy? You bet. Out of the ordinary? Not a chance.

Pelosi represents just one of many Members of Congress who have routinely engaged in insider trading through stocks, securities and other market investments within both the Republican and Democratic parties over the past decades.

Not until the passage of the STOCK Act in 2012 did the Securities and Exchange Commission extend insider trading laws to government employees. The bill forced legislators to disclose their investments while granting further regulatory power to House and Senate ethics committees.

And while the STOCK Act is a step toward greater transparency in the Legislative branch, recent amendments enacted by Congress have purposely compromised the law’s integrity.

The one amendments doesn’t require dependents and spouses of House members to disclose investments and allows those members to tip inside information.

The best alternative to the toothless STOCK Act would be the requirement of a blind trust – wherein all members would designate a guardian to control and determine all financial investments made on behalf of the member of Congress. Blind trusts eradicate the possibility of insider trading since it removes the power of investment from members of Congress while they serve.

We also need stricter enforcement by the SEC and the Department of Justice should increase penalties for violations of Congressional fiduciary duties to discourage insider trading and other self-serving financial transactions.

However, the SEC is limited in its ability to investigate members of Congress in violation of these laws due to debate and speech clauses enacted by legislators for this sole purpose. In fact, the limitations are so great that the SEC has never investigated a member of Congress for insider trading in the history of its agency.

To enforce such strong insider trading laws, the DOJ must adopt special prosecutors to investigate misconduct in Congress. Once a formal charge is filed, the DOJ should conduct a federal trial identical to cases of insider trading actions against private individuals, but implement stiffer penalties for convicted legislators because of their unique position of authority and trust.

Due to the apparent loopholes that increase the potential for continued abuse, the STOCK Act does not restore the public’s trust of Congress and instead leaves us in a situation where higher office becomes a taxpayer-funded get-rich-quick scheme.

With clear examples of Congressional insider trading in recent years, it appears that no real legislation will pass without serious reform.

The reality is that the endless disagreement over privileges will never resolve the crisis at hand  – that corruption infests Congress at the expense of the American people. While the amendment to the STOCK Act aforementioned would combat corruption more efficiently and effectively, the likelihood of its adoption is infinitesimal since congress regulates itself.

Ultimately, the prevalence of greed and the desire for power in Washington has acerbated a form of corruption that is envied by the most formidable mobsters in the racketeering business today.