[Senate Report 112-244]
[From the U.S. Government Publishing Office]


112th Congress  }                                            {   Report
  2d Session    }            SENATE                          {  112-244
_______________________________________________________________________

 
                               STOCK ACT 

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON HOMELAND SECURITY AND

                          GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                S. 2038

 TO PROHIBIT MEMBERS OF CONGRESS AND EMPLOYEES OF CONGRESS FROM USING 
    NONPUBLIC INFORMATION DERIVED FROM THEIR OFFICIAL POSITIONS FOR 
                PERSONAL BENEFIT, AND FOR OTHER PURPOSES

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                December 3, 2012.--Ordered to be printed

                               -----
                     U.S. GOVERNMENT PRINTING OFFICE 

29-010 PDF                       WASHINGTON : 2012 

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Washington, DC 20402-0001 




        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
       Beth M. Grossman, Deputy Staff Director and Chief Counsel
   Lawrence B. Novey, Associate Staff Director and Chief Counsel for 
                          Governmental Affairs
                       Troy Cribb, Senior Counsel
                        Jonathan Kraden, Counsel
               Nicholas A. Rossi, Minority Staff Director
                Mark B. LeDuc, Minority General Counsel
                  Lorinda B. Harris, Minority Counsel
            John A. Kane, Minority Professional Staff Member
                  Trina Driessnack Tyrer, Chief Clerk




112th Congress  }                                             {  Report
  2d Session    }             SENATE                          { 112-244
=======================================================================


                               STOCK ACT

                                _______
                                

                December 3, 2012.--Ordered to be printed

                                _______
                                

Mr. Lieberman, from the Committee on Homeland Security and Governmental 
                    Affairs, submitted the following

                              R E P O R T

                         [To accompany S. 2038]

    The Committee on Homeland Security and Governmental 
Affairs, having considered an original bill (S. 2038) to 
prohibit Members of Congress and employees of Congress from 
using nonpublic information derived from their official 
positions for personal benefit, and for other purposes, having 
considered the same, reports favorably thereon and recommends 
that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background and Need for the Legislation..........................1
III. Legislative History.............................................10
 IV. Section-by-Section Summary of the Bill..........................11
  V. Evaluation of Regulatory Impact.................................14
 VI. Congressional Budget Office Cost Estimate.......................14
VII. Changes in Existing Law Made by the Bill, as Reported...........15

                         I. Purpose and Summary

    The Stop Trading on Congressional Knowledge Act of 2012 
(STOCK Act), S. 2038, responds to concerns that Members of 
Congress and their staff may be exempt from laws prohibiting 
persons from engaging in financial transactions based on so-
called insider information. It amends securities and 
commodities laws to make clear that Members and staff are not 
so exempt, and it amends financial disclosure laws to ensure 
that Members and their staffs more quickly and transparently 
report their financial transactions.

              II. Background and Need for the Legislation

    During the ordinary course of their work, Members of 
Congress and congressional staff sometimes come into possession 
of nonpublic information about matters that could affect the 
value of stocks, commodities, or other financial instruments. 
Several observers have recently suggested that some Members of 
Congress and their staffs have profited by using such ``insider 
information'' to make timely investments.\1\
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    \1\See, e.g., Brody Mullins et al., Congress Staffers Gain from 
Trading in Stocks, Wall St. J., Oct. 11, 2010; Peter Schweizer, Throw 
Them All Out (2011); 60 Minutes: Insiders (CBS television broadcast, 
Nov. 13, 2011).
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    Two studies of the investments of Members of Congress 
reached different conclusions about whether the performance of 
those investments suggests that Members have traded in 
financial markets on the basis of nonpublic information. One 
study, conducted in 2004 by Dr. Alan Ziobrowski, a Professor at 
the Robinson College of Business at Georgia State University, 
found what he termed ``abnormal returns'' in the individual 
stock transactions of some Senators over the period of 1993 to 
1998.\2\ Analyzing the purchases and sales of Senators who 
reported transactions on their annual financial disclosure 
reports over that period, Dr. Ziobrowski reported that the 
investments of those Senators outperformed the market by nearly 
1% per month.\3\ The data underlying the Ziobrowski study, 
though, show that a minority of Senators were buying or selling 
individual stocks in a given year (ranging from 25 to 38 
Senators in each of the years studied) and that just four 
Senators collectively accounted for nearly half of all the 
transactions in the sample.\4\
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    \2\Alan J. Ziobrowski et al., Abnormal Returns from the Common 
Stock Investments of the U.S. Senate, 39 J. Fin. & Quantitative 
Analysis 661 (2004) (``Ziobrowski study''). In testimony before 
Congress, Dr. Ziobrowski explained that the ``abnormal returns'' he 
found in his study were the difference in profits earned by Members of 
Congress and profits earned by the market as a whole. Statement of Alan 
J. Ziobrowski before the Subcommittee on Oversight and Investigations, 
House Committee on Financial Services (July 13, 2009), p. 3.
    \3\Ziobrowski study, p. 15.
    \4\Id. at 6.
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    A 2011 study analyzing the stock portfolios of Members of 
Congress reached a different conclusion than the Ziobrowski 
study. Andrew Eggers of the London School of Economics and Jens 
Hainmueller of the Massachusetts Institute of Technology found 
that, between 2004 and 2008, the average investor in Congress 
underperformed the market by 2-3% annually.\5\ Eggers and 
Hainmueller reconstructed the daily holdings of the 422 Members 
of the House and Senate who reported owning U.S. stocks in this 
period. The authors concluded that ``the evidence for 
congressional `insider trading' is in fact surprisingly 
weak''\6\ and found Members of Congress, overall, to be 
``rather poor investors.''\7\ The authors posited that ``the 
most likely explanation for the poor performance of members of 
Congress is that they are simply not that different from other 
investors.''\8\
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    \5\Andrew Eggers and Jens Hainmueller, Capitol Losses: The Mediocre 
Performance of Congressional Stock Portfolios, 2004-2008 (December 2, 
2011), http://www.mit.edu/jhainm/Paper/Eggmueller_CapitolLosses.pdf.
    \6\Id. at 2.
    \7\Id. at 3.
    \8\Id. at 22.
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    These studies, yielding different results, do not provide a 
definitive answer about Members' investing behavior. The 
Committee nonetheless concluded that it is of the utmost 
importance for the American people to have full confidence that 
all Members of Congress act to serve the American people rather 
than their own financial interests. It therefore reported S. 
2038 to establish a clear policy that insider trading will not 
be tolerated within the halls of Congress, and to ensure that 
any instances of insider trading by Members or their staff will 
be subject to the same civil and criminal laws that apply to 
everyone else.

