[Senate Hearing 112-344]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 112-344

            INSIDER TRADING AND CONGRESSIONAL ACCOUNTABILITY

=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 1, 2011

                               __________

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  JERRY MORAN, Kansas

                  Michael L. Alexander, Staff Director
                     Troy H. Cribb, Senior Counsel
                      Jonathan M. Kraden, Counsel
               Nicolas A. Rossi, Minority Staff Director
                Mark B. LeDuc, Minority General Counsel
                  Lorinda B. Harris, Minority Counsel
                  Trina Driessnack Tyrer, Chief Clerk
                 Patricia R. Hogan, Publications Clerk
                    Laura W. Kilbride, Hearing Clerk
                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Collins..............................................     3
    Senator Brown................................................    22
    Senator Begich...............................................    25
    Senator Tester...............................................    27
    Senator McCaskill............................................    31
Prepared statements:
    Senator Lieberman............................................    39
    Senator Collins..............................................    41

                               WITNESSES
                       Thursday, December 1, 2011

Hon. Kirsten E. Gillibrand, a U.S. Senator from the State of New 
  York...........................................................     4
Hon. Scott P. Brown, a U.S. Senator from the State of 
  Massachusetts..................................................     6
Melanie Sloan, Executive Director, Citizens for Responsibility 
  and Ethics in Washington.......................................     9
Donna M. Nagy, C. Ben Dutton Professor of Law, Indiana University 
  Maurer School of Law...........................................    11
Donald C. Langevoort, Thomas Aquinas Reynolds Professor of Law, 
  Georgetown University Law Center...............................    12
John C. Coffee Jr., Adolf A. Berle Professor of Law, Columbia 
  University Law School..........................................    14
Robert L. Walker, Counsel, Wiley Rein LLP........................    16

                     Alphabetical List of Witnesses

Brown, Hon. Scott P.:
    Testimony....................................................     6
    Prepared statement...........................................    45
Coffee Jr., John C.:
    Testimony....................................................    14
    Prepared statement...........................................   139
Gillibrand, Hon. Kirsten E.:
    Testimony....................................................     4
    Prepared statement...........................................    43
Langevoort, Donald C.:
    Testimony....................................................    12
    Prepared statement...........................................   126
Nagy, Donna M.:
    Testimony....................................................    11
    Prepared statement with an attachment........................    54
Sloan, Melanie:
    Testimony....................................................     9
    Prepared statement...........................................    48
Walker, Robert L.:
    Testimony....................................................    16
    Prepared statement...........................................   155

                                APPENDIX

Robert Khuzami, Director, Division of Enforcement, U.S. 
  Securities and Exchange Commission, prepared statement.........   164
Bob Edgar, President and Chief Executive Officer, Common Cause, 
  prepared statement.............................................   172
David Arkush, Director, Public Citizen, prepared statement.......   174


            INSIDER TRADING AND CONGRESSIONAL ACCOUNTABILITY

                              ----------                              


                       THURSDAY, DECEMBER 1, 2011

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:34 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Carper, McCaskill, Tester, 
Begich, Collins, Coburn, Brown, and Johnson.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. The hearing will come to order. Good 
afternoon. A recent book by Peter Schweizer and a story based 
on it on ``60 Minutes'' have raised the very serious question 
of whether Members of Congress have been using ``insider 
information'' to make investments that enable them to make 
money they could not have made if they were not Members of 
Congress.
    The Members of Congress who have been specifically accused 
have denied the allegations. Our purpose here this afternoon is 
not to determine the guilt or innocence of individual cases. 
Our purpose is to determine whether the existing law is 
sufficient to prevent and punish congressional insider trading.
    Perceptions are very important in public service. That 
means that if the law seems to allow Members of Congress to 
take advantage of their public position for personal gain, the 
trust that needs to exist between the American people and our 
government will be further eroded than it already is.
    So what is the state of the law governing insider trading 
by Members of Congress?
    It will surprise most people to learn that there is no 
explicit prohibition in our laws against insider trading by 
anyone, including Members of Congress. That is to say, the term 
``insider trading'' is not mentioned or defined in statute. All 
the investigations and prosecutions of insider trading over the 
years by the U.S. Securities and Exchange Commission (SEC) or 
the Department of Justice (DOJ) have been carried out pursuant 
to the broad anti-fraud provisions of the Securities Exchange 
Act of 1934, which makes it unlawful, in Section 10(b), to 
``use or employ, in connection with the purchase or sale of any 
security--any manipulative or deceptive device or contrivance 
in contravention of such rules''--this sounds like it was 
written not in 1934 but in 1734--``and regulations as the 
Commission may prescribe as necessary or appropriate in the 
public interest for the protection of investors.''
    The specific rules making insider trading illegal are found 
in a large body of SEC regulatory activities pursuant to 
Section 10(b), that broad anti-fraud statute I just read, and 
court decisions interpreting those activities. The rules 
against insider trading now clearly encompass not just 
corporate ``insiders'' but others who have bought and sold 
securities based on material, nonpublic information they 
obtained and used in violation of a duty of trust.
    Now, I gather that some have said that Congress has 
exempted itself from these insider trading rules, but that is 
not true. In fact, in a statement submitted to our Committee 
for the record for this hearing, Robert Khuzami,\1\ Director of 
the Division of Enforcement at the U.S. Securities and Exchange 
Commission, makes clear that the Commission has authority to 
prosecute such wrongful conduct, declaring that ``trading by 
congressional Members or their staffs is not exempt from the 
Federal securities laws, including the insider trading 
prohibitions.''
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Khuzami appears in the Appendix 
on page 164.
---------------------------------------------------------------------------
    This afternoon, we are going to hear testimony that a 
Member of Congress or a congressional staffer who buys or sells 
stock based on inside information they obtain as a result of 
their job not only violates congressional ethics rules, but 
violates the securities laws as well.
    On the other hand, we are going to hear testimony that the 
law is not as clear as it needs to be and that Congress should 
specifically proscribe congressional insider trading.
    I am with the second school of thought. In my opinion, 
whether or not there is currently clear and conclusive evidence 
that Members of Congress or staff members have benefited 
financially from insider information and whether or not the SEC 
believes it can act against Members of Congress for insider 
trading under its existing authority, there ought to be a law 
that explicitly deters such unethical, illegal behavior by 
Members of Congress and punishes it when it happens.
    Our goal today is to sort out the facts and determine 
precisely what legal reforms are needed to ensure that 
regulators and law enforcers have the tools they need to bring 
to justice Members of Congress and our staffs who defy the 
public trust by using insider information for personal gain.
    Our first witnesses today, who we will call on in a short 
while, will be Senator Kirsten Gillibrand of New York and 
Senator Scott Brown of Massachusetts, a valued Member of this 
Committee, both of whom have taken the lead in the Senate in 
introducing legislation to deal with this problem, and that 
legislation has been referred to our Committee, which is why we 
are convening this hearing today.
    The point that we are focused on today is narrow, but it 
touches on much broader values and realities. The fact is that 
the American people's faith in their elected representatives is 
the cornerstone around which our democratic republic was built. 
When that faith ebbs, as it now has, to historic lows, we must 
increase our efforts to ensure that the people who did us the 
honor of sending us to Washington to represent them are 
confident that our only business is their business.
    I have been reading a lot about George Washington lately, 
and as is so often the case, he said something long ago--in 
fact, on the first day of our new government--that seems 
relevant to our hearing today, ``The foundations of our 
national policy will be laid in the pure and immutable 
principles of private morality, and the preeminence of free 
government [will] be exemplified by all the attributes which 
can win the affections of its citizens and command the respect 
of the world.''
    Adopting a new law that explicitly makes insider trading by 
Members of Congress illegal would strengthen the ``foundations 
of our national policy,'' in Washington's words, and I hope in 
a small way will help to repair the breach that exists today 
between our government and our people.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman. Unfortunately, I 
do not have an eloquent quote to begin my statement to take up 
where you left off today, but I do want to thank you for 
holding this hearing to examine whether or not current laws are 
adequate to prevent Members of Congress from engaging in 
insider trading. I very much appreciate your inviting our two 
colleagues Senator Brown and Senator Gillibrand to describe the 
bills that they have proposed to address this concern. I am a 
cosponsor of Senator Brown's bill, which is known as the Stop 
Trading on Congressional Knowledge (STOCK) Act, and I look 
forward to learning more about Senator Gillibrand's bill today. 
This hearing is an important step in our efforts to ensure that 
Members of Congress are not profiting from trading on insider 
information.
    Recent press reports on ``60 Minutes'' and elsewhere 
demonstrate why this Committee must explore the application of 
existing laws to Congress and identify what actions may need to 
be taken to close possible loopholes that undermine the 
public's confidence in this institution.
    Elected office is a place for public service, not private 
gain. As demonstrated by recent press stories, however, there 
are questions about whether lawmakers have been exempt--either 
legally or practically--from the reach of our laws prohibiting 
insider trading.
    The recent allegations come at a time when the public's 
faith in Congress is already extremely low. A recent Gallup 
poll shows that 69 percent of the American public has little or 
no confidence in Congress. Other polls show that Americans rate 
Members of Congress at or near the bottom of the list when it 
comes to perceived honesty and ethical standards.
    This erosion of public trust is not confined to Congress, 
but taints the public's entire view of our Federal system. Why 
does this matter? Well, with so many critical challenges facing 
our country, if the American public does not believe that the 
decisions that we are making are in their interests rather than 
our interests, it will be next to impossible to tackle the 
truly significant problems that we face. And we must address 
the concerns that underpin the public's skepticism. We need to 
assure the American people that we are putting their interests 
above our own.
    Seven years ago, economist Alan Ziobrowski published a 
study that showed that the stock portfolios held by U.S. 
Senators in the mid-1990s outperformed the market by nearly 12 
percent per year. Mr. Ziobrowski concluded from his data that 
Senators have ``a definite informational advantage over other 
investors,'' though he also was careful to point out that his 
results ``should not be used to infer illegal activity.'' In 
his words, ``Current law does not prohibit Senators from 
trading stock on the basis of information acquired in the 
course of performing their normal senatorial functions.''
    A more recent study by the professor showed similar, albeit 
less dramatic, investment returns for stock portfolios held by 
Members of the House between 1985 and 2001. At the same time, 
however, not all experts who have examined these data share the 
professor's conclusions or his legal interpretations.
    So the purpose of today's hearing is to analyze the need 
for greater clarity in the scope of the insider trading laws. I 
am eager to hear the views and recommendations of the witnesses 
on the legislation presented by our colleagues to close any 
loopholes and also to explore whether this is simply a matter 
of insufficient enforcement under the existing fraud laws.
    Whatever the problem is, one thing is certain. We should 
not be shielding Congress from laws that apply to other 
Americans.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks very much, Senator Collins.
    Senator Gillibrand and Senator Brown, thanks for your 
leadership here. You really seized the moment and, as soon as 
this problem became evident, took real leadership. And it is 
because you have introduced the bills that we are here. We take 
your legislative proposals very seriously, and it is Senator 
Collins' intent and mine to move to a markup as soon as we can. 
So we welcome you here today.
    It is always a difficult question when you have two 
Senators who you call on first. We have researched this matter, 
and it turns out that Senator Gillibrand, by a small amount, 
has more seniority, although it is clear that Senator Brown is 
much older. [Laughter.]
    Senator Collins. And he is a Member of our Committee. 
[Laughter.]
    Chairman Lieberman. Touche. Senator Gillibrand, go ahead.

TESTIMONY OF HON. KIRSTEN E. GILLIBRAND,\1\ A U.S. SENATOR FROM 
                     THE STATE OF NEW YORK

    Senator Gillibrand. Thank you, Mr. Chairman. I am very 
grateful for your leadership. Senator Collins, thank you for 
your leadership. I appreciate your holding this extremely 
important hearing and inviting me to offer my testimony this 
afternoon. Your strong leadership together is a shining example 
of how important it is to shine light on an issue as important 
as fundamental fairness, and it is a very important step 
forward on the path to restoring Americans' faith in our 
government, just as you said, Mr. Chairman.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Gillibrand appears in the 
Appendix on page 43.
---------------------------------------------------------------------------
    Like millions of Americans all across the country, I was 
very surprised to learn that insider trading by Members of 
Congress, their families, or their staff using non-public 
information gained through their congressional work is not 
clearly and expressly prohibited by law or by the rules of 
Congress.
    The American people need to know that their elected leaders 
play by the exact same rules that they play by. They also 
deserve the right to know that their lawmakers' only interest 
is in what is best for the country, not what is best for their 
own financial interests.
    Members of Congress, their families, and their staff should 
not be able to gain personal profits from information to which 
they have access that everyday middle-class American families 
do not. I simply believe that this is not right. Nobody should 
be above the rules.
    I have introduced a bipartisan bill in the Senate with 15 
of our colleagues. Senators Rubio, Snowe, Johanns, Tester, 
Stabenow, McCaskill, Klobuchar, Durbin, Blumenthal, Bill 
Nelson, Reed, Cardin, Kerry, Sherrod Brown, and Baucus have all 
offered this bill to close the loophole.
    This STOCK Act legislation is very similar to the 
legislation that was first introduced in the House by 
Congresswoman Louise Slaughter and Congressman Tim Walz. So I 
want to thank them for their longstanding commitment to this 
issue and to the advocacy on it. I also want to recognize my 
colleague Senator Scott Brown for requesting today's hearing 
and for his very strong work on this issue as well.
    Our bill, which has received the support of at least seven 
good-government groups, covers basic important principles:
    First, it says that Members of Congress, their families, 
and their staff should be barred from buying or selling 
securities on the basis of knowledge gained through their 
congressional service or from using that knowledge to tip off 
anyone else. The SEC and the U.S. Commodity Futures Trading 
Commission must be empowered to investigate these cases. To 
provide additional teeth, such acts should also be a violation 
of Congress' own rules to make clear that the activity is not 
only illegal but inappropriate for Members of Congress.
    Members should be required to disclose major transactions 
of $1,000 or more within 90 days, providing dramatically 
improved oversight and accountability from the current annual 
reporting requirements.
    Last, individuals doing political intelligence work--
contacting Members of Congress, their staffs, and other 
individuals to gain information to help with investment 
decisions--should have to register as lobbyists to provide 
additional oversight of this industry.
    There are those who do not want us to succeed and pass this 
common-sense legislation the American people expect. Some 
critics will say that the bill is unnecessary or already 
covered under current statutes. I have spoken with experts 
tasked in the past with investigations of this nature, and they 
strongly disagree. We must make it unambiguous that this kind 
of behavior is illegal.
    Others may say that the legislation is too weak, so let me 
be very clear. Our mission here is to pass a strong bill with 
teeth in it that will make any and all insider trading clearly 
illegal and a violation of our congressional rules for all 
Members of Congress, their entire families, and their staff. As 
we move forward, there will be technical changes in the 
language to improve the bill and to ensure that the final 
product meets this goal. Anything less is unacceptable.
    As my home State newspaper the Buffalo News recently noted, 
``The STOCK Act would ensure that it is the people's business 
being attended to.'' This is a step that we must take to begin 
to restore America's trust in this very broken Congress.
    Thank you again, Senators Lieberman and Collins. I am very 
grateful that you held the hearing today.
    Chairman Lieberman. Thanks, Senator Gillibrand.
    Senator Brown, in fact, as our colleague said, requested 
this hearing and asked us to do it as soon as we could, which 
is why we are here today.
    Senator Brown, it is all yours.

 TESTIMONY OF HON. SCOTT P. BROWN,\1\ A U.S. SENATOR FROM THE 
                     STATE OF MASSACHUSETTS

    Senator Brown. Thank you, Mr. Chairman and Senator Collins. 
Being new here, until the ``60 Minutes'' piece came out, I had 
no knowledge that something like this was even allowed. And as 
a result of that, I wanted to do something about it to try to 
make a difference.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Brown appears in the Appendix 
on page 45.
---------------------------------------------------------------------------
    There was a ``60 Minutes'' piece that featured a segment 
about Members of Congress and their alleged insider trading 
advantage, which garnered widespread public attention, as you 
referenced.
    You know, it is interesting. When you even have to hear 
about things like this that happen apparently in Washington, 
there is clearly something wrong. And you referenced it, Mr. 
Chairman. There is a breakdown of trust. We need to re-
establish that connection and let people know that we are 
subjected to the same laws and rules that they are. We should 
not pass laws and then not have to adhere to them. And the 
American people's trust in Congress is at an all-time low, and 
that is disturbing.
    It is more important than ever to have Members of Congress 
affirm that we live by those very same laws that we pass for 
everyone else in our country. We should be held to the same 
and, quite frankly, I think a higher standard than the members 
of the general public and should not be able to profit based on 
nonpublic information.
    That is why I introduced the STOCK Act of 2011, and I 
greatly appreciate your jumping on it. It does not surprise me 
at all that both of you would move quickly to address something 
that affects our body in such a dramatic way. This obviously 
affects Members and employees of Congress as well as the 
Executive Branch employees from using nonpublic information 
obtained through their public service for the purposes of 
investing or otherwise making a personal financial gain.
    Consider this: A Member of Congress hears during a meeting 
that a program will be cut or something dramatic is going to 
happen, and then he either buys or sells his stock to score a 
profit or avoid losses when the news breaks. And under current 
law, the Congressman would likely walk away with a fatter 
investment account. For everyone else, it would mean jail time, 
and that is not right.
    Some scholars argue that the current law already applies to 
Members of Congress, as you referenced in your opening 
statement, and that we do not need it, but I disagree. If it is 
in effect, then why have they not done something about these 
sorts of things? There has not been one prosecution. If the SEC 
has all this power, why have they not used it?
    The mere existence of this debate is enough to show that we 
must clearly define the blanket affirmative duty that we have 
as Members of Congress to the American people pertaining to 
confidential nonpublic information. Not defining this duty will 
leave an absolute gap--and it is clear that it has left a gap--
of uncertainty that invites abuse, intentional or otherwise, 
and contributes to a breakdown of trust among the American 
people. And that is just not right.
    This legislation is directly aimed at correcting this 
problem that academics such as Professors Alan Ziobrowski and 
Stephen Bainbridge have identified. In his work, Professor 
Ziobrowski found that Members of Congress' investments may have 
benefited from an informational advantage over members of the 
general public. And in his recent book, ``Throw Them All Out,'' 
author Peter Schweizer, a fellow at the Hoover Institute, 
reports that Members of Congress are making a killing in real 
estate by approving the use of Federal funds for projects that 
will enhance the value of buildings or lands that they actually 
own. And that is not right.
    As Members of Congress, we all know we have access to 
information that the public does not--through classified 
briefings, closed conference reports, and personal 
conversations with government officials. All of these sources 
can give us nonpublic information that we could find of 
significant value and trade accordingly. Not only do we have 
that access, we create information and policy as well, and we 
can influence things that way.
    When we act on legislation or negotiate legislative 
language, frequently that legislation has real financial 
consequences to many different industries in this country. And 
because we have that access and we create information, we 
absolutely must not betray the public's trust in everything 
that we do for our own personal gain.
    I believe--and I know you two do, and everybody on this 
Committee does--that diminishing public trust is why you called 
the hearing today. I suspect we will hear from witnesses today 
who say that the existing laws and rules are sufficient--
Senator Gillibrand referenced it; you did, Mr. Chairman--and I 
respectfully disagree. I say, ``Like really?'' Then, once 
again, why are we here? Why was the piece run? Why has 
something not been done? Basic questions. There has been no 
successful prosecutions of Members or their staff, and I 
believe the uncertainty that exists around the legal framework 
provides an excuse for enforcement officials and agencies to 
avoid the politically difficult task of policing Congress, 
especially when we control the purse strings of many of those 
agencies. We must absolutely close this loophole.
    I believe that the vast majority of the Members and staff 
of Congress are here to serve their constituents' best 
interests. They are people of good will, and they are not here 
to line their pockets. But by explicitly prohibiting the use of 
material nonpublic information for personal gain, we will 
vastly increase the transparency that everyone always talks 
about here, but sometimes it just does not get done.
    The legislation I have introduced is similar to the 
bipartisan legislation that has been introduced in the House 
for many years now. Back in the 109th Congress, I know that 
Congresswoman Slaughter and Chairman Brian Baird actually filed 
the STOCK Act, and now Congresswoman Slaughter and Congressman 
Walz have continued their effort in this regard, and it is 
getting more and more support. So I want to thank them for 
their efforts.
    The media attention has obviously brought a good eye to 
this, and the American people are watching what we do. They 
watch more than ever, especially with all the new media 
opportunities out there.
    I am not afraid of acting in the public's interest, and 
that is why I introduced this legislation. It is critically 
needed. And there are differences between our two bills. Mine 
does not amend the ethics rules. It does not need a 67-vote 
threshold. It needs 51 votes. It makes it a lot easier to get 
it through. We can do the Senate resolution side by side.
    I would suggest and request that you take the best of both 
bills, put them together, have us all join together in a 
clearly bipartisan, bicameral manner, and get this thing done. 
The American people deserve it. We will see if politics will 
play a role in it or not. And it is up to us.
    So I look forward to sitting in that Committee chair on the 
dais and asking some questions. Thank you.
    Chairman Lieberman. Thanks very much, Senator Brown, and 
thanks for your closing comments about the process. I will note 
for the record that Senator Gillibrand was nodding her head 
affirmatively, which is that there are some differences between 
your two bills, but there are many more similarities. And I 
hope that the two of you will be able to work with Senator 
Collins and me to come up with a joint bill. We may want to 
separate them. As you said, we will probably want to have a 
separate resolution on the Senate rules so that it will be 
separate from the legislative proposal. I am going to set a 
standard that may be hard to meet, but if we work intensely, it 
would be great if we could bring this before a markup of the 
full Committee in December before we break for the holidays. We 
tentatively have scheduled a markup for December 14, so let us 
set that as the goal and, informed by the second panel, see if 
we can put this together.
    Thank you both very much.
    Senator Gillibrand. Thank you, Mr. Chairman.
    Chairman Lieberman. We will now call the second panel: 
Melanie Sloan, Executive Director of Citizens for 
Responsibility and Ethics in Washington; Donna M. Nagy, 
Professor of Law at Indiana University Maurer School of Law; 
Donald G. Langevoort, Professor of Law at Georgetown University 
Law Center; John Coffee, Professor of Law at Columbia Law 
School. I am having flashbacks to those terrible days at law 
school. But, remember, here I am the one who asks the 
questions. [Laughter.]
    It was not that way in law school.
    And, finally, Robert Walker, Counsel at Wiley Rein and 
former Chief Counsel and Staff Director of both the Senate and 
House Ethics Committees.
    Thanks to all of you for being here on relatively short 
notice. You bring in various ways a wealth of experience and 
information.
    Ms. Sloan, we will begin with you. Your organization has 
one of the best acronyms in Washington--CREW, Citizens for 
Responsibility and Ethics in Washington. I know you have worked 
together with a number of other public interest groups that 
advocate legislation to deal with this insider trading problem. 
Please proceed.

