Congressional Immunity and Insider Trading

Congressional Immunity and Insider Trading

Securities regulations exist in order to prohibit the act of trading on insider information and consequently, the manipulation of the market by those who hold privy information. The infamous Ponzi scheme by Bernie Madoff of 2008, the notorious Enron scandal of 2001, and Martha’s Stewart scandalous arrest in 2004, reveal that despite the severe implications, these crimes are being performed at unconscionable levels. The aforementioned scandals furthered a sense of public awareness for such violations of the law; the seemingly unfair, unconstitutional, and audacious acts of a few that put the many in grave financial danger, or at the very least, at a serious disadvantage. Recently, another ethical concern has risen on the securities exchange forefront; are our elected Congressmen trading on insider information? Based on the recent law review article, “Insider Trading, Congressional Officials, and Duties of Entrustment,” by Professor Donna M. Nagy of Indiana University Maurer School of Law and the November CBS 60 Minutes segment “Congress: Trading stock on inside information?” so called “congressional immunity” regarding insider trading is defiantly refuted. Professor Nagy, in agreement with the work of Boston University Professor Tamar Frankel, concludes that the public is deceived when congressional members “misappropriate nonpublic congressional knowledge” to personally profit with their financial investments. Is a Congressional position nothing more than a gateway to becoming a Washington insider, availing oneself to the boundless profits made off of confidential financial information? What is necessary to ascertain in order to conclude an ethical position is a proper understanding of the current SEC regulations and practices, whether or not said insider-trading laws apply to Congress, and an understanding of Congressional performance and behavior in the stock market over the years.

Under the Securities and Exchange Commission Section 10(b) and Rule 10(b) of the 1943 Act, regulations and sanctions are outlined against insider information. The Insider Trading and Securities Fraud Enforcement Act of 1988 gives the SEC authority to bring action against an individual purchasing or selling a security while in possession of material privy to select insiders. Securities include investments in stocks, bonds, and investment contracts. Punishment of such crimes includes a civil penalty of up to three times the profit gained or loss avoided as a result of the unlawful practice. The court has the ability, based on the facts and circumstances of individual cases, to determine further penalties; for in the case of Bernie Madoff he was sentenced to the maximum 150 years in prison for performing $65 billion worth of fraud (Teather). Section 10(b) stands as an inherently vague regulation, which is upheld in the confines of court decisions; essentially