Federal judge blocks congressional insider trading law

Federal judge blocks congressional insider trading law

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[JURIST] A judge for the US District Court for the District of Maryland [official website] on Thursday blocked [opinion, PDF] the enactment of the Stop Insider Trading on Congressional Knowledge Act (STOCK Act) [S 2038, PDF]. Judge Alexander Williams, Jr. granted the plaintiffs’ motion for a temporary preliminary injunction against the STOCK Act, which was designed to stop insider trading by members of Congress and other high-level federal employees. The law requires the online publication through a searchable database of sensitive financial information including the disclosure of assets, income, liabilities and financial transactions, including securities transactions of a certain amount. The court noted that the STOCK Act “is not the first financial disclosure scheme applicable to executive branch officials” and the government has a genuine “interest in deterring corruption and conflicts of interests.” Williams nevertheless ruled in favor of the federal employees’ right to privacy:

However compelling, these [government] interests are insufficient to vitiate Plaintiffs’ showing of a likelihood of success on the merits. As elucidated earlier, the financial information the Act subjects to disclosure is quite sensitive. Furthermore, the data’s publication portends substantial harm seeing that it stands to affect such a large swath of senior executives. The vehicle of disclosure, cyberspace, exacerbates these risks because it optimizes the accessibility and transferability of the information. Finally, the Act applies to many military, law enforcement, and diplomatic positions … these positions may be acutely vulnerable to the misuse of such financial information. At this stage in the litigation, these interests outweigh the United States’ compelling interest in combating conflicts of interest and corruption.

Williams based his decision solely on the plaintiffs’ claim of a violation of their constitutional rights to privacy. However the federal employees also asserted claims for declaratory relief, violation of the Administrative Procedure Act [materials] and violation of due process, for which Williams noted the plaintiffs had made substantive arguments.

The STOCK Act was slated to take effect this month absent a judicial injunction. The challenge to the act was filed last month [JURIST report] on behalf of the senior federal executives and various professional organizations by the American Civil Liberties Union of the Nation’s Capitol (ACLU) [advocacy website]. The complaint notes that the financial information at issue is “precisely the information that foreign intelligence services and other adversaries spend billions of dollars every years to uncover” and that the “complete personal financial information of all senior officials on the Internet would be a jackpot for enemies of the United States intent on finding security vulnerabilities they can exploit.” President Barack Obama [official website] signed the STOCK Act into law in April [JURIST report], stating that the law ensures that the powerful are playing by the same rules as everyone else. The president further applauded the act as an essential step in subduing the power of money in politics. The legislation was originally introduced by Congresswoman Louise Slaughter [official website] in 2006.