TESTIMONY OF MELANIE SLOAN,\1\ EXECUTIVE DIRECTOR, CITIZENS FOR 
            RESPONSIBILITY AND ETHICS IN WASHINGTON

    Ms. Sloan. Chairman Lieberman, Senator Collins, and other 
Members of the Committee, thank you for inviting me here today 
to join such a distinguished panel.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Sloan appears in the Appendix on 
page 48.
---------------------------------------------------------------------------
    No disrespect to any of you intended personally, but the 
fact is America does not trust you. A full 46 percent of 
Americans believe Congress is corrupt. Stories like the one on 
``60 Minutes'' a few weeks ago become such big news because 
they confirm what so many people already believe: That many of 
your colleagues use their positions not for the public good but 
to feather their own nests.
    My organization, CREW, has focused on misconduct of Members 
of Congress for many years. We have seen and complained of 
numerous legislators abusing their positions to earmark 
projects to increase the value of their personal real estate 
holdings, buying into companies that soon thereafter surged in 
value, urging agencies to take actions to financially benefit 
themselves or family members, pushing through legislation in 
apparent exchange for campaign contributions, and, finally, 
even trading on inside information.
    As others have said, at no time in history has the public's 
view of Congress been quite so dismal. The jobless rate is sky 
high, and a wide swath of the country is suffering severe 
economic hardship, but Members of Congress have never been 
richer. Sixty-six percent of Senators and 41 percent of House 
Members are millionaires. Members have significant stock 
portfolios, but only some maintain their assets in blind 
trusts. Whether or not it is accurate, there is a widespread 
public perception that Members of Congress are abusing their 
positions to enhance their personal wealth.
    Members are also willing to accept benefits, like generous 
pensions and health care coverage, that most Americans only 
dream about, while at the same time Congress exempts itself 
from laws like those governing whistleblower protections, 
workplace safety, and perhaps insider trading that are applied 
to everybody else.
    Notably, presidential appointees requiring Senate 
confirmation often have been required by the Senate to divest 
themselves of interests in companies they will oversee as part 
of the Executive Branch. But Senators are under no such 
restrictions. For example, the Washington Post found between 
2004 and 2009, 19 of the 28 Senators on the Armed Services 
Committee held assets in companies that did business with the 
Pentagon. The Senate has refused to require Senators to file 
campaign finance reports electronically, all the better to stop 
the media and watchdogs from comparing campaign contributions 
with legislative actions. And Congress, particularly the House 
counsel's office, has been advancing a very aggressive 
interpretation of the Speech or Debate Clause that allows 
Members who have engaged in serious crimes like bribery to go 
unpunished.
    Congress frequently refuses to enforce even its own limited 
ethics rules, failing to police the conduct of Members except 
when it is so egregious it becomes fodder for sensational, 
wall-to-wall, 24-hour news coverage.
    I am not an expert on securities law, so I will leave it to 
all these other esteemed panelists who are leaders in this 
field to discuss whether and to what extent insider trading 
laws already on the books apply to you. But given that there 
has been no prosecution of a Member of Congress for insider 
trading and only one Member of the House way back in 1976 has 
ever been disciplined for any even remotely related conduct, it 
is imperative that Congress pass a STOCK Act soon. Members of 
Congress need to demonstrate to America that you take our 
concerns about your ethics seriously.
    Undoubtedly, there are cases in which the Speech or Debate 
Clause of the Constitution might prevent a prosecution such as 
where a Member traded on confidential information received 
pursuant to a committee inquiry. As a result, not only should 
the STOCK Act provide a role for the SEC and the Department of 
Justice in addressing such conduct, but the House and Senate 
should also amend their standing rules to make clear that such 
conduct is prohibited and subject to specific disciplinary 
action, perhaps including a financial penalty of three times 
the amount of a profit obtained or a loss avoided.
    Disclosures of trades also must be a key component of any 
legislation. The 90 days permitted under the bills that we have 
seen is far too long and should be cut back dramatically. After 
all, electronic confirmations of trades are often 
instantaneous, making such significant time delays unnecessary.
    Members of Congress should post information about trades in 
an electronic searchable database. Further, as with personal 
financial disclosure reports, the willful failure to disclose 
such information should be punishable under the False 
Statements Act.
    The bottom line is that Americans are becoming increasingly 
frustrated with a Congress viewed as part of the 1 percent and 
more concerned with preserving that status than in working to 
improve the standard of living of the remaining 99 percent. 
Passing a STOCK Act would be a good first step toward changing 
that image.
    Thank you.
    Chairman Lieberman. Thank you, Ms. Sloan. And now Professor 
Nagy from Indiana University Maurer School of Law.

TESTIMONY OF DONNA M. NAGY,\1\ C. BEN DUTTON PROFESSOR OF LAW, 
            INDIANA UNIVERSITY MAURER SCHOOL OF LAW

    Ms. Nagy. Chairman Lieberman, Senator Collins, and Members 
of the Committee, I am honored with the invitation to testify. 
My name is Donna Nagy, and I am the C. Ben Dutton Professor of 
Law at Indiana University Maurer School of Law. In my 17 years 
as a professor, I have co-authored a treatise on insider 
trading, and I have written many articles, including one 
published last May, on the precise topic of today's hearing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Nagy with an attachment appears 
in the Appendix on page 54.
---------------------------------------------------------------------------
    The articles sought to debunk what at the time was becoming 
an urban myth: That Congress had exempted itself or was somehow 
immune from the existing law that prohibits insider trading. 
Congress in no way has sought to immunize or exempt itself. 
Beyond that, the article concludes that congressional insider 
trading is already illegal under existing law.
    Based on my research, I would expect a court to hold a 
Member of Congress liable for any securities trading that is 
based on material nonpublic information obtained through 
congressional service if the SEC or DOJ successfully proved the 
facts alleged. I acknowledge, however, that many distinguished 
securities law scholars see shades of gray, and some believe a 
court would rule likely the other way.
    The controversy surrounding the application of existing law 
to Congress stems from the fact that Congress has never enacted 
a securities statute that explicitly prohibits anyone from 
insider trading. A STOCK Act would only address one 
manifestation of this much larger malady.
    In the absence of an express statutory prohibition, the 
offense of insider trading has been prosecuted as a violation 
of Section 10(b) of the Exchange Act and Rule 10b-5. These 
provisions prohibit fraud ``in connection with the purchase or 
sale of any security.'' The Department of Justice also 
prosecutes insider trading as a criminal violation of either 
Rule 10b-5 or the Federal mail and wire fraud statutes. Thus, 
in the vast majority of instances, insider trading is illegal 
only insofar as it can be deemed an act of fraud.
    Because the term ``fraud'' is not defined in these 
statutes, the formidable task of determining illegal insider 
trading has defaulted to the Supreme Court and lower Federal 
courts. And in literally hundreds of cases, courts have imposed 
liability where the traders were decidedly not insiders of the 
issuer whose securities were traded.
    For example, courts routinely impose liability in so-called 
outsider trading cases involving family members who trade on 
information entrusted to them by spouses or relatives.
    Other outsider cases would include Federal and State 
officials who trade on information obtained through government 
service, including a Food and Drug Administration chemist who 
pled guilty last month and now awaits a likely prison sentence.
    In misappropriation cases such as these, as in all insider 
trading cases, the liability linchpin is a securities trader 
who has breached a fiduciary-like duty of trust and confidence 
by secretly profiting from the use of material nonpublic 
information that rightfully belongs to somebody else.
    The Constitution refers repeatedly to public offices being 
``of trust.'' Members also take an oath of office to faithfully 
discharge their duties. So there should be little doubt that 
Members' undisclosed, self-serving use of congressional 
knowledge constitutes a misappropriation that would defraud the 
United States and the general public, among others.
    For a court to conclude otherwise, it essentially would 
have to view nonpublic congressional knowledge as a perk of 
office belonging to an individual Member to do with as he or 
she wished. Such a view would be strikingly inconsistent with 
the tenets of representative democracy.
    I recognize that a Member of Congress has never been 
prosecuted for insider trading based on nonpublic congressional 
knowledge. But the DOJ has used the Federal mail and wire fraud 
statutes to successfully prosecute congressional officials for 
defrauding the United States and the public through the 
undisclosed misappropriation of congressional funds and 
tangible property. And the Supreme Court has dictated that 
material nonpublic information constitutes intangible property.
    In sum, congressional insider trading violates the broad 
anti-fraud provisions in Rule 10b-5 and the mail and wire 
statutes.
    My final point relates to one possible consequence of a 
STOCK Act. I applaud and endorse the motivation behind the 
proposed legislation, but I am concerned that in the absence of 
a modification to its wording, a STOCK Act could be viewed as 
the only insider trading law that applies to Congress. This 
risk is troubling because the proposed legislation fails to 
reach a host of possible insider trading scenarios that would 
almost certainly fall within existing law.
    Thank you very much for giving me this opportunity to share 
my thoughts.
    Chairman Lieberman. Thanks very much, Professor. That was 
very helpful, and we will come back with some questions.
    Next, Professor Donald Langevoort, Professor of Law at 
Georgetown University Law Center. Thanks very much for being 
here.

 TESTIMONY OF DONALD C. LANGEVOORT,\1\ THOMAS AQUINAS REYNOLDS 
       PROFESSOR OF LAW, GEORGETOWN UNIVERSITY LAW CENTER

    Mr. Langevoort. Thank you, Chairman Lieberman, Senator 
Collins, and Members of the Committee. My testimony today 
strongly supports legislative efforts to explicitly proscribe 
insider trading by Members of Congress and their staffs, as 
intended by the various STOCK Act bills recently introduced in 
the House and Senate.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Langevoort appears in the 
Appendix on page 126.
---------------------------------------------------------------------------
    There is no current exemption from the main thrust of U.S. 
insider trading law for either Members or staff, and many forms 
of trading or tipping by such persons are adequately proscribed 
under existing legal authority. Indeed, as Professor Nagy has 
just told you, it is possible that courts would rule that 
current insider trading law adequately proscribes all abusive 
trading in securities on Capitol Hill. I hope they would. But 
there is sufficient doubt, especially in light of how courts 
recently have been reading Section 10(b) and Rule 10b-5.
    The primary weapon against insider trading cases like 
this--the misappropriation theory--requires a showing that the 
trader was in a fiduciary-like relationship to the true owner 
of the information and deceptively stole information entrusted 
to them. As applied to legislative activities on Capitol Hill, 
this theft of someone else's secrets concept does not fit 
neatly.
    Yet the idea that Members of Congress or their staffs can 
freely step ahead of ordinary investors to profit from 
information acquired as a result of their legislative roles is 
disturbing, to say the least. Congress should, therefore, act 
to eliminate any doubt and state clearly that both trading and 
tipping apply to Members and staff.
    An insider trading case against a Member or even a powerful 
staff person will always be a matter of great political 
sensitivity, likely to be brought only to the extent that the 
case factually and legally is very strong. The external 
pressures to bring such cases, or not bring them, will 
inevitably be great when any suspicions arise. Leaving any 
ambiguity as to the question of whether, and to what extent, 
insider trading on Capitol Hill is unlawful is hardly an 
encouragement to those matters that deserve to be courageously 
investigated and pursued.
    It would be extremely unfortunate were the SEC or 
prosecutors to bring an action and have the Member or staff 
person raise the defense, which they surely would, that service 
in Congress carries with it no fiduciary-like duty with respect 
to government confidences. That would be the last headline 
Congress should want to see.
    While I fully support the intent behind the STOCK Act 
bills, the legislative language must be carefully crafted to 
assure that legislation does not create the very problem it 
seeks to address: The perception that Congress has exempted 
itself from insider trading law. If read as an exclusive 
statement of Congress' insider trading restrictions, it is at 
times too narrow, at times overbroad.
    I am more than happy to work with the Committee and its 
staff to resolve these problems, which I do not believe at all 
reflects the true intent of the drafters. Thank you.
    Chairman Lieberman. Thank you, Professor. Let me 
immediately accept your offer of assistance.
    We have a purpose, I think, most of us on the Committee, 
but this is a field of law with a lot of precedent and a lot of 
complications. So in trying to fix this problem, we do not want 
to create other problems or create other appearances, as you 
said. So I look forward to the question-and-answer period.
    Next, John C. Coffee Jr., is a Professor of Law at Columbia 
Law School. We have quite a distinguished panel here. Thank you 
for being here.

TESTIMONY OF JOHN C. COFFEE JR.,\1\ ADOLF A. BERLE PROFESSOR OF 
              LAW, COLUMBIA UNIVERSITY LAW SCHOOL

    Mr. Coffee. Thank you, Chairman Lieberman, Senator Collins, 
and other Members of the Committee. I am delighted to be here 
because I agree almost completely with my predecessor, 
Professor Langevoort. I am going to edit out much of what I was 
going to say in support of what he was saying and make just 
four points.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Coffee appears in the Appendix on 
page 139.
---------------------------------------------------------------------------
    Point one, I believe Congress should act, but narrowly, and 
I want to underline the words ``but narrowly.'' While 
reasonable people and reasonable professors can disagree--and 
reasonable professors almost always do disagree--I think there 
are clearly enough ambiguities in this field that you need 
legislative action.
    Senator Brown asked this point earlier: Why has there not 
been enforcement? I think even very responsible U.S. Attorneys 
would not prosecute criminally, would not indict, if there is 
any uncertainty in the law. You do not indict in a case where 
the law is 50/50, so that is a reason they may have restrained 
their hands in cases where they could have gone forward. So 
that is point one, that there is ambiguity, and I think you 
should act, and Professor Langevoort already said that.
    Point two, which he alluded to, but I want to say it a 
little bit more fully, the proposed legislation has language 
that does not quite work. I want to say this respectfully, but 
one of the key concepts in both the proposed bills is that the 
information that you receive has to relate to pending or 
proposed legislation before there is liability. Unfortunately, 
that is not the most common case that we are likely to see. I 
can imagine a Department of Defense official calling a 
congressman and saying, ``You know that bill you have been 
pushing us for 2 years to pass to give that defense contract to 
that contractor in your district? That defense contract will be 
announced tomorrow for $5 billion.'' There is no legislation 
there. There is nothing that under the existing language would 
make that criminal. Frankly, congressmen spend much of their 
time exercising oversight, and that oversight function does not 
fall within the pending or proposed legislation. That is flaw 
one.
    Flaw two, there is a reference that you cannot trade in 
securities of an issuer. Well, frankly, the most likely trading 
that you are likely to see would be in options or futures or 
stock index products, which are not securities of an issuer. 
They are issued by financial dealers in the market. They are 
not particular companies you are buying into. You have to play 
with that language.
    I think there is a difference in the two bills with regard 
to whether tipping--as opposed to yourself receiving 
information--by the congressman is covered. I think that should 
be reconciled.
    There are several places where you need to talk a little 
bit about directly or indirectly because there could be a chain 
of four or five people, and there could be a distance between 
the congressman and the tippee. I think you want to cover those 
situations. These are all small points that I will not go 
further into.
    Let me go to my third point. Doing less is more. Rather 
than attempting to write a detailed code that would codify 
terms that have well-recognized judicial meanings, like 
``material'' and ``nonpublic,'' it might be better to write a 
very simple one-sentence statute. For example, such a one-
sentence statute could say, ``A Member of Congress is a 
fiduciary with respect to all material nonpublic information 
that such person acquires in the performance of such person's 
duties or that such person receives because of his or her 
status as a Member of Congress.''
    That one sentence does it, and it does not require you to 
define terms like ``material'' or ``nonpublic.'' You would just 
say that in interpreting this statute, the courts should use 
the existing meaning under the Federal securities laws of these 
terms.
    If you attempt to do more, ambitious as it is, and have a 
universal legislative statute, Congress has tried that before 
and it has proven to be a disaster. I testified in this field 
30 years ago, in the 1970s and 1980s, and Congress wisely 
backed off from writing a universal statute and just changed 
the penalties and insider trading sanctions. I think that is 
wiser because if you adopt legislation with new terms, the 
Federal courts will spend 10 to 15 years resolving what those 
new terms mean. There will be conflicts in the circuit. None of 
us needs that confusion.
    Also, if you try to adopt comprehensive legislation, I am 
afraid that every special interest group in the United States 
will want a safe harbor for what they do, and you will find 
that the statute will go from short to page after page of 
proposed safe harbors. You do not need to do any of that to 
deal with the real problem that concerns you, which is Members 
of Congress. So I think you should keep it short and simple.
    Last point: Members of Congress will face some illiquidity 
if such a statute is adopted. That is a necessary cost. But I 
want to advise you that I do not think the problem of 
illiquidity is as great as you might think. There are some 
special rules that the SEC already has, most notably Rule 10b5-
1, that permits anyone, including Members of Congress, to adopt 
what is called a Rule 10b5-1 trading plan. This is different 
than a blind trust. You can give very detailed instructions to 
a fiduciary, a broker or a bank, advising the broker or bank 
exactly what you want done if stock prices fall, if different 
things happen. I think that would solve most of these problems. 
In addition, you could even instruct the SEC to give no-action 
letters to you. And, finally, I think that you can rely on the 
advice of counsel that if you get an opinion from a lawyer with 
experience in the securities laws that you are not engaged in 
using material nonpublic information, I believe that no 
enforcer will proceed against you where you have a reliable 
defense-of-counsel defense. Thank you.
    Chairman Lieberman. Well, thank you. Again, very helpful. 
We are not accustomed to drafting legislation as brief as you 
suggest, but it is a very constructive recommendation.
    Robert Walker, as I mentioned at the outset, comes to us 
with the unusual and very helpful experience of having been 
Chief Counsel and Staff Director of both the Senate and House 
Ethics Committees. Thanks for being here.

