Congress Doesn’t Understand Why SEC Is Being Such A Killjoy About This Whole Insider Trading Thing

C'mon guys, really. You don't have to do this.
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Photo: Susan Sterner, via Wikimedia Commons

I mean, surely the vaunted United States Securities and Exchange Commission can investigate the matter of how a juicy tip about an impending change to federal healthcare policy (allegedly) went from a Congressional aide’s mouth into a research firm’s clients’ inbox without maybe (but probably not) violating the Constitution and (definitely) minorly inconveniencing the powerful Ways and Means Committee. The House hasn’t oh-so-generouslyfunded the SEC for it to spend that money poking around its business, and after all the SEC has been wasting so much money—money that could be spent in “a host of ways” to “investigate any alleged congressional insider trading” instead of on stupid rules that it’s mandated to adopt.

A three-judge panel of the 2nd U.S. Circuit Court of Appeals plans to hear arguments on enforcing two subpoenas that the U.S. Securities and Exchange Commission (SEC) sent to Congress as part of its investigation….

Sutter and his former employer, the U.S. House of Representatives' Ways and Means Committee, are refusing to comply with the SEC subpoenas for documents and testimony. Their lawyers argue they are immune from such investigative tactics because under the legal principles of sovereign immunity and legislative independence they cannot be questioned without their consent.

U.S. court to weigh lawmakers’ immunity in trading investigations [Reuters]

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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: