The Legitimacy of Political Intelligence Trading and the Threat of Insider Trading by the Treasury Department

Abstract:     
This written testimony accompanied Professor J.W. Verret's oral testimony before the House Committee on Financial Services. This testimony highlights some of the costs of the Stop Trading on Government Knowledge Act, or STOCK Act. It argues that Section 2 of the Act, which would include in the definition of insider trading any trades based on material non-public information obtained from government sources about pending laws or regulations, stretches insider trading law beyond its original foundation in fiduciary duty principles in a way that risks harm to efficient flows of information about political risk in capital markets.

Keywords: Bank of America, Citigroup, Congress, Emergency Economic Stability Act, Federal Reserve Board, Gwen Moore, Judy Biggert, SEC, Securities Exchange Commission, TARP, Treasury Department, U.S. v. Chiarella

JEL Classifications: G24, G28, G38

Working Paper Series