   TESTIMONY OF ROBERT L. WALKER,\1\ COUNSEL, WILEY REIN LLP

    Mr. Walker. Thank you, Chairman Lieberman, and thank you, 
Senator Collins and Members of the Committee. Thanks for the 
opportunity to address the important issue of insider trading 
and congressional accountability.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 155.
---------------------------------------------------------------------------
    I am not here to advocate against or for any version of the 
STOCK Act. I will say, however, that in my view current Federal 
insider trading prohibitions do apply fully to Members and 
employees of Congress under the misappropriation theory. And I 
will also say in my view as a former Federal prosecutor, the 
law is more than 50/50 on that.
    There are substantial proof problems in making out an 
insider trading case in the congressional context, however; in 
particular, proof that information traded upon was truly 
nonpublic may be an obstacle, probably would be an obstacle, 
given the continual swirl of information in and around the 
Capitol.
    There is also a unique complicating factor to prosecuting 
insider trading cases, at least some insider trading cases, in 
the congressional context. As already alluded to, under the 
Speech or Debate Clause of the Constitution, certain 
congressional actions and activities cannot be cited or used as 
proof in legal actions against Members brought outside of 
Congress. But even the most sweeping conceivable legislation 
against congressional insider trading could not trump 
constitutional speech or debate privilege.
    Within Congress itself, existing standards of conduct do 
capture and do provide the basis for sanctioning a 
congressional individual for profiting from securities trades 
based on material nonpublic information gained through his or 
her official position. Most directly, paragraph 8 of the Code 
of Ethics for Government Service states that a person in 
Federal Government service should ``never use any information 
coming to him confidentially in the performance of governmental 
duties as a means for making private profit.''
    Insider trading based on confidential congressional 
information would be a clear violation of this provision, and 
the mechanism for enforcement would be the congressional ethics 
process. Having said this, it cannot be said as clearly exactly 
what information would be considered confidential within 
Congress for purposes of enforcement of this code provision.
    Under the rules of the House and Senate, there is no 
blanket duty of confidentiality on the part of Members and 
staff. Senate rules, for example, basically leave it to each 
committee and office to determine what information before them 
is confidential. But relatively few committees of the Senate or 
of the House actually have specific rules imposing duties of 
confidentiality on their Members and staffs. So paragraph 8 of 
the Code of Ethics does not provide a systematic tool for 
addressing allegations of congressional insider trading. Use of 
this provision for pursuing insider trading allegations within 
Congress requires a case-by-case analysis.
    The current focus on insider trading in Congress does 
provide the opportunity for the Senate and the House and each 
of the committees to take a hard look at their rules with 
respect to the definition, scope, and duties relating to 
confidential information.
    Apart from paragraph 8 of the Code of Ethics, allegations 
of insider trading in Congress may be addressed under the fail-
safe standard of conduct, which enjoins Members and staff never 
to engage in conduct that may reflect discredit on the House or 
Senate. If credible allegations of securities trading by a 
Member or employee based on material nonpublic information were 
to come before the Senate Ethics Committee, the House Ethics 
Committee, or the House Office of Congressional Ethics, and 
these allegations were more than mere insinuation, the 
allegations would be pursued by the Ethics Committee as 
potentially conduct reflecting discredit on the institution, 
and they would be so pursued and investigated, regardless of 
whether any other specific law or rule were applicable.
    Finally, let me turn to the issue of whether Members of 
Congress may trade in or hold securities of companies or 
industries that fall within the jurisdiction of their committee 
assignments. As you know, recusal and divestment are viewed in 
Congress as extraordinary and disfavored remedies to potential 
conflicts of interest. The preferred approach to monitoring and 
policing potential conflicts in the Legislative Branch is 
through public financial disclosure. The provisions of the 
proposed STOCK Acts that would require public disclosure of 
securities transactions within 90 days are consistent with and 
would extend this approach. There would, of course, be a 
compliance burden on Members and staff, but there would also be 
a substantial increase in the accessible pool of information 
based upon which a Member's constituents could form their own 
ultimately conclusive and unappealable judgments as to the 
appropriateness of the Member's financial transactions and as 
to the propriety overall of the Member's conduct. Thank you.
    Chairman Lieberman. Thank you, Mr. Walker.
    We will go forward with questioning now, and we will have 
7-minute rounds for each Senator.
    Based on the research that I did before I came into the 
hearing today, I reached a tentative conclusion, informed by 
the SEC testimony filed with the Committee today, that under 
existing law the SEC would have the authority to pursue and 
prosecute Members of Congress or staff for insider trading.
    Based on the testimony that the witnesses have given, I 
think now I come to a different kind of conclusion, which is 
that there is genuine ambiguity in the law. My original feeling 
was that we should legislate to make clear that Members of 
Congress are included within laws against insider trading 
because, obviously, as we have said earlier, insider trading is 
not mentioned or defined in the existing state of the law. You 
have to take a two- or three-step jump to get there.
    But now you convinced me that there is ambiguity that has 
to be resolved, and if I am hearing you correctly, particularly 
Professor Langevoort and Professor Coffee, it goes particularly 
to this question of fiduciary duty. And as I understand it, as 
you mentioned, Professor Nagy, the Supreme Court really has set 
the law here because it has required the interpretation on up, 
a person can be found to have committed insider trading if the 
person trades on the basis of material nonpublic information, 
but only if the person is breaching a fiduciary duty, which, as 
I understand it, normally is to shareholders or the source of 
the nonpublic information.
    So the normal reaction--but the normal reaction does not 
necessarily prevail in courts of law, in other words, there is 
a separate vocabulary--would be, ``Well of course, Members of 
Congress have a fiduciary duty.'' We have a duty to our 
constituents and to the law. But your testimony leads me to now 
feel that is ambiguous because Members of Congress and our 
staffs are in such a different relationship to this nonpublic 
material information.
    So I want to ask Professors Langevoort and Coffee, and 
Professor Nagy, too, to weigh in on the nature of the duty that 
must be established. Is it a fiduciary duty? If so, how do we 
define it? Or is it a broader duty of trust and confidence, 
which is the kind of language that we normally would use or 
that we think we have. Professor Langevoort, please go first.
    Mr. Langevoort. The courts are still working out the answer 
to that question. The Supreme Court established the 
misappropriation theory in the context of a case involving a 
partner in a law firm who misappropriated information belonging 
to the law firm and the firm's client. That is a quintessential 
fiduciary relationship. A firm has a clear-cut right to sue a 
partner for breach of fiduciary duties, such as duties of 
loyalty and care.
    As you move away from settings in which there is an 
employer, a boss, a principal who would be able to file a 
breach of fiduciary duty action against the person in question, 
the ability to make the argument that the misappropriation 
theory clearly applies grows weaker.
    As I said, I would hope that a court would make that leap, 
but I am not confident.
    Chairman Lieberman. Yes. Professor Coffee.
    Mr. Coffee. Let me just add a word on that same line. In an 
en banc decision of the Second Circuit--and ``en banc'' means 
every judge on that circuit participated--they ruled that 
husbands and wives are not fiduciaries to each other. That will 
really surprise you. What more sensitive relationship is there 
than husband and wife? But they were not fiduciaries because 
the Second Circuit ruled that to be a fiduciary, there has to 
be a relationship with discretionary authority on one side and 
dependency on the other, and the more it was equal, it was not 
a relationship that was fiduciary in character.
    Now, the SEC partially overruled that with respect to 
husbands and wives, but that definition that a fiduciary 
relationship only exists when there is discretionary authority 
on one side and dependency on the other is a very high standard 
that neither Professor Langevoort nor I want to see applied. No 
one wants to see it applied. But that is why there is this 
ambiguity, and we think that because there is ambiguity, there 
is no downside in passing this legislation and considerable 
upside.
    Chairman Lieberman. Right. So if I remember your one-
sentence proposal, it dealt exclusively with this question. Am 
I right?
    Mr. Coffee. Simply, you are a fiduciary with information 
you receive in the course of your work or your status in 
Congress. The advantage of that is only that if you start 
defining in legislation what ``material'' and ``nonpublic'' 
means, there are going to be efforts by defense counsel to say 
that is different and it was not satisfied in this case.
    Chairman Lieberman. Yes. So it would not be enough, for 
instance, if we avoided the issue of fiduciary duty altogether, 
for whatever reason, and simply declared in law that Members of 
Congress may not trade on the basis of material nonpublic 
information, which they obtained only because they were Members 
of Congress?
    Mr. Coffee. You could possibly do it that way, but what you 
just said would not cover the tipping problem. You want to 
cover both the tipper and the tippee who is a Member of 
Congress.
    Chairman Lieberman. Professor Nagy, do you want to get into 
this?
    Ms. Nagy. Yes, I do. Thank you, Mr. Chairman.
    With respect to the Chestman decision that Professor Coffee 
just mentioned, the Securities and Exchange Commission has made 
perfectly clear its view that the Second Circuit unduly 
narrowed what the Supreme Court had set out in its Chiarella, 
Dirks, and O'Hagan decisions as the requisite relationship of 
trust and confidence. And in direct response to the Chestman 
decision, the Securities and Exchange Commission promulgated 
Rule 10(b)5-2. Professor Coffee mentioned one aspect of that 
rule: It creates a rebuttable presumption that family members--
parents, children, siblings, and spouses--owe duties of trust 
and confidence to each other. But the rule has two other 
provisions, and one references ``histories, patterns, and 
practices of exchanging confidences'' that create the requisite 
duty of trust and confidence.
    One other point: If courts routinely were applying the now-
discredited Chestman analysis to the insider trading 
prosecutions brought by the Securities and Exchange Commission 
or the Department of Justice, we would see far fewer government 
victories and far fewer settlements. There have been outsider 
cases including one involving a nonmartial relationship where 
one partner misappropriated information from the other. 
Although clearly not a spousal relationship, the result was a 
criminal sentence for the boyfriend who had misappropriated 
from his attorney girlfriend.
    Certainly the Chestman standard--a very high standard for a 
fiduciary relationship--would not have supported a criminal 
sentence in that case. According to the SEC, a relationship of 
trust and confidence is what triggers the requisite disclosure 
duty.
    I would ask you to imagine a situation where a district 
court is faced with this a case involving a Senator or 
Representative. If a district court were to conclude that a 
Member of Congress does not owe a duty of trust and confidence 
to the United States and to the American people, I would be 
mightily surprised. We could all anticipate what the headlines 
the next morning would be on that ruling. To avoid all that, a 
district judge would likely find the requisite duty of trust 
and confidence under existing law.
    Chairman Lieberman. Very interesting. Obviously this is 
important because we want to get this done, but we are not, if 
I can use a metaphor from a different area of activity, 
painting on a blank canvas. There is a lot on the canvas in 
existing law and Supreme Court rulings.
    The other conclusion I have, Senator Collins, is more 
personal. I have actually understood what the three law 
professors have said today, which says to me that I am more 
prepared to go to law school now than I was when I went. 
[Laughter.]
    Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Professor Coffee, you made a very important point that 
Members of Congress do more than just legislate. We act as 
advocates for our constituents. We endorse public funding for 
them through grants or contracts. We seek expert advice on 
public policy in order to reach the right decisions. I am 
thinking of how many of us during the financial crisis in the 
fall of 2008 reached out to financial experts for advice.
    So I think this is a more complicated issue than it first 
appears to make sure that when we do act, we are not having a 
chilling impact on the responsibilities of Members of Congress 
to their constituents.
    So with that preface in mind, let me suggest a completely 
different way of looking at this issue, and you actually 
started to touch on it in your testimony, Professor Coffee. 
Instead of trying to put into law a ban that works to prevent 
what we would all think was improper and should-be-illegal 
behavior, what if we said that Members of Congress cannot trade 
in individual stocks themselves but must either limit their 
investments to mutual funds or do as you suggest and adopt a 
mechanism approved by the SEC to allow trading pursuant to a 
written plan that gives detailed instructions to a person 
overseeing the investments, but the Member does not make the 
trades, or set up a blind trust if they have enough assets to 
have blind trusts? What if we got at it from that perspective? 
What would be your opinion of that? I am going to ask the whole 
panel this question.
    Mr. Coffee. Well, I think that kind of Rule 10b-5 plan is a 
means of protection. I think many Congressmen would find it an 
imposition if they were told that they had to use blind trusts 
or Rule 10b-5 plans, even when they had no information at all. 
They might in some cases do this as a matter of pure 
precaution, but I think they would find it an unnecessary bit 
of overbroad regulation to say you cannot trade at all because 
you are a Congressman.
    I think if you recognize that you are going to regularly 
come in contact with material information, you would be well 
advised to use a Rule 10b-5 plan, but the reason you are using 
it really is that it might be criminal if you traded in your 
own name based on your own decisions. So I think these two 
things fit together. You have the prohibition, and then you 
have safe harbors. The safe harbor would be a Rule 10b-5 plan 
or an opinion of counsel, which I think can often be obtained 
in many situations quite quickly. So I think you need both of 
them together.
    Senator Collins. Does anyone disagree with the professor or 
want to add anything to that issue? Professor Langevoort.
    Mr. Langevoort. Let me add something besides the reference 
to Rule 10b5-1. You mentioned at the outset of your question 
the possibility of moving Members of Congress away from single 
stocks to other forms of financial instruments. That is very 
difficult because we have discovered that insider trading is 
possible with respect to nearly every form of financial 
instrument, including mutual funds, of which we are aware.
    With respect to Rule 10b5-1, it is important to know that 
is simply a rule--and Congress would have to face up to this if 
it were to go that route--that says as long as you execute 
those instructions at a time when you did not possess material 
nonpublic information, then the fact that the trade was 
executed after you came into possession of such information 
does not make you liable. It simply moves the time where we are 
looking at what did the person know, when did they know it, and 
that does not make all that many hard issues go away.
    Senator Collins. Professor Nagy, I would like your comment, 
but I want to get to a different issue for you, so if you could 
answer that quickly so that I have time for a second issue for 
you.
    Ms. Nagy. I think blind trusts might well be an effective 
response to much of the difficulty here. I will leave it at 
that.
    Senator Collins. Mr. Walker.
    Mr. Walker. You are right, Senator Collins. Blind trusts 
are really a mechanism basically only for people who have 
substantial assets because there are administrative costs, and 
they are not blind as to what you put into them initially. They 
are only blind really if you put in cash or after a period of 
time if the assets have been sold down to a particular level, 
you are notified that you do not have those anymore. But they 
are really not blind as to what you put into them.
    And as to limiting investment opportunities for Members and 
staff, I would be concerned that you would be perhaps making it 
harder to attract the best and the brightest or really even the 
pretty good and the fairly smart into government service. 
[Laughter.]
    Senator Collins. Well, I will try not to be offended by 
that as a person with no assets and who could never qualify for 
a blind trust.
    Mr. Walker. I do not mean the blind trust aspect. I mean 
limiting stock trades.
    Senator Collins. No. I understand.
    Professor Nagy, you testified that you feel confident that 
congressional insider trading is already illegal under existing 
law. Even if you are correct, is there an advantage to Congress 
making it crystal clear by passing such a law? I mean, I 
realize we have to be careful how we draft it.
    Ms. Nagy. One potential disadvantage, though I concede this 
could be cured by careful drafting, is that by legislating 
directly, some courts could infer a congressional intent that 
the STOCK Act is the only insider trading law that applies to 
Members of Congress. As Professor Langevoort testified, that 
can be cured by a simple statement that the STOCK Act builds on 
top of existing law. Rule 10b-5 and the Federal mail and wire 
fraud statutes would be there then as the floor, and the STOCK 
Act would come on top. So I think that potential risk could be 
eliminated, and I would be happy to help in that effort.
    There is, though, another risk that I think we should think 
through relating to public perception. As I mentioned, the 
controversy surrounding the application of the Federal 
securities laws to Members of Congress stems from the fact that 
Congress has never enacted an express statutory prohibition of 
insider trading for anybody. And so everybody now must navigate 
through what has often been described as ``a maze'' of court 
decisions.
    The boyfriend has to decide whether he can trade on 
information or whether he would be breaching a duty of trust 
and confidence owed to his girlfriend. Sometimes that analysis 
is hopelessly confusing. If an express statutory prohibition 
applies to Congress and Federal employees, when all the dust 
settles from all of this, everyday, ordinary people might well 
begin saying, ``Why do they get an express prohibition and we 
have to suffer through the maze of what it means to defraud in 
connection with the purchase or sale of securities?'' I think 
that is a troubling risk that might not be all that apparent 
now.
    Senator Collins. A valid point, and in the next round or 
for the record, a question that I want you to be thinking of is 
whether we should have a law, if we are going to venture into 
this area, that applies explicitly to the Executive Branch 
officials as well since, frankly, I think a Treasury Secretary 
has access to far more confidential nonpublic information than 
any Member of Congress.
    Chairman Lieberman. Thanks, Senator Collins.
    In order of appearance, we will go to Senator Brown, 
Senator Begich, and then Senator Tester. Senator Brown.

