Taking Stock of the S.T.O.C.K. Act
NY Business Law Journal, Volume 16, Winter 2012
16 Pages Posted: 13 Feb 2013 Last revised: 22 Mar 2013
Date Written: 2012
In the Spring of 2012, in response to infamously low approval ratings and a direct request from the President, Congress passed a law to stop itself and other federal officials from insider trading. The measure was offered and received as a remedy for a loophole. In actuality, the law added little to the prosecutor’s insider trading arsenal, but, like many celebrated proposals of the year, did send messages about tolerance and priorities.
In short, in addition to there being no empirical support for the notion that Congress enjoys immunity from prosecution for insider trading, there is scant evidence that the S.E.C.’s arsenal needed enhancing. Analyzed as either an employer-employee relationship or simply one characterized by confidences, the position of United States Congressman or staffer placed its holder on (at best) equal footing with every other citizen in the crosshairs of an insider trading investigation. The novel, targeted insider trading prohibition thus both replicates precedent and augurs poorly for future cases.
Indeed, since 1997, so thoroughly open-ended has been the S.E.C.’s Misappropriation Theory that leading textbook authors concluded (well before the passage of the STOCK Act) that the theory would reach the law clerk trading ahead of her judge’s opinion, and the government employee improperly benefitting from a confidential government report. Not surprisingly, the Commission’s website has long summarily described government employees as subject to the Misappropriation Theory. The STOCK Act, while adding its own vagaries, at times counters the gains heroically achieved by the S.E.C. through nearly 50 years of case law.
But the symbolic contribution of the STOCK Act cannot be overlooked. By attempting to tighten the reporting periods for stock trades by Congress and others, the Act strengthens post-Watergate ethics legislation while signaling obligations of public officials akin to the regime governing corporate officers. Analyzed as either an investigative supplement or a wake-up call to federal officials, the law hit the mark. Whether that mark continues to garner prioritized attention is a wholly separate question.
Keywords: STOCK Act, SEC, Congress, insider trading, Rule 10b-5, President Obama
JEL Classification: K22, K23, G38, G24, G28, G18
Suggested Citation: Suggested Citation