Reprinted from Roll Call (May 15, 2012)
Q: I am a lobbyist and I have a question about the insider trading
restrictions under the Stop Trading on Congressional Knowledge Act. A friend who
is a lawyer told me that restrictions on insider trading by Members and staffers
mean that I need to be careful about my communications with lawmakers. But I am
pretty sure that the restrictions on gathering political intelligence were
removed from the bill before it was passed. This is important to me because I am
always discussing potential government action with staffers. I want to make sure
my discussions could not somehow expose me to legal liability. There are no new
restrictions on such communications, right?
A: Last month, President Barack Obama signed into law the STOCK Act,
which “affirms” that Members and staffers have a duty not to trade on material,
nonpublic information they learn while doing their jobs.
Before the bill was passed, there was a debate about a provision that would
require “political intelligence consultants” to register and publicly disclose
their activities, much in the same way lobbyists are required to do. In general,
as you probably know, political intelligence consultants are people who gather
and exchange information about potential government action that could affect
Opponents of the political intelligence provision argued that it would
inappropriately chill legitimate communications between lawmakers and lobbyists
or employees in the financial industry. Even some proponents of restrictions on
political intelligence worried that the provision might be too broad.
For example, the provision would have applied to communications with a Member
or staffer where the information derived from the communication is “intended for
use in analyzing securities or commodities markets, or in informing investment
decisions.” This would have applied not just to people who gather political
intelligence for a living, but to anyone who engages in such communications.
The provision was ultimately scrapped before the STOCK Act became law.
Instead, the legislation calls for a Congressional study of political
intelligence firms, to be completed within one year. Depending on the outcome of
the study, restrictions on such firms might follow.
In the meantime, the absence of new restrictions specifically targeting
political intelligence consultants does not mean that no risks lie in
communications with Members and staffers about potential government activity.
The STOCK Act affirms that Members and staffers owe a duty to the public and the
government regarding material, nonpublic information they learn on the job. This
means Members or staffers could face liability if they trade stocks on the basis
of such information or if they disclose such information with the intent to
benefit somehow from that disclosure.
It also could mean possible exposure for people who receive material,
nonpublic information from Members and staffers. Recipients of such information,
or “tippees,” should be careful both about their communications with government
officials and about their stock trades. They could face liability if they buy or
sell shares in a company after receiving nonpublic information from a government
source about government action that could affect the stock value of that
A further possible consequence of the STOCK Act is an increase in government
scrutiny of communications between the public and Congress. Some scholars and
lawyers believe that even before the STOCK Act, laws prohibited insider trading
based on information from government sources and have argued that nothing has
changed. Nonetheless, the STOCK Act has shone a spotlight on the issue, which
could result in a spike in federal investigators’ attention on insider trading
based on information from government sources.
Historically, this type of insider trading, to the extent it has occurred,
has not often been prosecuted or even investigated. One reason for this might be
the constitutional hurdles that make such investigations more difficult. For
example, the Speech or Debate Clause provides that “legislative acts” shall not
be questioned in any place. The House and Senate have interpreted this clause to
mean that prosecutors cannot compel Members and staffers to produce information
or documents that concern the legislative process.
In light of this obstacle, government investigators might focus on tippees —
people outside Congress who receive inside information from Members and
staffers. Such tippees do not enjoy the privilege of the Speech or Debate
Clause. The potential for a focus on tippees is further reason to take renewed
precautions regarding communications with Members and staffers.
What type of precautions? It might be wise for employers to revisit insider
trading policies to make sure they sufficiently address the risk associated with
information gained from government sources. In addition, companies with
employees who regularly communicate with government officials might consider
training those employees about the insider trading restrictions relevant to
With a renewed focus on insider trading based on information, someone is
going to be the guinea pig, i.e., the first to face an investigation under the
new law. Take action now in case the guinea pig is you.
© Copyright 2012, Roll Call Inc. Reprinted with permission. Widely regarded as the leading publication for Congressional news and information, Roll Call has been the newspaper of Capitol Hill since 1955. For more information, visit