               OPENING STATEMENT OF SENATOR BROWN

    Senator Brown. Thank you, Mr. Chairman.
    I appreciate all the examples about boyfriends, 
girlfriends, and relationships. We are not talking about that. 
We are talking very specifically about Members of Congress. If 
I am in a top-secret meeting and I find that we are going to 
drop a weapons system and by doing that the company stock is 
going to go down dramatically, and I walk outside and I pick up 
the phone and I say, ``Hey, sell XYZ Company's stock,'' that is 
what we are talking about. We are not talking about all the 
classroom examples that you are using. We are talking very 
specifically about real-time, real-world situations that have 
been brought to our attention.
    I went to law school, too, and it reminds me of a law 
school class. And, quite frankly, I want to start to do 
something because you indicated that the courts still have not 
decided what to do. Well, if not now, when? I mean, that is why 
we are here. That is why the Chairman and the Ranking Member 
asked for this very important hearing.
    I want to go to Ms. Sloan first since you have been kind of 
left out of all the fun. If you are looking at this type of 
situation, would you think it would be a good idea in our 
ethics disclosures to just be more specific in maybe a more 
periodic update as to the stocks we own, the stocks we trade, 
when we bought them, when we sold them, and the exact amount of 
monies we purchased and sold them for? That way, anybody who is 
in the media or the government agencies looking at it will say, 
oh, well, Senator So-and-so is on the Armed Services Committee, 
and he or she bought X amount of military arms stock when he or 
she found out that the contract was going to be terminated. 
That is, I think, certainly the initial information that would 
be used to establish that prima facie case potentially on 
saying that there is an issue we need to look into. Do you 
think that is a good suggestion?
    Ms. Sloan. I do think that disclosure is a great way to go 
because I think there would be a lot of repercussions if you 
have quick disclosure. Again, I think 90 days is far too long, 
but I think there are people who will be looking at these kinds 
of trades very frequently, especially if they are searchable on 
an electronic database.
    I do want to point out that in the example that you gave 
where you learned something in a committee and you immediately 
went out and made a call, that is exactly the kind of conduct 
that the Speech or Debate Clause would make very difficult to 
prosecute because it is something that you learned in a 
legislative committee. So no grand jury and no prosecutor would 
be able to use that information that you had obtained in a 
committee either to obtain an indictment or at trial. So it is 
a tricky situation.
    Senator Brown. That is why we are here. I mean, the bottom 
line is I think the fiduciary responsibility is to the American 
people. I mean, that is the relationship that we have.
    Professor Langevoort, the Supreme Court has articulated a 
severely restrained approach to applying the insider trading 
laws, saying it is within Congress' power, not the courts, to 
expand Rule 10b-5, as I think you have touched upon. If we 
choose to do nothing today or in the very near future, would 
Congress be sending a pretty strong message to the Supreme 
Court that we do not want to clearly articulate the rule to 
hold Members of Congress liable for trading on this material 
nonpublic information?
    Mr. Langevoort. You are absolutely right, Senator. The 
Supreme Court in a number of cases, admitted largely involving 
private securities litigation, has said repeatedly it is 
Congress' job to push on the statute, to expand it--not the 
Court's job--in the absence of clarity. That is the language 
that worries me the most in terms of a court coming out the 
other way.
    I think you can accomplish a lot by that explicit 
statement.
    Senator Brown. Thank you.
    Ms. Sloan, back to you. As you are aware, no Members of 
Congress have been successfully prosecuted for insider trading. 
Would strengthening the Senate ethics rules be a sufficient 
deterrent? And would this reform help rebuild the confidence 
that Members are, in fact, held to the same standard and face 
the same consequences as everyone else?
    Ms. Sloan. No. I think people have very little confidence 
in the Ethics Committees in the House and Senate. They have 
done a pretty lousy job over the past years. They very rarely 
hold Members' feet to the fire except in particularly egregious 
cases that have received a lot of press attention. CREW has 
filed many complaints for which we have not even received 
responses 3 years later. So that is not a solution. I think you 
need a dual solution: Going to the Ethics Committee if the 
Speech or Debate Clause is going to kill your prosecution, but 
also having a very clear prohibition and ability of prosecutors 
to go after you.
    Senator Brown. Professor Coffee, in its written testimony, 
the SEC indicates that it has all the tools it needs, but yet 
we have never seen any prosecution, as we referenced, of any 
Members of Congress or staff for insider trading. And given 
that the SEC recently lost a string of insider trading cases, 
as you state in your written testimony, why would the SEC not 
want a legal standard that creates without a doubt a crystal 
clear framework for the SEC to prosecute Members and staff who 
trade on material nonpublic information?
    Mr. Coffee. They should want that, and I think both 
Professor Langevoort and I are clearly saying, we agree with 
you, that Congress should legislate. We are just talking about 
little tweaks in what the language should be.
    Senator Brown. Mr. Walker, if the existing Senate ethics 
rules provide a framework, as I think maybe you have indicated, 
for prosecuting Members who trade on material nonpublic 
information, why have we not seen any prosecutions then?
    Mr. Walker. Well, first of all, I do want to say that there 
is the Ziobrowski study that suggests that this practice of 
insider trading is somehow endemic in Congress. There is the 
Eggers and Hainmueller study that I think says otherwise and 
says that, in fact, Members' portfolios perform below the 
market, and particularly when you look at the average Member's 
portfolio, they do not exceed the market, and they do not meet 
market performance. And so I think the question of why have 
there not been prosecutions is based on the premise that 
somehow this is happening everywhere.
    Another aspect of the answer is that the Ethics Committees 
do not have an audit function. They do not go from office to 
office to investigate what people are doing that has not 
otherwise been reported either to them either through a 
complaint or through the media. And so it is not a matter of 
complaints and allegations coming before the committees that 
they are not paying attention to. It just is not that.
    Senator Brown. Thank you. I have one more question for 
Professor Langevoort and Professor Coffee. Some scholars have 
suggested that clearly defining a duty for Members of Congress 
would be an easy solution that could be done through a Senate 
resolution. Do you agree with that?
    Mr. Coffee. I think that passing a statute along the lines 
you have suggested, with possible tweaks in the language, would 
be an effective solution.
    Senator Brown. A Senate resolution?
    Mr. Coffee. Oh, no. I meant legislation. I misunderstood 
you.
    Senator Brown. No. Just a Senate resolution.
    Mr. Coffee. That is like a motherhood salute. I do not 
think it accomplishes that much.
    Senator Brown. I agree. Thank you.
    Mr. Langevoort. It takes you one step forward, but only one 
small step.
    Senator Brown. Well, listen, I appreciate all of your 
testimony.
    Mr. Chairman, I appreciate you and Senator Collins for 
bringing this forward, and I and my staff will make ourselves 
available to meet that deadline of December 14.
    Chairman Lieberman. Thanks, Senator Brown. Thanks very much 
for your work, and we look forward to working with you to move 
this quickly.
    Senator Begich.

              OPENING STATEMENT OF SENATOR BEGICH

    Senator Begich. Thank you very much, Mr. Chairman and 
Senator Collins, for having this hearing.
    I remember when I was on the Anchorage Assembly, we had to 
write the ethics code, and at the end of the day, I really came 
to the conclusion that you are ethical or you are not. You can 
provide all the rules you want, but if you are going to cheat, 
you are going to cheat. And so keeping that in mind, one of the 
views that I have is disclosure, disclosure, disclosure.
    For example, you can go on my Web site and find every 
single disclosure form I have ever filled out since 1988 in any 
office, any public facility that I have participated in.
    Mr. Coffee, I know it is hard for us to do simple things 
around here, but actually sometimes simpler is better. And I 
like your approach, and so I am going to ask some questions and 
get some comments from people. In the Senate, if I ask a 
constituent of mine in Alaska to get a copy of my disclosure 
form, thank God I have it online because they would have to 
come to Washington, DC, or have someone here come down to the 
clerk's office and get a copy of it, copy it, and then get it 
to them in Alaska.
    Neither one of these bills requires an electronic 
searchable database. I agree with you that you can file these 
things very quickly, and I have done trades, that is all public 
disclosure, and that is why I disclose it. So I want your 
comment on either both of these bills or any legislation. 
Should it be required that any trade, any action be 
electronically available to anyone at any time via the Internet 
and searchable? I will just go down the list here. Then I have 
a different question for you, Mr. Coffee and Mr. Walker.
    Mr. Walker. Well, in this day and age, other than perhaps a 
shortage of resources in the Office of Public Records that 
would be needed to manage it, it is not clear to me why there 
would not be and should not be online availability.
    Senator Begich. It actually costs us more to do what is 
going on now by hand processing when people send in their 
forms. Some of these people around here who are very wealthy--I 
am not one of them--have big, thick disclosure forms.
    Mr. Walker. The fact of the matter is that there are 
nonprofit and outside groups that have put them online already, 
so the question is: Why should the Senate not put them online?
    Senator Begich. Correct. So you are a yes?
    Mr. Walker. Yes.
    Mr. Coffee. I am definitely a yes, and what you have just 
proposed is on page 14 of my testimony.
    Senator Begich. That is right.
    Mr. Coffee. That it should go on a Web site so a journalist 
could immediately find this----
    Senator Begich. Or a constituent.
    Mr. Coffee. Constituents, too, but journalists would be----
    Senator Begich. Because they are the best enforcers.
    Mr. Coffee. Well, I think journalists are effective, too.
    Senator Begich. I have seen a lot of people lose offices 
because of ethical issues, but you are right, journalists add 
to it.
    Mr. Langevoort. Agreed, and if you are a high-ranking 
executive of a public corporation, today you have 48 hours 
electronically to file your trades.
    Senator Begich. That is right, which we require them to do.
    Mr. Langevoort. Exactly. That is right. And that 
immediately becomes accessible.
    Senator Begich. You are making my point.
    Ms. Nagy. I am a yes as well.
    Ms. Sloan. Yes, I agree.
    Senator Begich. That was a soft ball question, but the 
reason I asked this is because we--when I say ``we,'' I mean 
collectively here--are so resistant to this for some reason. So 
I am looking to the two Members here who are going to do the 
markup with the other Members sitting here, this is going to be 
an insistent theme on my part, and I will actually ask for an 
expansion not only of these forms but our disclosure forms 
because they have the annual reports of stock trades. And if 
someone wanted to search through that now, you cannot. It is 
the most ridiculous system I have ever seen.
    So, Mr. Chairman and Senator Collins, I am just putting 
that on the record here that if we do not do that, we will pass 
another law that will go off somewhere, and we will fill out 
forms that will be handwritten and sent in, and then the good-
government groups, a constituent who is mad at you, and your 
opposition will be the searchable database people. So I 
appreciate that.
    Second, to Mr. Coffee, I like your idea about a one-liner, 
so I am going to turn to the rest of the four to ask them to 
comment on your idea. I am not an attorney. I did not go to law 
school. So no disrespect to all the folks here, but simple is 
better. The more detail, the more out clauses people have, in 
my view. I will not say what my brother says about the bigger 
the bill, the more times you will get--I will fill in the blank 
later. That is a little concern.
    So let me ask what people think of Mr. Coffee's idea.
    Mr. Walker. Well, if the idea you are talking about is a 
one-liner that says Members of Congress are fiduciaries with 
respect to information they learn in committees----
    Mr. Coffee. Not committees. Anyplace.
    Senator Begich. Anyplace.
    Mr. Walker. Anyplace. I think you need to be careful, and 
you need to think about the potential consequences to what you 
do as Senators beyond financial transactions.
    For example, the Privacy Act does not apply to the 
Congress, and you are, therefore, able to do certain things 
with information that you receive from constituents and others 
that may not be consonant with the Privacy Act at any rate. So 
you have more freedom to use information than the Executive 
Branch. If you create a blanket fiduciary obligation with 
respect to congressional information, I think you do want to be 
concerned about how it could affect your representative 
functions and your oversight function and your function of 
communicating with others beyond the financial transaction 
area.
    Senator Begich. Fair enough.
    Mr. Langevoort. I have not seen Professor Coffee's precise 
language. I think I could do it in two sentences. But apropos 
of what was just said, I think it has to relate specifically to 
what insider trading is, which is profiting from----
    Senator Begich. Information.
    Mr. Langevoort [continuing]. The existence of that 
information, without talking about all the other fiduciary 
possibilities that could be associated with that information.
    Senator Begich. That is good. I see Mr. Walker kind of 
nodding but not yet acknowledged, but good.
    Ms. Nagy. I would support one sentence. [Laughter.]
    Senator Begich. It is amazing how lawyers get down to one 
and two sentences. I am very excited right now.
    Ms. Nagy. I wholeheartedly agree that simple is better, and 
I would encourage avoiding the ``fiduciary'' concept altogether 
such that the sentence would be: ``For purposes of Rule 10b-5's 
misappropriation theory, a duty of trust and confidence exists 
whenever a person is a Member of Congress or a congressional 
employee and has learned that information through government 
service.''
    Congress could possibly authorize the Securities and 
Exchange Commission to add that subsection to existing Rule 
10b5-2.
    Senator Begich. To existing rules, that is right.
    Ms. Nagy. Rule 10b5-2 now sets out three nonexclusive 
situations in which a trader is presumed to be in a 
relationship of trust and confidence with the source of the 
information. There is the family member prong; the ``history, 
pattern, or practice'' prong; and the ``has promised to 
maintain information in confidence'' prong. If Congress were to 
authorize the Securities and Exchange Commission to add a 
fourth sub-section, that would appropriately clarify existing 
law. But going back to my point to Senator Collins, it would 
also apply the same law to everybody else. I think that is a 
very important principle that should come out of any 
legislative action Congress takes in this matter.
    Ms. Sloan. I have to defer to the law professors on the 
material about insider trading, but I would caution you that 
would not really solve your problem of the Speech or Debate 
Clause, which would not allow prosecution in an awful lot of 
these cases, so I still would go back to--as much as I do not 
love the Ethics Committees, sometimes they are really the only 
option left.
    Senator Begich. Very good. Thank you, Mr. Chairman and 
Senator Collins, for having this hearing. I am a big supporter 
of the concepts of this legislation. Again, disclosure to me is 
really critical, but also ease of use and accessibility are how 
we create more enforcement because the public and media become 
the enforcers in a lot of ways, so thank you very much.
    Chairman Lieberman. Thank you, Senator Begich. Senator 
Tester.