Insider trading

    There is no statute that specifically prohibits insider 
trading--by Congress or anyone else. Rather, the law governing 
insider trading is based on many years of court decisions 
interpreting section 10(b) of the Securities Exchange Act of 
1934 (``Exchange Act''),\9\ which grants the Securities and 
Exchange Commission (SEC) broad authority to prohibit 
``manipulative and deceptive devices'' in connection with the 
purchase or sale of securities, and the associated SEC Rule 
10b-5,\10\ which broadly prohibits fraud and deception in 
connection with the purchase or sale of securities.
---------------------------------------------------------------------------
    \9\15 U.S.C. Sec. 78j(b).
    \10\17 C.F.R. 240.10b-5.
---------------------------------------------------------------------------
    Under the relevant court decisions, it is a violation of 
section 10(b) of the Exchange Act and Rule 10b-5 to trade 
securities on the basis of material, nonpublic information in 
violation of a fiduciary or other similar relationship of trust 
or confidence--a duty that is owed either to the corporation's 
shareholders (the ``classical theory'' of insider trading 
liability) or to the source of the information (the 
``misappropriation theory'').
    The archetypical example of the classical theory of insider 
trading liability is the corporate insider who buys or sells 
shares of the company he works for based on material nonpublic 
information obtained on the job. The Supreme Court explained in 
Chiarella v. United States that trading on such information 
violates Rule 10b-5 because ``a relationship of trust and 
confidence [exists] between the shareholders of a corporation 
and those insiders who have obtained confidential information 
by reason of their position with that corporation.''\11\ The 
classical theory applies to corporate insiders--officers, 
directors and employees of a corporation--as well as to 
``temporary'' insiders such as attorneys, accountants and 
consultants to a corporation.\12\ Rule 10b-5 also reaches those 
who ``tip'' material, nonpublic information to others who 
trade, as well as ``tippees'' who trade on such 
information.\13\
---------------------------------------------------------------------------
    \11\445 U.S. 222, 228 (1980).
    \12\Dirks v. SEC, 463 U.S. 646, 655 n.14 (1983).
    \13\Dirks v. SEC, 463 U.S. at 660-62.
---------------------------------------------------------------------------
    The misappropriation theory--the one more likely to be 
applied in a case of insider trading by a Member of Congress--
was first accepted by the Supreme Court in 1997, in the case of 
United States vs. O'Hagan.\14\ In that case, the defendant was 
a lawyer at a firm that represented the offeror in a tender 
offer for the Pillsbury company. The SEC alleged that the 
defendant learned of the upcoming tender offer from another 
lawyer at the firm and bought shares in Pillsbury before the 
offer was announced. Although the defendant did not have a 
fiduciary or other duty to the shareholders of Pillsbury--as 
would be traditionally required under the classical theory of 
insider trading liability--the Court nonetheless held that he 
could be prosecuted for violations of section 10(b) and Rule 
10b-5, because he breached a duty he owed to the source of the 
nonpublic information about the tender offer--his own law firm.
---------------------------------------------------------------------------
    \14\521 U.S. 642 (1997).
---------------------------------------------------------------------------
    Neither Congress nor the courts have ever excluded Members 
of Congress or any other category of individuals from the 
insider trading laws. Some have observed, however, that the 
case law, as developed by decades of court rulings, may present 
challenges to the SEC or the Department of Justice (DOJ) in 
pursuing a case against a Member of Congress.\15\ On December 
1, 2011, the Committee held a hearing to obtain a better 
understanding of these challenges.\16\ On the specific legal 
issue of the reach of section 10(b) and Rule 10b-5, the 
Committee heard testimony from three distinguished securites 
experts, Professor Donna Nagy of the Indiana University Maurer 
School of Law, Professor Donald Langevoort of Georgetown 
University Law Center, and Professor John Coffee, Jr. of 
Columbia Law School. Mr. Robert Khuzami, Director of the 
Division of Enforcement of the SEC also submitted a written 
statement for the record.
---------------------------------------------------------------------------
    \15\See, e.g., Stephen M. Bainbridge, Insider Trading Inside the 
Beltway, 36 J. Corp. L. 281 (2011).
    \16\Insider Trading and Congressional Accountability: Hearing 
Before the Senate Committee on Homeland Security and Governmental 
Affairs, 112th Cong. (Dec. 1, 2011) [hereinafter __ Testimony at HSGAC 
Hearing Dec. 1, 2011].
---------------------------------------------------------------------------
    The witnesses were in agreement that Congress enjoys no 
exemption from insider trading law.\17\ Professor Coffee laid 
out a number of specific factual scenarios that could allow, in 
his opinion, the SEC to successfully prosecute a Member of 
Congress--for example, if a Member traded on material non-
public information relating to a tender offer (conduct which is 
prohibited by SEC Rule 14e-3),\18\ or if a Member knowingly 
received a ``gift of information'' from an insider who would 
himself or herself be barred from trading.\19\
---------------------------------------------------------------------------
    \17\Professor Donna Nagy testimony at HSGAC Hearing Dec. 1, 2011 at 
page 1; Professor Donald Langevoort testimony at HSGAC Hearing Dec. 1, 
2011 at page 2; Professor John Coffee testimony at HSGAC Hearing Dec. 
1, 2011 at page 4; Robert Khuzami written testimony submitted for HSGAC 
Hearing Dec. 1, 2011 at page 5.
    \18\17 C.F.R. Sec. 240.14e-3.
    \19\Coffee testimony at HSGAC Hearing Dec. 1, 2011 at page 3.
---------------------------------------------------------------------------
    The witnesses did not have a uniform view, though, on how 
courts might apply the misappropriation theory to Members of 
Congress. The specific question in dispute is this: If a Member 
traded (or tipped) on the basis of material nonpublic 
information gained during the course of the Member's public 
service, would a court find that the Member owed a duty of 
trust and confidence to the source of the information that had 
been violated by the act of trading (or tipping)? For example, 
if a Member learned in a confidential briefing by agency 
officials of an upcoming regulatory action that would have a 
substantial impact on the stock price of a particular company, 
could the Member be held liable for insider trading for trading 
or tipping on the basis of that information?
    Professor Nagy pointed out that ``[p]rosecutors and courts 
have cast a tremendously wide net'' in applying Rule 10b-5, and 
that ``the linchpin has been a securities trader (or tipper) 
who breached a duty of entrustment by secretly profiting from 
the use of material nonpublic information that rightfully 
belongs to somebody else.''\20\ As an example, Professor Nagy 
cited a recent case involving a chemist at the Food and Drug 
Administration (FDA) who was charged with violating the law 
when he traded on material nonpublic information about pending 
drug approvals that he obtained as a result of his job. The 
chemist was alleged to have breached his duty of trust and 
confidence to his employer in using that information to trade 
securities.\21\ Likewise, Professor Nagy submitted, 
congressional employees would be liable for insider trading 
based on well-established employer-employee misappropriation 
precedents.\22\
---------------------------------------------------------------------------
    \20\Nagy testimony at HSGAC Hearing Dec. 1, 2011 at page 4.
    \21\SEC v. Cheng Yi Liang, et al., Exchange Act Rel. No. 21097 
(March 29, 2011), http://www.sec.gov/litigation/litreleases/2011/
lr21907.htm.
    \22\Id. at 5. Mr. Khuzami cited to other cases involving federal 
employees: United States v. Royer, 549 F.3d 886 (2d. Cir. 2008) 
(affirming conviction of a FBI agent for tipping information about 
ongoing investigations and information on law enforcement databases); 
SEC v. John Acree, Litigation Rel. No. 14231, 57 SEC Docket 1579 (Sept. 
13, 1994) (announcing a settled action with a former employee of the 
Office of the Comptroller of the Currency for trading on the basis of 
material nonpublic information concerning banks). See also SEC v. 
Saunders, Litigation Rel. No. 9744, 26 SEC Docket 75 (Sept. 2, 1981) 
(announcing settled action with the former Director for Communications 
for a division of the Naval Electronics Systems Command for purchasing 
securities while in possession of material nonpublic information 
concerning a contract award).
---------------------------------------------------------------------------
    While acknowledging that Members of Congress may not be 
considered traditional ``employees'' of the federal government, 
Professor Nagy noted the Constitution's repeated reference to 
public offices being held in ``trust'' and concluded that there 
should be little doubt that Members of Congress owe duties of 
trust and confidence to a host of parties. According to 
Professor Nagy, such duties may be owed to, among others, the 
citizen-investors they serve, the United States, the Congress 
itself, and federal officials outside of Congress who rely on a 
Member's loyalty and integrity.\23\
---------------------------------------------------------------------------
    \23\Nagy testimony at HSGAC Hearing Dec. 1, 2001 at page 5. 
Professor Nagy is also the author of a law review article explaining 
her theory. Donna M. Nagy, Insider Trading, Congressional Officials and 
Duties of Entrustment, 91 B.U.L. Rev. 1105 (2011).
---------------------------------------------------------------------------
    Professors Langevoort and Coffee agreed with Professor Nagy 
that congressional staff have a clear employment relationship 
with Congress and therefore owe a duty of trust and confidence 
to Congress with respect to material nonpublic information 
gained as a result of their employment.\24\ They questioned, 
though, whether courts would find that the unique nature of an 
elected office of Congress gives rise to a fiduciary-like duty 
owed by Members of Congress to anybody. Professor Langevoort 
submitted:
---------------------------------------------------------------------------
    \24\Langevoort testimony at HSGAC Hearing Dec. 1, 2011 at page 9; 
Coffee testimony at HSGAC Hearing Dec. 1, 2011 at page 5.

