US President Barack Obama [official website] on Wednesday signed the Stop Trading on Congressional Knowledge Act (STOCK Act) [S 2038, PDF], which prohibits members and employees of Congress, the president and thousands of other federal officials from using non-public knowledge in making investment decisions. The bipartisan legislation mandates public disclosure of new transactions exceeding $1,000 in an online database within 45 days of making a trade. The provision is meant to add a new element of transparency and accountability in stock and security trading, and will hold those who abuse their privileged knowledge accountable. Obama has been outspoken in his support of this type of legislation and has pledged to seek further reforms. The president highlighted the importance of the law [press release] in remarks made at the bill's signing:
It's the notion that the powerful shouldn't get to create one set of rules for themselves and another set of rules for everybody else. And if we expect that to apply to our biggest corporations and to our most successful citizens, it certainly should apply to our elected officials — especially at a time when there is a deficit of trust between this city and the rest of the country. ... The STOCK Act makes it clear that if members of Congress use nonpublic information to gain an unfair advantage in the market, then they are breaking the law.The President further applauded the act as an essential step in subduing the power of money in politics. Trades by members of Congress may be investigated by the Office of Congressional Ethics [official website], an independent ethics office of the House of Representatives. The STOCK Act was first introduced by Congresswoman Louise Slaughter [official website] in 2006.
The larger issue of insider trading has been a major concern since the Enron [JURIST news archive] scandal of 2001. Last month the US Supreme Court [official website] ruled on the statute of limitations regarding insider trading cases [JURIST report], holding that the statute of limitations begins running at the time the misconduct is discovered by a reasonable person, not when the trader discloses all the details of such conduct. In January prosecutors charged seven people in a $62 million insider trading scheme [JURIST report] in which the accused allegedly earned illegal profits on the basis of insider information regarding publicly traded companies. In November a federal judge ordered a hedge fund manager to pay a record insider trading penalty of $92.8 million [JURIST report] in a civil lawsuit brought by the Securities and Exchange Commission (SEC) [official website].