              OPENING STATEMENT OF SENATOR TESTER

    Senator Tester. Yes, thank you, Mr. Chairman. I assume, 
Senator Begich, you are on my bill to make sure that campaign 
disclosures are filed electronically?
    Senator Begich. I believe I am, and if I am not, I will be, 
I will tell you that.
    Senator Tester. That sounds good.
    Senator Begich. I like it.
    Senator Tester. That is good.
    I, first of all, want to welcome all the panel members. I 
appreciate your perceptions and your comments. I can tell you 
that I am not as good as the Chairman. I did not understand 
everything you said. But that is OK.
    Chairman Lieberman. I was not under oath. [Laughter.]
    Senator Tester. That is good. And it is ironic because 
about 3 or 4 hours ago, Mr. Coffee was in front of the Banking 
Committee, and if it was not you, it was your brother because 
you look a lot alike. And so this is a day of your testimony, 
and we appreciate all your testimony today.
    You know, what I did hear, as people talked about the STOCK 
Act, is that we need to be careful because there are 
potentially some unintended consequences whatever we do. And 
those unintended consequences may be something that really 
limit our ability to legislate and create policy and do the 
things that we need to do as Senators or House Members.
    So I want to approach it from a way similar to what was 
talked about earlier here today, and that is, from a 
transparency standpoint, if we did things like make financial 
disclosures transparent, if we did things like make our 
schedules transparent and online in searchable databases--all 
this stuff has to be done that way--if we required ethics 
audits of Senate and House offices. And then I got to thinking 
maybe there are some unintended consequences there.
    Can you think of anything that we do that should not be 
transparent? I believe in transparency. I believe in sunlight. 
I think that we should do the maximum to let everybody know 
what we are doing, which cleanses all the problems. I believe 
the forefathers were right when they said we need to have a 
citizen legislature.
    Is there any area that you can think of where transparency 
might be inappropriate? We will start with you, Ms. Sloan.
    Ms. Sloan. No, I cannot see anywhere where transparency 
would be inappropriate. I think more transparency is required, 
and I also think the Ethics Committee needs to have the ability 
to audit Members routinely. They get all these financial 
disclosure forms, but all they do is make sure that they are 
filled out. There is no auditing to compare them with perhaps a 
tax return to see if they are, in fact, jibing together. And if 
we saw more of that, I think we might find some problems.
    I know that there was a situation in the House Ethics 
Committee, for example, where a Member had filled out a 
financial disclosure form in one way and a tax return indicated 
a far different scenario, and that Member resigned rather than 
face the consequences of that situation.
    Senator Tester. Ms. Nagy.
    Ms. Nagy. I cannot think of a downside to transparency that 
would be specific enough to articulate at this time, so I would 
say I am in favor of transparency.
    Senator Tester. Mr. Langevoort.
    Mr. Langevoort. I agree also. If somebody is bent on acting 
unethically, they are going to violate the disclosure rules as 
well as the substantive rules.
    Senator Tester. Fair point.
    Mr. Langevoort. Insider trading often takes the form not of 
transacting securities in your own account because it really is 
so transparent already, but establishing a friendship in a 
foreign country with a foreign bank account, laundering money, 
laundering ideas----
    Senator Tester. But if that was ever found out about one of 
us, we would be noodled.
    Mr. Langevoort. I have seen clever enough insider trading 
schemes that very successfully avoid detection for a long 
period of time. All I am saying--I am trying to be responsive 
to your question--is if you try to expand transparency not 
simply to trades but to the communication of information to 
others, which is the route by which profit often comes, you 
will run into difficulties with respect to the work you do on 
the Hill.
    Senator Tester. Fair point. Thanks.
    Mr. Coffee. I think that some law professors smarter than 
me probably can think of some problem with transparency. The 
way to deal with that is to give the SEC exemptive authority. 
You could say, ``We have this obligation, and if we find out 
there are problems, the SEC is given exemptive rulemaking 
authority to carve out safe harbors and exemptions.''
    Senator Tester. Super. Mr. Walker.
    Mr. Walker. Well, I want to put it on record that I am not 
smarter than Professor Coffee, but I do see some concerns with 
across-the-board transparency in everything that the Senate and 
Congress does, if that is what you are asking.
    Senator Tester. That is what I am asking.
    Mr. Walker. I mean, certainly there would be many executive 
closed sessions that could not be transparent. There would be 
many deliberations of Committee Members behind the scenes that 
probably ought not to be transparent.
    I think there is even less room today for negotiation and 
for tradeoffs between Members of different parties than there 
has been in the past, and there would be perhaps even less room 
if everything were transparent and if everything were 
televised.
    As far as an audit function for the Ethics Committee, I 
think it is a good idea in principle, but obviously it would 
require a vast increase in resources for the Ethics Committee, 
and whether or not in these days of tight budgets that would be 
possible is a real question.
    And, also, I would be concerned if all congressional 
communications with whomever were to be transparent, I do think 
there would be some serious chilling effects.
    Senator Tester. Fair point by all.
    I do not think either one of these bills deals with 
personal real estate, which you brought up, Ms. Sloan, where a 
person would increase the value of their own personal real 
estate by advocating for policies that would help them in that, 
regardless of what that would be.
    It seems to me that is much easier to track down than 
insider trading. Is that a fair statement? I do not deal with 
insider trading so I have very little knowledge of it. I wish I 
had enough money to even buy stock, but I do not, but go ahead.
    Ms. Nagy. Senator, one possible variation on that example 
would be insider trading in real estate: Taking material 
nonpublic information and using it in a real property purchase 
as opposed to a securities purchase.
    Senator Tester. Or purchasing property and enhancing it 
with policies that you pass, whether it is----
    Ms. Nagy. That is different--although that would be a 
conflict of interest problem. But it is not the same problem as 
using material nonpublic information that one learns in 
government service to actually purchase physical real estate. 
The use of information for a real estate purchase could be 
prosecuted under the Federal mail and wire fraud statutes much 
like insider trading in securities. There is precedent where a 
government official, actually a Chicago politician, used 
material nonpublic information that he came upon in connection 
with his alderman service, and he was prosecuted under the 
Federal mail and wire fraud statutes by the Department of 
Justice.
    Senator Tester. And he used that information to buy land?
    Ms. Nagy. To buy, I believe, an interest in an apartment 
building that was going to receive a tax abatement.
    Senator Tester. What about if you owned land and you 
advocated for an appropriation to build a highway over it or 
something along those lines that would add value to that 
property?
    Ms. Nagy. Well, and one could imagine a similar situation 
on the securities side where one takes a favorable legislative 
action to a company whose stock you own. And so, again, that 
could be a conflict of interest problem.
    Senator Tester. But this bill would not cover that.
    Ms. Nagy. Not that I see.
    Senator Tester. Very good. Thank you, Mr. Chairman.
    Chairman Lieberman. Do you have more questions?
    Senator Tester. Well, I have some more questions, but I 
think I hammered out what I needed to hammer out.
    I appreciate the panelists' perspectives and 
thoughtfulness, and as we look forward--if I might just say 
something, Mr. Chairman.
    Chairman Lieberman. Please.
    Senator Tester. I think that it is very difficult to take a 
look at ourselves and say, ``You know what? People think we are 
crooked,'' when you do not think you are doing anything wrong 
and there is no intent, whether that is dealing with a policy 
with the farm program and talking to one of your neighbors 
about what you are working on, which may actually impact the 
price of wheat or futures, or something like that.
    On the other side of the coin, I think that it is 
critically important that we operate in a way that is totally 
clean--and if there is any way we can do that, we should make 
those policies, quite honestly, mandatory. And transparency is 
important, and I get your point, Mr. Walker. I do get your 
point. But as far as the forms we fill out, they ought to all 
be online, they ought to be in searchable databases. Our 
schedules ought to be online. We should be letting people know 
everything that they should reasonably know online in a way 
that they can access, not just online but all searchable.
    So I think that we need to be aware of this. What do we 
have--an 8- or 9-percent rating? That is probably due to much 
more than this, but I do not think this helps a lick. And, by 
the way, if somebody in the Senate or somebody in the House 
does something crooked, it reflects on everybody, whether they 
are honest or not. And that is just the way it is.
    So I think we need to address it, but we need to address it 
in a common-sense way that really gets to the problem and does 
not create more problems than it fixes.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you very much, Senator Tester.
    Senator McCaskill, welcome.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you. I apologize. I have been 
presiding over the Senate, so I have not been able to be here.
    I think it is pretty important that we clarify that this 
law applies to Congress. I know that there is one of those good 
old-fashioned legal arguments that is great for hypotheticals 
in a law school classroom, but for purposes of clarifying to 
the public, regardless of what the SEC says, I think it would 
be very helpful for us to pass this legislation to make it 
crystal clear that the rules that apply in companies and to 
CEOs apply just as much to Members of Congress in terms of 
their ability to have and use information not available to the 
public. And you all may have covered this, and if you have, do 
not answer the question because I can move on to another one.
    Have you all characterized why you think it might be a 
challenge to prosecute these cases in Congress? Has that been 
covered?
    Ms. Sloan. Senator, I think I talked a fair amount about 
the problems with the Speech or Debate Clause that will lead to 
some prosecutions being difficult, which is why I think in 
addition to Federal law you also need to make it clear that the 
Ethics Committee has enforcement over that, too.
    Mr. Walker. And I think we addressed certain other 
practical problems as well in enforcement in the congressional 
context.
    Senator McCaskill. Well, as a former prosecutor, it seems 
to me that one of the things that makes it easier to prosecute 
these cases in Congress is that it is much clearer what is a 
public record and what is not. I think it is more murky in 
private companies what is in the public domain and what is not. 
Here we have hearings and the record is available to the 
public. We pass laws and the dates they are passed are 
available to the public, and then it is publicly available. 
There is a great deal of information that prosecutors could 
easily see whether or not this is something that someone who 
looked into it could find with some great deal of ease, or 
whether it would be more difficult.
    Would anybody disagree that these cases might be easier to 
prosecute because it is very hard to have inside information in 
Congress. I mean, this place is pretty open in terms of what 
gets out to the public. But even in a formal context, a great 
deal of our work is publicly done.
    Mr. Walker. I would not disagree, Senator McCaskill, but I 
do think because so much is open in Congress that the issue of 
something being material nonpublic information would be an 
obstacle to overcome. And if that were alleged in any given 
case, I think you would find some pretty rigorous defenses and 
attempts to proof and probably successful proof that ultimately 
the information in question was public.
    Senator McCaskill. Right. I have five things that I have 
been told we need to do better in the legislation, and probably 
some of them have been mentioned, but I want to determine if 
there are disagreements on any of them. First, we need to 
expand the covered information because we need to also talk 
about regulatory action, grants----
    Mr. Coffee. Contracts.
    Senator McCaskill. Earmarks, contracts obviously. Second, 
shorten the time frame of disclosure, clearly that is 
important. I think 90 days is obviously way too long, and we do 
have a measure of transparency now that allowed some of the 
things to be written even though a lot of the things that were 
written were inaccurate. Certainly the fact that purchases were 
made and so forth was available to the public because of the 
rules we currently have. Third, expand the types of securities 
that are covered; fourth, explicitly state that the Members owe 
a duty; and finally, specifically lay out in the legislation 
that Members cannot give insider tips.
    Well, those are the five things that I think we need to put 
in the legislation, and I think we have a significant amount of 
problems out there with the public right now. I think, Mr. 
Chairman, the more quickly we can pass this legislation and 
demonstrate to the public that none of us has gone into this 
line of work because he thought he was going to receive a great 
deal of money for it. I am not arguing that there may have been 
some people who have used their positions inappropriately. 
Certainly there have been people who have gone to jail in 
Congress, but I think all of us want to make sure that the 
public knows that we are not using this position in any way to 
gain personally from it. And the more we can do to reassure 
them in that regard, the better. And I think we need to write 
this legislation in a way that does that.
    The last thing I would ask is about earmarks. Earmarks are 
a tricky area. We have a current moratorium on earmarks, and I 
am cosponsoring legislation for a permanent moratorium on 
earmarks. But I think that knowing that a Member would have the 
ability singlehandedly to put public money in a project 
certainly could lead to the kind of information that would 
allow someone to benefit from that knowledge since in a pure 
earmark, there is nobody that has any say as to whether it is 
good, bad, or indifferent, other than that individual member.
    Have any of you discussed how earmarks might also lend 
themselves to this kind of activity that the public would 
obviously disapprove of?
    Mr. Coffee. I do not think we have discussed it, but I 
think, as I understand what you are saying, it would be a kind 
of material nonpublic information. If you know that you are 
going to earmark resources for a particular project and it is 
going to benefit particular companies and you buy that stock, 
that falls easily within the category of misusing material 
nonpublic information.
    Senator McCaskill. There have been thousands of earmarks 