          [A]s elected officials, members of Congress are not 
        employees or agents in any conventional sense, and so 
        it becomes difficult to identify a separate owner of 
        the information to which they owe a legally enforceable 
        fiduciary duty of loyalty. Under our constitutional 
        system, duly elected Members have a status separate and 
        distinct from that of partner, agent or employee, far 
        different from those with whom in mind the 
        misappropriation theory was devised.\25\
---------------------------------------------------------------------------
    \25\Langevoort testimony at HSGAC Hearing Dec. 1, 2011 at page 7.

    A very strong argument can be made that Members of Congress 
can be prosecuted under the insider trading prohibitions in 
existence today. However, given the uncertainty that exists in 
how a Court would ultimately rule on this issue, it is 
incumbent upon Congress to eliminate any doubt and state 
clearly that the insider trading laws that apply to the general 
public also apply to Members of Congress. The Committee agrees 
with Professor Langevoort's explanation of the importance of 
clarifying that the insider trading prohibitions apply to 
---------------------------------------------------------------------------
Members of Congress:

          [T]he prohibition performs an expressive function in 
        signaling to the people of the U.S. and around the 
        world that our markets are open, transparent and fair, 
        and not rigged in favor of the economically or 
        politically powerful. It is part of the American brand 
        of deep and liquid capital markets that invite 
        participation by ordinary retail investors as well as 
        large financial institutions. Public trust in the 
        openness and fairness of marketplace institutions is 
        important for economic stability and growth . . . Just 
        the perception (whether or not accurate) that Congress 
        is ``above'' the prohibition that applies broadly 
        outside of Capitol Hill threatens our long-standing 
        commitment to fair and open markets.\26\
---------------------------------------------------------------------------
    \26\Langevoort testimony at HSGAC Hearing Dec. 1, 2011 at pages 2-
3.

