Support Your Local "Sheriff" ... in Supporting the STOCK Act

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Salary of members of the United States Congress: $174,000.

Average annual Civil Service Retirement System benefits for retired members as of 2007: $63,696.

The profits they can make by trading on inside information?

Priceless.

Ladies and gentlemen, Congress has a problem. (OK, it's got many problems -- but let's take them one at a time.) The one I want to focus on today, and the one I've been writing about for the past 18 months, concerns insider trading.

Most investors know that it's wrong to trade on inside information, if for no other reason than because folks who get caught trading on insider information tend to get hauled into court and prosecuted by the SEC. But according to economics professor Alan Ziobrowski of Georgia State University, Congress hasn't yet "gotten the memo." You see, current law doesn't impose a clear "fiduciary duty" on congressmen, which would prevent their trading on information learned in the course of conducting the nation's business. And because what isn't forbidden is permitted, they do it.

Trade on inside information, that is. As a result, the professor's research shows that the average U.S. representative outperforms the S&P 500 by about 6 percentage points per year on his stock trades, and the average U.S. senator outperforms by 12 percentage points. The professor concludes that this outperformance is only humanly possible to achieve and sustain through use of inside information.

The more things stay the same, the more they must change
As I say, this is all perfectly legal under U.S. law, and has been so for many decades. What's more, despite several years of trying to get legislation passed to prevent the practice, it remains legal today -- but perhaps not for much longer. When I first began advocating for passage of the STOCK Act, over a year ago, only a bare half-dozen congressmen were on record supporting a law that would ban insider trading on Capitol Hill. Fast-forward, though, and today, co-signers of this landmark legislation are 180 persons strong... and growing.

How many congressmen does it take to change a light bulb?
180 congressmen is "a whole lot more than nothing," but, as Adlai Stevenson once said, "we still need a majority to win." If we as a nation are going to change what's wrong about Washington -- to end the insider dealing and correct the misconception that what's good for the rest of the nation isn't good enough for its elected representatives, we need more support.

That's where you come in. Last month, the STOCK Act got a second chance at passage when 60 Minutes aired a report on high-ranking members of Congress who've been trading shares of General Electric (NYS: GE) , Visa (NYS: V) , and health insurers like UnitedHealth Group (NYS: UNH) , allegedly using their positions to reap outsize profits. Since that report ran, we here at the Fool have received a flood of reader emails asking us to keep pushing for passage of the STOCK Act. More than 500 individual letters. More than 3,000 signatures on our petition in support of the law. From across the nation, investors like you have spoken with one voice, demanding that Congress:

  • pass a law that forbids trading on information available only to Capitol Hill insiders ...
  • punish congressmen who break the law ...
  • and require congressmen to file regular reports on their trading activity, not just the once-per-year update on the dollar value of securities they've bought or sold that is currently required.

Judging from this response, I'm pretty sure most of the nation supports the STOCK Act today. On the other hand, support in a few states -- Alaska, Mississippi, North Dakota, and Wyoming -- seems still in doubt:

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What's the matter with these guys?
I can only assume that no one in these four states supports passage of the STOCK Act. Because, alone in the Union, these states currently boast not a single congressman on record supporting the law.

Alabama's in favor of stopping insider trading in Congress. Virginia, and Rhode Island, too. Washington -- both the district and the state -- support the STOCK Act. And out in California, a whopping 22 representatives have signed on as co-sponsors to the bill originally authored by Minnesota Rep. Timothy Walz, and his colleague Rep. Louise Slaughter of New York.

Do you support banning insider trading in Congress? If so, has your congressman signed on as a co-sponsor (see the growing list of co-sponsors here). And if not, why isn't your elected representative ... representing your wishes?

If you support the STOCK Act:

  • First, shoot us a blank email to imoscovitz@fool.com to let us know that trading on inside knowledge of upcoming laws in Congress is not OK with you. We'll do our darnedest to make our collective voice heard.
  • Second, don't feel compelled to wait. Take direct action to get this law passed: Add your voice to the petition urging Congress to get off its keister and pass the STOCK Act now!

At the time this article was published Fool contributorRich Smithdoes not own (or short) shares of any company named above, butMotley Fool newsletter serviceshave recommended buying shares of Visa.The Motley Foolhas adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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