done for research and development into certain types of 
technology, and a great deal of that technology has worked 
itself into the marketplace. So I think that is one area that 
we need to make sure that we cover because that is the essence 
of insider information, since somebody singlehandedly can 
provide the resources to a company to make that research and 
development a reality.
    Ms. Nagy. I would certainly agree with respect to earmarks. 
As you listed the five fixes, I would encourage you to think of 
a sixth or add a sixth to the list: A clear statement that the 
legislation builds on the floor of existing law, so that it 
would not be read to displace Rule 10b-5 of the Federal 
securities laws and the mail and wire fraud statutes in 
connection with securities trading by government employees, 
congressional officials, and Members of Congress.
    Senator McCaskill. Because at the root of all this, these 
are good old-fashioned fraud cases, right?
    Ms. Nagy. Exactly.
    Senator McCaskill. Right. I think that would be important 
because we do not want to start a whole new book of precedent. 
Not that we do not want all the lawyers to stay busy, but----
    Mr. Coffee. In that light, it is rather important that you 
not try to redefine established terms like ``material'' or 
``nonpublic.''
    Senator McCaskill. Right.
    Mr. Coffee. They are redefined in this legislation, and 
that would raise questions about whether for Congress it is a 
different kind of information than it is in ordinary cases. So 
if you say you are adopting the existing case law with respect 
to all of the terms that go into the prosecution and you have 
done that before, I think that gives greater certainty to the 
courts.
    Senator McCaskill. I think that is a great idea, and I will 
share that with the other cosponsors of the legislation because 
I think there are three or four of us who are working on this, 
and we will look for your input as we get it drafted and try to 
improve it and make it as strong as possible. We appreciate all 
of you being here today and helping us with this. We want to do 
this right.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator McCaskill. I 
mentioned before you could be here that ideally we will get 
something drafted for which we can get a majority of the 
Committee before we depart in December.
    I have a couple more questions. I think we have gone over 
pretty well, and very helpfully to the Committee, what we 
should do in response to this problem in making clear in law 
unambiguously, if I may say so, that Members of Congress and 
our staffs are covered by insider trading laws.
    There are two other responses that are possible here. One 
deals with Senate ethics. I want to come back to that in a 
minute. But first I want to talk about disclosure, which you 
have also talked about, and this is more in the way of 
prevention, or of course, it may accelerate discovery of a 
problem.
    So I wanted to start with you, Ms. Sloan. Ideally, how 
would you alter the requirements in the Ethics in Government 
Act for disclosure? Senator Begich focused on electronic 
filing, and I think that is a very good idea. You talked a 
little bit about requiring that we file more than once a year, 
presumably after transactions, so I wanted to invite you to 
spend a little more time on how you would ideally have us 
change the Ethics in Government Act with regard to filing.
    Ms. Sloan. Well, the personal financial disclosure forms 
have very broad ranges of assets.
    Chairman Lieberman. Right.
    Ms. Sloan. And I think that they could be narrowed 
substantially. You would not actually have to, if you did not 
want to, change the Ethics in Government Act, which would, 
therefore, change the form for everybody. You could do that by 
House and Senate rules, if you chose to, so you would not have 
to go through that.
    Chairman Lieberman. Right.
    Ms. Sloan. But the ranges are so wide that it is often 
impossible to tell what a person's assets really are and how 
much income they have had from those assets. In addition to 
that, I understand that they are burdensome, but they are filed 
once a year, and they are filed even then 6 months after the 
previous year ended. So they are pretty far down the line.
    Those forms, too, are not in a form that are searchable. I 
spoke with a reporter, for example, who wanted to see if 
Members had any specific asset, and you cannot search them for 
that kind of thing. And in this day and age, with the 
technology that is available, there is really no reason that 
these forms are not put on the Web quickly and in searchable 
form so that the information is easily accessible, so that if 
there is wrongdoing, it can be ferreted out quickly, and often 
just the court of public opinion will be helpful here.
    Chairman Lieberman. I agree. So one alternative here, I 
presume--and let me ask you to respond to it--is that in 
addition to having us file the whole form more than once a 
year, there could be some requirement to file amendments after 
stock trades of a certain amount. Is that a possibility?
    Ms. Sloan. I think you should probably have something 
separate for stocks so that you do that form once a year, but 
file something about the stocks. And I would say rather than 
this 90-day period that is included right now, I would get it 
down to something like 10 days because, again, I do not think 
it needs to be so burdensome. Since this information comes in 
an electronic form as it is, there could easily be set up a 
database so that somebody only had to hit a button to transfer 
it into this bigger database that the Senate, for example, 
could maintain of all such information. So it does not really 
need to be burdensome once it is set up. And then also, as I 
said, I would make clear that lying on those kinds of forms or 
willfully failing to disclose that information would be a false 
statement, and those kinds of false statements are, by the way, 
much more easily prosecuted than anything else we have been 
talking about.
    Chairman Lieberman. Before I move on to the ethics rules of 
the Senate, which would have to be changed by the Senate in 
this regard, do any of you have any other ideas on the panel 
about how we might alter the existing Senate and House 
disclosure rules to prevent insider trading or at least to make 
it more discoverable more quickly if it occurs?
    Mr. Walker. Well, I do agree that the provisions in the 
STOCK Act that would call for public disclosure of stock 
transactions within a specific period of time would go a long 
way to deterring insider trading where it may be occurring. I 
am not sure I agree with the 10-day period for doing that, 
simply for the reason Ms. Sloan mentioned. Failure to provide 
full information could be prosecuted under the False Statements 
Act. I think 10 days is a very short window. Maybe 90 days is 
too long, but I do think that kind of more frequent periodic 
disclosure does make sense.
    Chairman Lieberman. Let us just spend a moment--and it will 
be my last series of questions--about our ethics rules of the 
Senate and your concern, Ms. Sloan, about the impact of the 
Speech or Debate Clause of the Constitution on prosecution of 
Members of Congress for using insider information. How would 
you change our rules to deal with this problem?
    Mr. Sloan. The Speech or Debate Clause only applies if a 
Member is being prosecuted, so it does not have any 
implications at all for the Ethics Committee, which is why that 
works better in some ways.
    Chairman Lieberman. Right, for the Ethics Committee and for 
Congress itself, pursuant to the Constitution, in fact.
    Ms. Sloan. Right, so while a prosecutor would not easily be 
able to obtain and sift through, for example, committee files 
to see if somebody really had inside information, the Ethics 
Committee absolutely could review that material.
    Chairman Lieberman. Right.
    Ms. Sloan. And so that is why it would be so significant to 
make sure that the Ethics Committee does have jurisdiction. But 
I think that the ethics rules are not clear enough, and the 
House Ethics Committee just 2 days ago issued guidance, but 
again, I think it is imperative to make it crystal clear and 
lay it out.
    And the other problem that we have seen is that the Ethics 
Committees are very soft, frankly, on Members of Congress. If 
somebody is only going to get a mild reprimand or a letter of 
admonition for having done something like this, really that 
does not hurt very much, and there is not a lot of 
disincentive. But if you included something specific, which you 
could, like some kind of financial penalty, such that money 
would have to be turned over to the Treasury in some 
significant amount--like three times the amount of the profit 
or loss--that, too, would be a disincentive.
    Chairman Lieberman. So what you would do here is make clear 
in our rules that insider trading is a violation of the rules? 
Is it as simple as that?
    Ms. Sloan. Yes, and that there are certain penalties that 
will attach.
    Chairman Lieberman. Yes, understood.
    Ms. Sloan. Right.
    Chairman Lieberman. Mr. Walker, based on your experience, 
what do you think of this idea?
    Mr. Walker. Well, as I said in my statement, I do think 
there are rules that address this. I think a big problem here 
in the Senate and in the House with respect to use of paragraph 
8 of the Code of Ethics of Government Service is that there 
just is not across the board from committee to committee and 
office to office specific obligations and rules and policies 
regarding what information is confidential. And I think getting 
at it at that level is important. I think there are rules in 
place. I think if there was a rule crafted that mentioned 
insider trading specifically as part of Rule 37 on conflicts of 
interest, that would not be harmful, provided it was crafted in 
a way, as you are very carefully considering, that would not 
have other chilling effects.
    Let me just say that as to the notion of the Ethics 
Committees' actions perhaps not having sufficient force, I 
would perhaps want to ask certain Members whose careers were 
ended by receiving letters of admonition whether they think 
that is a soft action. The Ethics Committees do pursue 
allegations that come before them. They are not criminal 
enforcement agencies, but I do think if you chose to strengthen 
the rules regarding insider trading within Congress, that would 
be a reasonable approach.
    Chairman Lieberman. Good. A final question, bringing two 
parts of this together, if I may. Ms. Sloan just mentioned this 
fact. Two days ago, as you may know, the House Ethics Committee 
released a memo to all House Members and staff, stating in 
part, and I will quote here: ``House rules prohibit Members and 
employees from entering into personal financial transactions to 
take advantage of any confidential information obtained through 
performing their official government duties.''
    I wonder to what extent, if any extent, that kind of 
statement by the House Ethics Committee establishes the 
necessary fiduciary duty that we have talked about as a 
condition of a successful insider trading case against a Member 
of Congress.
    Mr. Coffee. I think you are going to get different 
responses from the three of us here because a fiduciary duty is 
a kind of property right. It is a relationship between the 
director and the company or the employee, master, principal, 
etc. An ethical duty is far more general reaching, ineffable. 
Look at it this way: The Boy Scout oath is an ethical duty. I 
do not think it gives rise to the kind of relationship that can 
support a criminal prosecution. There will be different views.
    Mr. Langevoort. I share much of that view. I think to a 
judge predisposed to find a fiduciary duty on Capitol Hill, 
that simply adds to the case.
    Chairman Lieberman. Yes.
    Mr. Langevoort. To a judge not inclined, there are all the 
ways in the world to avoid it.
    Chairman Lieberman. Not enough, so that disinclined judge 
would want to see the concept of fiduciary duty spelled out in 
law.
    Mr. Langevoort. A clear statement, yes.
    Chairman Lieberman. Yes. Professor Nagy.
    Ms. Nagy. Again, I would encourage the use of the term 
``trust and confidence'' rather than ``fiduciary duty'' because 
the Supreme Court has made clear that one does not have to 
stand in an explicit fiduciary relationship in order to fall 
under the classical or misappropriation theory.
    I think that Professor Langevoort's response is correct. A 
statement would put one more brick on the scale in terms of 
whether there is indicia of a duty of trust and confidence.
    I should say, though, that many Securities and Exchange 
Commission and Justice Department prosecutions are based on 
such indicia. Everyday, ordinary individuals are prosecuted, 
even though they are not in explicit fiduciary relationships. 
The SEC's complaint or the Justice Department's indictment 
typically includes ethical language from codes, much like the 
Boy Scout code. And that code is put in as a paragraph in the 
indictment or in the complaint.
    An official statement could be another paragraph in a 
complaint, if it came to that.
    Chairman Lieberman. Right. Thank you. You have been very 
helpful.
    Senator McCaskill, do you have other questions?
    Senator McCaskill. I just have one question. How do we 
address in terms of disclosure purchases and sales within a 
managed fund? In other words, if a Member of Congress has a 
fund that he buys--whether it is an index fund or whether it is 
some other kind of fund--would we be creating a new duty for 
the manager of that fund to have to let this particular Member 
know when he is buying and selling stocks within the fund? Or 
would there only be a duty in your mind to report the purchase 
and sale of the overall fund? Do you understand the question I 
am asking?
    Mr. Coffee. The fund manager has the discretion----
    Senator McCaskill. Correct.
    Mr. Coffee. It is not a decision made by the Member who 
owns shares.
    Senator McCaskill. Correct.
    Mr. Coffee. I assume the Member has no control or no 
ability to influence the decision of the fund manager. It would 
be different if he tipped the fund manager.
    Senator McCaskill. Right. So, obviously, there could be no 
information going from the Member of Congress to the manager, 
but whatever decisions the manager had the legal authority to 
make internally that the Member had no control over would not 
have to be reportable every 10 days or every 90 days. I was 
just curious about that.
    Thank you.
    Chairman Lieberman. Thanks, Senator McCaskill. Thanks very 
much to the five of you. You have been an extraordinarily 
helpful panel. In some sense, this is like we have been sitting 
around the table and saying we have a problem, which I think 
all of us acknowledge, and now how can we best solve this 
problem legislatively? And I think you have helped the 
Committee very substantially in doing that, and you have also 
made the mistake of offering to continue to be available to 
review the work that we do, so we will take advantage of that.
    I said earlier that I hoped we could do something on this 
before we leave. December 14 is 2 weeks from today. But we can 
do that, and I think we have to find a balance here to make 
sure--because this is important and complicated--that we do as 
much as we are confident that we have got right on December 14, 
and if we hold parts of this over until January when we come 
back, that is not terrible either.
    We will leave the record of this hearing open for 10 days 
for any additional questions and statements. I thank the 
witnesses again very much, and with that the hearing is 
adjourned.
    [Whereupon, at 4:36 p.m., the Committee was adjourned.]
                            A P P E N D I X

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