    S. 2038 thus affirms that, under the insider trading 
prohibitions, Members of Congress and their staff owe a duty 
arising from a relationship of ``trust and confidence'' to 
Congress, the United States Government, and to the citizens of 
the United States. This ensures that Members and staff are 
subject to the same liabilities and remedies as any other 
person who violates the securities laws.
    Additionally, the bill provides for similar coverage of 
Members and their staffs under commodities laws. Unlike the 
body of law covering securities trading under SEC Rule 10b-5, 
the commodities laws have not given rise to a broad prohibition 
on insider trading. The recent Dodd-Frank legislation, however, 
included provisions explicitly prohibiting federal executive 
branch employees from engaging in commodities trading based on 
nonpublic information gained as a result of their jobs.\27\ S. 
2038 amends these provisions to also cover Members of Congress 
and their staffs.
---------------------------------------------------------------------------
    \27\Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. 
L. No. 111-203, Sec. 746.
---------------------------------------------------------------------------
    The bill also amends the Ethics in Government Act\28\ to 
shorten the time in which Members and staff must report covered 
stock and securities transactions to 30 days. Members and high-
level congressional staff currently have to report such 
transactions only once a year, as part of their annual 
financial disclosure forms. Consistent with Justice Brandeis' 
adage that ``sunlight is the best disinfectant,'' the bill will 
provide more timely information about these transactions and 
ensure the public has prompt access to the information.
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    \28\5 U.S.C. App. Sec. Sec. 101 et seq.
---------------------------------------------------------------------------

``Political Intelligence''

    Other versions of the STOCK Act referred to the Committee 
(S. 1871 and S. 1903) also would amend the Lobbying Disclosure 
Act (LDA)\29\ to require the disclosure and registration of 
people involved in collecting ``political intelligence.'' Such 
individuals contact congressional or Executive branch officials 
seeking information about possible government actions regarding 
particular companies or industries. After gathering such 
information, political intelligence consultants then analyze, 
package, and sell the resulting product to, among others, 
individuals or companies who use the material to inform 
investment decisions. It is the Committee's understanding that 
the term ``political intelligence'' was intended to capture 
activity by those who only seek information about the workings 
of the government and do not seek to influence the workings of 
the government one way or another. If they did attempt to exert 
such influence, they would fall under the existing provisions 
of the Lobbying Disclosure Act, which already impose disclosure 
mandates on those contacting legislative and executive branch 
officials in an effort to influence government policy 
decisions.
---------------------------------------------------------------------------
    \29\2 U.S.C. Sec. Sec. 1601 et seq.
---------------------------------------------------------------------------
    The Committee has very limited information before it about 
the scope of the ``political intelligence industry'' or its 
implications for either the political process or the financial 
markets. Before Congress enacts legislation that could result 
in quarterly disclosure requirements for many businesses that 
seek information on the activities of the government, there 
needs to be better information about the nature of political 
intelligence activities: what information is being sought and 
received--whether it is merely the same information passed 
along to any member of the public who calls his or her Senator 
or House Member or an agency, or something different; the 
extent to which investors rely on information they obtain from 
political intelligence collectors; whether the work of these 
individuals differs markedly from that of the financial press; 
and what effect the sale of this information may have on our 
financial markets.
    For these reasons, S. 2038 requires the Government 
Accountability Office (GAO), working in consultation with the 
Congressional Research Service (CRS), to study the issue and 
report back to Congress on its findings. The bill directs GAO 
to examine such issues as the prevalence of the sale of 
political intelligence, the effect it may have on financial 
markets, the extent to which the information sold is nonpublic, 
and the benefits, as well as the legal and practical issues 
that may arise, from imposing disclosure requirements on those 
who engage in political intelligence activities. The Committee 
is also interested in the First Amendment implications of 
requiring disclosure, outside of the existing definition of 
lobbying, as a prerequisite for communicating with Congress or 
agencies of the federal government.
    The Committee also notes that the LDA provides for both 
civil and criminal penalties for violations. The Committee 
believes that, to comport with due process values, any 
statutory disclosure requirements under the LDA must be clear 
so that individuals facing civil or criminal penalties have 
fair notice of whether or not disclosure is required. For 
purposes of the GAO study, though, the Committee has provided 
an expansive definition of political intelligence so that GAO 
can look broadly at the issue and provide sufficient 
information to Congress that may then be used in targeting 
specific problems. For purpose of the study, this section 
defines political intelligence as information that is (1) 
derived by a seller from direct communications with executive 
branch and legislative branch officials and (2) provided in 
exchange for financial compensation to a client who intends, 
and who is known by the seller to intend, to use the 
information in informing investment decisions.
    The Committee is confident that GAO has the ability and the 
flexibility to conduct a thorough analysis of this issue and 
better inform any future congressional action in this area.

Overarching issues

    In crafting S. 2038, the Committee sought to affirm that 
Members and their staffs are covered by insider trading law 
while also (1) legislating in a way that does not undermine the 
interactions of Members and the general public; (2) leaving 
undisturbed the large body of law related to insider trading 
and other securities and anti-fraud laws; and (3) recognizing 
that existing prohibitions under House and Senate ethics rules 
also provide remedies against illegal insider trading.
    In crafting S. 2038, the Committee made clear that while 
Members and their staffs are not shielded from insider trading 
law, nothing in the bill can be construed in derogation of 
existing obligations, duties and functions of a Member of 
Congress or an employee of Congress. Every day, Members and 
their staff exchange information and views with constituents 
and numerous other individuals, including representatives of 
companies, associations, non-profit organizations, and the 
media. These interactions are vital to the democratic process. 
Exchanges of information between Congress and the American 
public allow Members to explain actions that Congress is 
taking, or is considering. And these exchanges allow the 
American people to share with Members their views on how 
actions of the government may help, or hurt, them. In this 
respect, the role of a Member of Congress is very different 
from the role of a corporate insider.
    The Committee has heard some concerns that the STOCK Act 
leaves Members and their staff vulnerable to charges of 
``tipping'' if someone makes a trade based on information 
derived from the routine sharing of information between 
Congress and constituents. The Committee believes that such 
fears are unfounded and that the STOCK Act should have no 
chilling effect on the flow of information from Congress to the 
citizenry. To prove a case of insider trading, the SEC must 
show that a trade was made, in breach of a duty of trust and 
confidence, based on material, nonpublic information. In the 
case of tipping, there must also be some personal benefit to 
the tipper in communicating the information to the tippee.
    Additionally, under all fraud cases brought under section 
10b of the Exchange Act, there must be a showing that the 
defendant acted with ``scienter.'' The Supreme Court explained 
in Ernst & Ernst v. Hochfelder that, in the context of Rule 
10b-5, scienter ``refers to a mental state embracing intent to 
deceive, manipulate or defraud.''\30\ As Mr. Khuzami explained 
in testimony before the House Financial Services Committee:
---------------------------------------------------------------------------
    \30\425 U.S. 185, 193, n. 12 (1976).

          [Scienter] is the single biggest thing that protects 
        the unwary from being trapped in a violation that 
        inadvertently occurred. You have to be acting with 
        corrupt intent, knowledge, or recklessness. If you act 
        in good faith, you are not going to be guilty.\31\
---------------------------------------------------------------------------
    \31\H.R. 1148, The Stop Trading on Congressional Knowledge Act: 
Hearing Before the House Financial Services Committee, 112th Cong. 
(Dec. 6, 2011), Hearing Print 112-90 at 32.

    Thus, while Members and their staff should not be shielded 
from prosecution if each element of insider trading law is 
shown, they also should not fall inadvertently into violation 
of Rule 10b-5 when, in good faith, they engage in discourse 
with members of the public on matters related to their official 
duties.
    Second, S. 2038 ensures that the shade of the umbrella of 
insider trading law covers Members of Congress and their staff; 
it does not change the size of the umbrella or the cast of its 
shade. In affirming that the insider trading prohibitions apply 
to Members of Congress in the same way they apply to everyone 
else, S. 2038 makes it clear that nothing in the Act--not the 
affirmation of the underlying duty of trust and confidence, nor 
the instructions to issue interpretive guidance or the guidance 
that may be issued as a result--can be construed to limit or 
otherwise alter the construction of the antifraud provisions of 
the securities laws or the authority of the SEC or DOJ under 
those provisions. S. 2038 includes a rule of construction that 
makes this point clear. Likewise, nothing in the bill should be 
construed to alter or impair existing statutes on mail and wire 
fraud,\32\ honest services,\33\ or other anti-corruption 
statutes.
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    \32\18 U.S.C. Sec. Sec. 1341, 1343.
    \33\18 U.S.C. Sec. 1346.
---------------------------------------------------------------------------
    Nor does S. 2038 suggest that existing House and Senate 
ethics rules are insufficient to discipline a Member or a 
staffer who engages in insider trading. As a starting point, 
the Code of Ethics for Government Service states in paragraph 8 
that a person in government service should ``[n]ever use any 
information coming to him confidentially in the performance of 
governmental duties as a means for making private profit.'' The 
Code was passed by the House and Senate by Concurrent 
Resolution in 1958,\34\ has been explicitly incorporated into 
House ethics rules,\35\ and is listed in the Rules of the 
Senate Select Committee on Ethics as one source for the 
Committee's investigative and disciplinary jurisdiction.\36\
---------------------------------------------------------------------------
    \34\Code of Ethics for Government Service, H.R. Con. Res. 175, 85th 
Cong., 72 Stat. B12 (1958).
    \35\72 Stat., Part 2, B12, H.Con.Res. 175, 85th Cong. (July 11, 
1958).
    \36\United State Senate Select Committee on Ethics, Senate Ethics 
Manual, 108th Congress, 1st Session (2003) at 387.
---------------------------------------------------------------------------
    Other specific ethics rules prohibit use of official 
position for public gain. For example, Senate Rule XXXVII 
prohibits a Member, officer or employee of the Senate from 
receiving any compensation, or allowing any compensation to 
accrue to his beneficial interest ``which would occur by virtue 
of influence improperly exerted from his position as a Member, 
officer, or employee.'' The Senate Ethics Manual explains that 
this provision was intended ``as a broad prohibition against 
members, officers or employees deriving financial benefit, 
directly or indirectly, from the use of their official 
position[s].''\37\ Rules limiting gifts to Members and staff 
under Senate Rule XXXV may be violated under certain factual 
scenarios--a Member who receives and trades on a ``tip'' from a 
corporate insider, for example, or a staffer who tips a third 
party in exchange for something of personal benefit. Moreover, 
it is well established that ``[t]he Senate or House may 
discipline a Member for any misconduct, including conduct or 
activity which does not directly relate to official duties, 
when such conduct unfavorably reflects on the institution as a 
whole.''\38\ Thus, the ethics rules provide ample basis for the 
disciplining of Members or staff who engage in insider 
trading.\39\
---------------------------------------------------------------------------
    \37\Id. at 66 (quoting from the ``Nelson Report'' which accompanied 
the original Senate Code of Ethical Conduct, S. Rep. No. 95-49).
    \38\Id. at 13.
    \39\For example, on November 29, 2011, the House Committee on 
Ethics issued a memorandum to all Members and staff summarizing House 
rules and standards of conduct that may apply to use of nonpublic 
information when engaging in a personal financial transaction. 
Memorandum to All House Members, Officers and Employees from Committee 
on Ethics on Rules Regarding Personal Financial Transactions (Nov. 29, 
2011).
---------------------------------------------------------------------------

