Insider-Trading Still Illegal For Congressional Aides, But Impossible To Prove

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There's a fun new meta-debate over insider-trading, beyond the not-so-simple question of what is and isn't.

Federal investigators interviewed a Senate staff member for four hours Thursday, part of a wide-ranging insider-trading probe into how a major change in U.S. health-care policy leaked to Wall Street traders before it was announced.

But Thursday's interview with Rodney Whitlock, a health-care aide to Sen. Charles Grassley (R., Iowa), took place only after delays over the terms of the questioning, according to people familiar with the matter. In addition, Mr. Whitlock didn't answer several questions from investigators that touched on a parallel investigation by Mr. Grassley's staff, according to a written statement from Mr. Grassley's office.

At issue is the constitutional privilege held by members of Congress and their staff to protect them from certain civil and criminal lawsuits. Attorneys for the Senate and the staffers have said formal interviews can proceed only without waiving the provision in question, known as the Speech or Debate Clause….

Speech or Debate Clause issues have thrown an unexpected wrinkle into one of the biggest recent insider-trading cases in Washington. The speech-or-debate privilege doesn't exempt crimes, such as bribery, committed while engaging in legislative acts, but it could pose significant legal hurdles the Justice Department must overcome before it obtains evidence and testimony from Congress.

If the testimony is needed in court proceedings, the full Senate might have to vote to give approval. The protections extend to former lawmakers and aides when it involves activity that occurred during their time in Congress.

Insider Probe Caught in Knot [WSJ]

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After The STOCK Act It Will Still Be Legal To Trade On Congressional Inside Information*

Here's a sort of touching monologue from David Einhorn's call with Punch: If you’ve done the analysis, and come to the conclusion that on it’s own, the company is not going to make it, it makes all of the sense in the world to raise equity at whatever the price is, so that you can know that the company, you know, is – is going to make it. Now, what that brings to my mind though is, you know, obviously we haven’t done your analysis, we haven’t done -- signed an NDA; I don’t know that we’re going to sign an NDA, because we prefer to just remain investors, but from my perspective, and I’ll be just straight up with you, is that gives a lot of signalling value. And the signalling value that comes from figuring out the company has figured out that it’s not going to make it on it’s own is that we’ve just grossly misassessed the -- you know what’s going on here. And -- and that, that will cause us to have to just reconsider what we’re doing, which is not the end of the world to you. You will continue on even if we don’t continue on with you. You could sort of see why the FSA read that to mean that he was insider trading. Like ... (1) You have told me something with signalling value. Sorry - "a lot of signalling value." (2) I will now act on that signal. (3) Don't be mad. "Signalling value" sure sounds like it means "material nonpublic information," doesn't it? Now as we've discussed before, trading on that information would not be enough to make Einhorn guilty of insider trading in the US, though maybe it wouldn't be exactly a great idea here either. Why? Because in our weird but sort of sensible insider trading laws, it's just not illegal to trade on material nonpublic information. It's only illegal to trade based on material nonpublic information that was obtained in violation of some sort of duty of confidence. Since Einhorn didn't sign an NDA, he had no duty of confidence. And since the Punch CEO and bankers weren't tipping him for nefarious purposes, but were instead sounding him out on the company's behalf as a shareholder and potential investor in a new capital raise, they weren't breaching their duty of confidence. You could quibble with the details of that but it's basically the law here. In England not so much. That also seems to be the law for our friends in Congress, who recently passed a law making it illegal for them to insider trade, which is worrying some people who make their living from trading on Congressional inside information: