An Element of Hypocrisy

October 1, 2013

SAC Capital Advisers, LLC has been embroiled in legal battles with the SEC for more than a decade, most revolving around the issue of insider trading.

When the practice of insider trading among members of the Senate and Congress (including their staffers) received heavy media scrutiny in November, 2011; the Stop Trading on Congressional Knowledge Act (STOCK) was quickly passed and signed into law.

Before this law was enacted, Congressmen (and women), Senators, their staffers, and aides were not prohibited from making investments based on insider information and no such prohibition existed for members of the executive and judicial branches of government either.

The Cynics Among Us

The passage of the Stock Act, in such proximity to the 2012 elections, may have given rise to questions regarding the lawmakers’ motives for passing this legislation. Regardless of congressional motive, Steven Cohen must have raised a glass to toast its passage. After all, elected representatives should not be allowed to invest with impunity on insider information, while orchestrating the persecution of others they suspect of engaging in the practice.

Disclosure

Another provision in the Stop Trading on Congressional Knowledge Act requires members of Congress to make public disclosure of the purchase or sale of stocks, bonds, commodities futures and other securities within 45 days of the transaction. Logically, this information should be easy to find, like the 13F form filings the SEC requires hedge funds and other institutional investors to submit on a quarterly basis. Just try finding it! Locating this information on the Internet is tantamount to the quest for the lost Ark.

Compliance

If New York State’s congressional delegation is representative of the overall level of compliance, only about 26 percent are reporting. This suggests that 74 percent of congress is flaunting the law!

Enter the Rollback

In early April, 2013; congress quietly and with none of the fanfare accompanying the passage of the STOCK act, rolled back some of these disclosure requirements and the President signed the revisions into law. Further research revealed that public posting on the Internet for members of Congress has been suspended until January 1, 2014. This is vaguely reminiscent of certain unpalatable provisions of the Patient Protection and Affordable Care Act that were ostensibly delayed until 2015 in the interests of simplifying reporting requirements and providing employers the opportunity to adjust their health-care coverage.

There are elements of hypocrisy here that do not sit well. Hedge funds and other private companies are aggressively regulated and even the slightest hint of an insider trading violation can result in endless investigations, exorbitant fines and criminal prosecution, yet our elected officials have given themselves what amounts to a pass. The Patient Protection and Affordable Care Act is good enough for the American people, but Congress has elected to opt for a pass on this for themselves as well.

How long will this “let them eat cake” mentality be suffered by the electorate? The founders never intended a ruling class. Perhaps we should consider the possibility that the  much maligned one-percenters pose less of a threat that the .0015 of one percent that is the 485 members of the House and Senate. The concept of citizen legislators has been lost and only the passage of time will determine if it can ever be regained.

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