                        III. Legislative History

    In November, 2011, Senators Scott Brown and Kirsten 
Gillibrand introduced S. 1871 and S. 1903, respectively, two 
similar versions of the STOCK Act, both of which were referred 
to the Senate Committee on Homeland Security and Governmental 
Affairs. On December 1, 2011, the Committee held a hearing 
entitled ``Insider Trading and Congressional Accountability.'' 
The Committee heard testimony from the three professors of 
securities law noted above as well as from Melanie Sloan, 
Executive Director of Citizens for Responsibility and Ethics in 
Washington, and Robert L. Walker, Of Counsel, Wiley Rein LLP 
and former Chief Counsel and Staff Director of both the Senate 
and House Ethics Committees. Mr. Robert Khuzami, Director of 
Enforcement for the SEC, submitted a statement for the record.
    On December 14, 2011, the Committee considered, as an 
original bill, a revised version of the STOCK Act based on the 
Gillibrand and Brown bills, additional Committee research, and 
the suggestions received at the Committee's December 1 hearing. 
(The bill received the number S. 2038 after the Committee 
reported it.)
    At its December 14 business meeting, the Committee 
considered an amendment offered by Senators Collins and 
Lieberman adding an explicit statement that Members and 
employees of Congress are not exempt from current insider 
trading prohibitions. The Collins-Lieberman amendment also 
clarified that the bill ``affirms'' (rather than ``states'') a 
duty of trust and confidence owned by Members and their staff, 
and that nothing in the bill diminishes the ``duties and 
functions'' of a Member or employee of Congress (in addition to 
not diminishing their ``obligations'').
    Senator Levin offered a second degree amendment to the 
Collins-Lieberman amendment, aimed at clarifying that the duty 
owed by Members and their staff is one ``arising from a 
relationship of trust and confidence'' owed to Congress, the 
United States Government, and the citizens of the United 
States. The Committee adopted both the Levin second degree 
amendment and the Collins-Lieberman amendment (as amended) by 
voice vote. Senators present for both votes were Lieberman, 
Levin, Akaka, Carper, Tester, Begich, Collins, Coburn, Brown, 
Johnson, Portman, and Paul.
    The Committee next adopted by voice vote an amendment 
offered by Senators Begich, Tester, Lieberman, Levin, Brown and 
Carper requiring the electronic filing and electronic 
disclosure of financial disclosure forms filed by Members of 
Congress and senior congressional staff. Senators present for 
this vote were Lieberman, Levin, Akaka, Carper, Tester, Begich, 
Collins, Coburn, Brown, Johnson, Portman, and Paul.
    The Committee then considered an amendment offered by 
Senator Paul aimed at making clear that insider trading laws 
cover all federal employees. Senator Lieberman offered a second 
degree amendment, which clarified that nothing in the section 
added by the Paul amendment should be construed to be in 
derogation of existing laws, regulations, or ethical 
obligations of federal employees. The Committee adopted the 
Lieberman second degree amendment and the underlying Paul 
amendment, both by voice vote. Senators present for both votes 
were Lieberman, Levin, Akaka, Begich, Collins, Coburn, Brown, 
Johnson, Portman, and Paul.
    The Committee ordered the bill, as amended, reported 
favorably by a roll call vote of 7-2. Senators Lieberman, 
Levin, Akaka, Begich, Collins, Brown, and Portman voted in 
favor of the bill, while Senators Coburn and Johnson voted in 
opposition. Senators Carper, Pryor, Landrieu, McCaskill, 
Tester, and Moran asked to be recorded in favor of the bill by 
proxy, while Senator McCain asked to be recorded against the 
bill by proxy.

               IV. Section-by-Section Summary of the Bill


Section 1: Short title

    The short title of the bill is the ``Stop Trading on 
Congressional Knowledge Act of 2012'' (STOCK Act).

Section 2. Use of nonpublic information for personal benefit prohibited

    This section amends the Congressional Accountability 
Act\40\ by adding to it a new title (Title VI) that prohibits 
Members and employees of Congress from using nonpublic 
information derived from their positions in Congress for 
personal benefit and makes it clear that existing insider 
trading prohibitions under the securities laws apply to Members 
and staff of Congress. The new title contains the following 
sections:
---------------------------------------------------------------------------
    \40\2 U.S.C. Sec. Sec. 1301 et seq.
---------------------------------------------------------------------------

``Section 601. Definition''

    This section defines the terms ``Member of Congress'' and 
``employee of Congress.''

``Section 602. General prohibition''

    This section lays out the general prohibition that Members 
and staff shall not use any nonpublic information that is 
derived from their positions in Congress, or gained from 
performance of their duties, for personal benefit.\41\
---------------------------------------------------------------------------
    \41\At the Committee's business meeting to consider the bill, some 
Members expressed concern that the breadth of the general prohibition 
is unclear. Members agreed to work together to refine its scope and 
suggest new language for consideration by the full Senate when the bill 
is reported to the Senate floor.
---------------------------------------------------------------------------

``Section 603. Implementing rules''

    This section directs the Ethics Committees in the Senate 
and House to issue rules to carry out the purposes of Section 
602.

``Section 604. Applicability to securities laws''

    The dispute over the applicability of insider trading laws 
to Congress centers largely on the issue of whether Members and 
staff of Congress owe a legally enforceable duty to the source 
from which they receive material, non-public information. This 
section explicitly states that Members and staff\42\ are not 
exempt from the securities laws, including the insider trading 
prohibitions, and that they owe a duty arising from a 
relationship of trust and confidence under the securities laws.
---------------------------------------------------------------------------
    \42\As discussed above, the Committee received expert testimony 
noting that there is little doubt that Congressional employees would be 
liable for insider trading under the misappropriation theory. The 
Committee sees no harm, though, in affirmatively stating this coverage.
---------------------------------------------------------------------------
    Specifically, subsection (a)(1) provides that Members and 
employees of Congress are not exempt from the broad anti-fraud 
provisions of the securities laws, including the insider 
trading prohibitions. Subsection (a)(2) provides that, for 
purposes of insider trading prohibitions under the Securities 
Exchange Act, the Section 602 prohibition against Members and 
employees using nonpublic information for personal benefit 
affirms a duty arising from a relationship of trust and 
confidence owed by each Member of Congress and each employee of 
Congress to Congress, the United States Government, and the 
citizens of the United States.
    Subsection (b) authorizes the Securities and Exchange 
Commission to issue rules to implement this section and 
otherwise ensure that Members and staff are subject to insider 
trading prohibitions.

``Section 605. Appropriate punitive, disciplinary, and other remedial 
        action''

    This section ensures that Members and staff who violate the 
prohibition under Section 602 are subject to appropriate 
disciplinary actions.

``Section 606. Rule of construction''

    This section provides that nothing in this title diminishes 
existing obligations, duties, and functions of Members and 
employees of Congress, and it makes clear that the STOCK Act 
does not limit or otherwise alter existing securities laws.

Section 3. Technical, conforming, and clerical amendments

    This section makes technical changes to the Congressional 
Accountability Act.

Section 4. Conforming changes to the Commodity Exchange Act

    This section makes conforming changes to section 4c(a) of 
the Commodity Exchange Act\43\ to ensure that the insider 
trading prohibitions under that Act apply to Members and staff 
of Congress.
---------------------------------------------------------------------------
    \43\7 U.S.C. Sec. 6c(a).
---------------------------------------------------------------------------

Section 5. Prompt reporting of financial transactions

    This section amends existing financial disclosure rules to 
require Members, officers and employees of Congress, for 
themselves and for their spouses and dependent children, to 
report the purchase or sale of stocks, bonds, commodities 
futures, and other forms of securities within 30 days after 
such a transaction takes place.

Section 6. Report on political intelligence activities

    This section requires that, no later than 12 months after 
the date of enactment of the STOCK Act, GAO, in consultation 
with CRS, is to submit a report to Congress assessing the role 
of ``political intelligence'' in the financial market. This 
report is intended to shed light on the practice and better 
inform any future congressional action in this area.
    Specifically, the section requires GAO to provide an 
analysis of: what is known about the prevalence of the sale of 
political intelligence and the extent to which investors rely 
on such information; what is known about the effect that the 
sale of political intelligence may have on the financial 
markets; the extent to which information which is being sold 
would be considered nonpublic information; the legal and 
ethical issues that may be raised by the sale of political 
intelligence; any benefits from imposing disclosure 
requirements on those who engage in political intelligence 
activities; and any legal and practical issues that may be 
raised by the imposition of disclosure requirements on those 
who engage in political intelligence activities.

Section 7. Public filing and disclosure of financial disclosure forms 
        of Members of Congress and Congressional staff

    This section provides for greater transparency of financial 
disclosure forms filed by Members, candidates for Congress, and 
employees of Congress.
    Subsection (a) requires financial disclosure reports filed 
in 2012 (including the new transaction reports required by the 
STOCK Act) to be posted on the House and Senate web sites. This 
basic form of transparency will be maintained until the 
development of an e-filing and disclosure system under the 
second part of this section.
    Subsection (b) then requires the Secretary of the Senate 
and the Clerk of the House to develop systems to allow e-filing 
by individuals who are required to file forms with them, and to 
establish a public database enabling members of the public to 
search, sort and download data from the e-filings.

Section 8. Federal employees

    Section 8 affirms that employees in the executive and 
legislative branches also are subject to insider trading 
prohibitions. The Committee finds no doubt among securities 
experts that federal employees are already covered by insider 
trading laws.\44\ The Committee finds no harm, though, in 
affirming that federal employees owe a duty of trust and 
confidence to the United States government and the citizens of 
the United States.
---------------------------------------------------------------------------
    \44\See n.22, supra.
---------------------------------------------------------------------------
    Subsection (a) of this section prohibits federal employees 
from using any nonpublic information that is derived from their 
positions, or gained from performance of their duties, for 
personal benefit.
    Subsection (b) then requires the relevant offices 
responsible for administering ethics requirements to issue 
rules and regulations to carry out the purposes of subsection 
(a): the Office of Government Ethics for the executive branch, 
the ethics committees of the House and Senate for the 
legislative branch, and the Judicial Conference for the 
judicial branch. Individual agency ethics offices would be free 
to issue supplemental rules and regulations pertaining to 
agency-specific restrictions.
    Subsection (c) then provides that, for purposes of insider 
trading prohibitions under the Securities Exchange Act, the 
prohibition set forth in subsection (a) about federal employees 
using nonpublic information for personal benefit states a duty 
of trust and confidence of each federal employee to the United 
States government and the citizens of the United States.
    Subsection (d) ensures that Federal employees that violate 
the prohibition under Section 602 are subject to appropriate 
disciplinary actions.
    Subsection (e) defines the term ``federal employee.''
    Subsection (f) contains a rule of construction that makes 
clear that nothing in this section shall be construed to be in 
derogation of existing laws, regulations, or ethical 
obligations of Federal employees. In many instances federal 
employees are held to stricter ethics obligations than Members 
and subsection (f) ensures that existing rules and regulations 
are not narrowed by the requirements in this section.

                   V. Evaluation of Regulatory Impact

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of this bill. The 
Congressional Budget Office states that S. 2038 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act and would not affect the budget of 
state, local, or tribal governments.

