Congressman Accused of Insider Trading Under the STOCK Act


by Fred Fuld III

You may have read recently that New York Congressman Chris Collins has been charged with insider trading, relating to Innate Immunotherapeutics Limited (INNMF) which failed a drug trial.

Once the news was out, the stock dropped by a huge amount. Collins was on the Board of Directors of this company and the largest shareholder.

But wait a minute. Aren’t members of Congress exempt from the Insider Trading Laws? Well that was true, beginning around the time of the Civil War.  However, on April 4, 2012, the STOCK Act was passed and signed into law by President Obama, to no fanfare.

First, what is inside trading? It buying or selling a stock based on news about a company that you become aware of prior to the dissemination of the news to the public. It is illegal.

Members of Congress Now Subject to Insider Trading Laws

OK, so now the STOCK Act. It is the Stop Trading on Congressional Knowledge Act which basic overturned the ability of Congresspeople to freely trade stocks on inside information while being exempt from insider trading laws. The STOCK Act put an end to this governmental bonus.

Details of the STOCK Act:
Answers the President’s Call to Ban Insider Trading for Members and Congressional Staff: The STOCK Act expressly affirms that Members of Congress and staff are not exempt from the insider trading prohibitions of federal securities laws and gives House and Senate ethics committees authority to implement additional ethics rules. The Act makes clear that Members and staff owe a duty to the citizens of the United States not to misappropriate nonpublic information to make a profit.

Increases Transparency in Financial Disclosure Reporting: The STOCK Act amends the Ethics in Government Act of 1978 to require a government-wide shift to electronic reporting and online availability of public financial disclosure information. The STOCK Act provides additional transparency for Members of Congress, legislative staff and other government employees currently required to make public financial disclosures:
• Trade Reporting: requires that Members of Congress and government employees report certain investment transactions within 45 days after a trade.

• Online Availability: mandates that the information in public financial disclosure reports (currently made available on request) be made available on agency websites and ultimately through searchable, sortable databases.

New Ethics Requirements:
• Expands Pension Forfeiture for Corrupt Members: the STOCK Act requires forfeiture of federal pension if a Member of Congress commits one of several corruption offenses while serving as an elected official. Current law forfeits a Member’s pension for conviction of offenses committed while serving in Congress. The STOCK Act expands forfeiture to apply to misconduct by Members committed in other federal, state and local elected offices and adds further federal crimes, including insider trading, for which forfeiture will be required.

• Requires Disclosure of Terms of Mortgages: the STOCK Act will require Members and certain high level government officials to disclose the terms of personal mortgages.

• Bans Special Access to Initial Public Offerings (IPOs): the STOCK Act limits participation in IPOs by Members and senior government employees to purchases available to the public generally.

• Requires Report on Political Intelligence in the Financial Markets: the STOCK Act requires GAO and CRS to produce a report on the role of political intelligence firms in the financial markets.

• Requires Job Seekers to Disclose: the STOCK Act requires that Members of Congress and senior federal employees file a written notification with their ethics office when starting a job negotiation to leave the government.

Bans Bonuses for Fannie & Freddie Executives: the STOCK Act bars senior executives at Fannie Mae and Freddie Mac from receiving bonuses during any period of conservatorship after enactment.


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