Rep. Brian Baird says, 'There are some members who seem to think the rules just shouldn’t apply to us.' New push to ban Hill insider trading

Rep. Brian Baird (D-Wash.) is making a renewed push to apply insider trading laws to Congress after a newspaper report showed that at least 72 congressional aides traded shares of the companies that their bosses helped oversee.

But Baird says his congressional colleagues have flatly indicated that they would block his legislation, which is aimed at preventing members of Congress and staff from trading stocks in companies where there’s a potential conflict of interest.


“There are some members who seem to think the rules just shouldn’t apply to us,” said Baird in an interview with POLITICO. “There’s money to be made, lots of it, and in ways that aren’t clearly illegal.”

Baird’s comments were spurred by a Monday report from the Wall Street Journal, which analyzed trading activity by Capitol Hill staffers between 2008 and 2009 and found market bets were made by high-level aides whose bosses helped influence related policy. Among those implicated in the story were a top policy advisor to Senate Majority Leader Harry Reid who traded environmental company stock and a Republican aide who traded Bank of America Corp. stock while working for a Senate Banking Committee member. The Journal report did not reveal huge profits – in some cases it was a few thousand dollars – but Baird believes the story did show a hole in congressional ethics.

Currently, insider trading laws that apply to the corporate world do not apply to Congress, allowing members and their aides to exchange information and buy stock based on inside information coming from Capitol Hill. The corporate world, however, is held under severe penalities for insider trading, often resulting in extraordinary fines.

Baird and House Rules Committee Chairwoman Louise Slaughter introduced the “Stop Trading on Congressional Knowledge Act” last year to prevent lawmakers and staff from using insider trading techniques to financially benefit, but the legislation has not budged from committee since January 2009 and remains sitting with several committees, including House Financial Services and the House Judiciary Committee.

“The very frustrating thing is that we’ve been raising this concern for several years now, but we’re unable to get action from leadership on either side. When I talk to House colleagues, some assume its already illegal. Others say they don’t want it to be illegal,” said Baird, noting that members have also expressed concerns about how the legislation could restrict internal discussions on the Hill as offices work to develop legislation.

But a spokesman for House Speaker Nancy Pelosi argued that the speaker has made inroads on the issue.

"The House Financial Services Committee has already begun to examine ways of preventing any unfair trading by government officials in both the executive and legislative branches. This includes assessing the implications for the constitutional protections of speech or debate," the spokesman said.

Baird is urging colleagues to push for even more disclosure than his bill currently covers. Hedge fund managers currently must report personal trades within 48 hours – a standard Congress and its staff should also be held to, he argues.

The current legislation would require trades to be publicly disclosed within 90 days. The current reporting requirement is once a year.

In the long run, legislation may not be entirely necessary, Baird says, and may only require simple change to ethics rules, mirroring those that apply to the corporate sector.

Experts tell Baird that establishing a clear-cut ethics rule, followed by training and a signed consent form could automatically allow aides and lawmakers to be prosecuted if they do engage in insider trading.

“Members of Congress are privy to information that could be valued to the tune of millions of dollars,” Baird said. “You have to wonder about the legality of making trades on decisions well before the inside information is made public.”