Insider Trading

Congress Moves Again to Block Investigation of Congressional Insider Trading

By Lee Fang

Lawyers for the House of Representatives have escalated their legal fight to block the first-ever congressional insider trading investigation.

The case revolves around allegations that Brian Sutter, a former senior staff member of the Ways and Means Committee, passed along nonpublic information concerning a Medicare reimbursement rate change to a lobbyist with Greenberg Traurig in April 2013.

The information was then disclosed to a consulting firm that shared the tip with it’s financial clients. A number of the hedge funds appeared to use the insider tip to trade on stocks that would be impacted.

The Securities and Exchange Commission opened an investigation and served subpoenas on Sutter and the Ways and Means Committee.

Despite passing a bipartisan law to address the very issue of congressional insider trading — the Stop Trading on Congressional Knowledge Act, or STOCK Act of 2012 — congressional attorneys have fought the SEC investigation at every turn. First they refused to comply with the subpoenas.

Then, when the SEC sued, the House attorneys claimed that the case should not proceed because lawmakers and their staff are constitutionally protected from such inquiries. “Communications with lobbyists, of course, are a normal and routine part of Committee information-gathering,” they argued in a brief filed last year.

On November 13, U.S. District Judge Paul Gardephe agreed with most of the SEC’s claims and ordered Congress to comply with the subpoena within 10 days. “Members of Congress and congressional employees are not exempt from the insider trading prohibitions arising under the securities laws,” he wrote. Gardephe reminded the attorneys that “Congress barred such claims of immunity when it adopted” the STOCK Act.

Kerry W. Kircher, the House general counsel, requested more time. Then, shortly before Thanksgiving, on November 25, he filed a motion to appeal the subpoena to the 2nd Circuit. Kircher argued that the STOCK Act did not explicitly authorize the SEC to issue subpoenas to Congress, even to investigate inside trading.

The appeal, which could obstruct the investigation or at least delay it for months, is the latest move by Congress to undermine its own ethics law. The STOCK Act remains the only significant congressional ethics reform measure passed into law since 2007.

Lawmakers at the time patted themselves on the back, hailing the STOCK Act as a major step toward curbing corruption. “Insider trading should never occur and should never be tolerated,” Rep. Paul Ryan, now the House speaker and Kircher’s boss, said in a statement.

Away from the spotlight, however, congressional leaders continue to fight enforcement and to shore up the target of the SEC inquiry. Rep. Pat Tiberi, R-Ohio, and Rep. Diane Black, R-Tenn., two lawmakers who served on the same committee as Sutter, have used PAC money to donate to the legal defense fund set up to defend him.