The Issue Spotter

(Source) Insider trading carries with it the possibility of civil and criminal penalties for members of the general public. Yet, members of Congress have enjoyed freedom from punishment for engaging in the misappropriation of information they receive in the service of their jobs. The complex history of securities law is built upon case law which has failed to reach congresspersons due to the lack of a binding fiduciary obligation between them and the general public. The existing structure of representation—where legislators are expected to act in the best interest of their constituents—is irrelevant in the application of insider trading law to members of Congress. In order for there to be a binding obligation to refrain from engaging in insider trading, there must first exist a fiduciary duty between a trader and a communicator of material, nonpublic information. In the case of members of Congress, that relationship does not exist since their duties to the American people are based on representation as opposed to a fiduciary obligation.  This glaring loophole left open by case law has allowed some members of Congress to outperform the market, the general public and even some hedge fund managers for decades. This, along with the fact [read more]