             VI. Congressional Budget Office Cost Estimate

                                                  January 31, 2012.
Hon. Joseph I. Lieberman,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2038, the STOCK Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 2038--STOCK Act

    S. 2038 would amend the Congressional Accountability Act of 
1995 and the Ethics in Government Act. The legislation would 
require the Senate and the House of Representatives to 
implement an electronic filing system for financial disclosure 
forms and provide the public with on-line access to that 
information in a searchable database. S. 2038 also would make 
clear that Members of Congress, Congressional employees, and 
federal employees are prohibited from using nonpublic 
information for personal financial benefit. In addition, the 
legislation would require more timely reporting of information 
about financial transactions by Members and staff.
    Based on information from Congressional staff, CBO 
estimates that implementing the financial disclosure system 
required under S. 2038 would cost $4 million over the 2012-2013 
period primarily for new computer hardware and software and 
additional labor. In addition, maintaining the new system would 
cost $1 million annually, CBO estimates. In total, CBO 
estimates that implementing the legislation would cost about $9 
million over the 2012-2017 period, assuming appropriation of 
the necessary amounts.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending or revenues. Enacting S. 2038 could increase 
revenues from civil and criminal fines imposed on federal 
employees who use nonpublic information for personal financial 
benefit or who fail to file financial disclosure forms; 
therefore, pay-as-you-go procedures apply. Civil fines are 
recorded in the budget as revenues and deposited into the 
general fund of the Treasury. Criminal fines are recorded as 
revenues, deposited in the Crime Victims Fund, and spent in 
subsequent years. CBO expects that any net effect associated 
with collecting and spending such penalties would not be 
significant in any year.
    S. 2038 contains no intergovernmental or private-sector 
mandates as defined in UMRA and would not affect the budgets of 
state, local, or tribal governments.
    The CBO staff contact for this estimate is Matthew 
Pickford. This estimate was approved by Theresa Gullo, Deputy 
Assistant Director for Budget Analysis.

       VII. Changes in Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the following changes in existing 
law made by S. 2038, as reported, are shown as follows 
(existing law proposed to be omitted is enclosed in black 
brackets, new matter is printed in italic, existing law in 
which no change is proposed is shown in roman).

           *       *       *       *       *       *       *


CONGRESSIONAL ACCOUNTABILITY ACT OF 1995

           *       *       *       *       *       *       *



TITLE IV--ADMINISTRATIVE AND JUDICIAL DISPUTE-RESOLUTION PROCEDURES

           *       *       *       *       *       *       *


SEC. 413. PRIVILEGES AND IMMUNITIES.

    The authorization to bring judicial proceedings under 
sections 405(f)(3), 407, and 408, or to bring a judicial 
proceeding to enforce the prohibition under section 602, shall 
not constitute a waiver of sovereign immunity for any other 
purpose, or of the privileges of any Senator or Member of the 
House of Representatives under article I, section 6, clause 1, 
of the Constitution, or a waiver of any power of either the 
Senate or the House of Representatives under the Constitution, 
including under article I, section 5, clause 3, or under the 
rules of either House relating to records and information 
within its jurisdiction.

           *       *       *       *       *       *       *


 TITLE VI--USE OF NONPUBLIC INFORMATION FOR PERSONAL BENEFIT PROHIBITED

SEC. 601. DEFINITION.

    In this title--
          (1) the term ``Member of Congress'' means a member of 
        the Senate or the House of Representatives, a Delegate 
        to the House of Representatives, and the Resident 
        Commissioner from Puerto Rico; and
          (2) the term ``employee of Congress'' means--
                  (A) an employee of the Senate; and
                  (B) an employee of the House of 
                Representatives.

SEC. 602. GENERAL PROHIBITION.

    No Member of Congress and no employee of Congress shall use 
any nonpublic information derived from the individual's 
position as a Member of Congress or employee of Congress, or 
gained from performance of the individual's duties, for 
personal benefit.

SEC. 603. IMPLEMENTING RULES.

    The Select Committee on Ethics of the Senate and the 
Committee on Standards of Official Conduct of the House of 
Representatives shall issue rules or regulations to carry out 
the purpose of section 602.

SEC. 604. APPLICABILITY TO SECURITIES LAWS.

    (a) In General.--
          (1) Not exempt.--Members of Congress and employees of 
        Congress are not exempt from the prohibitions arising 
        under section 10(b) of the Securities Exchange Act of 
        1934 and Rule 10b-5 thereunder, including the insider 
        trading prohibitions.
          (2) Duty.--For purposes of the insider trading 
        prohibitions arising under 10(b) of the Securities 
        Exchange Act of 1934 and Rule 10b-5 issued thereunder 
        (or any successor to such Rule), section 602 affirms a 
        duty arising from a relationship of trust and 
        confidence owed by each Member of Congress and each 
        employee of Congress to Congress, the United States 
        Government, and the citizens of the United States.
    (b) Rulemaking Authority.--The Securities and Exchange 
Commission may issue such rules or regulations as the 
Commission determines are necessary or appropriate to implement 
subsection (a) or to otherwise ensure that Members of Congress 
and employees of Congress are subject to the insider trading 
prohibitions that apply generally.

SEC. 605. APPROPRIATE PUNITIVE, DISCIPLINARY, AND OTHER REMEDIAL 
                    ACTION.

    A Member of Congress or an employee of Congress who 
violates the prohibition under section 602 shall be subject to 
appropriate punitive, disciplinary, and other remedial action 
in accordance with any applicable laws, resolutions, rules, or 
regulations.

SEC. 606. RULE OF CONSTRUCTION.

    Nothing in this title shall be construed to be in 
derogation of existing obligations, duties and functions of a 
Member of Congress or an employee of Congress or to limit or 
otherwise alter the securities laws, the authority of the 
Securities and Exchange Commission under such laws, or other 
laws of the United States.

TITLE V--GOVERNMENT ORGANIZATION AND EMPLOYEES

           *       *       *       *       *       *       *


APPENDIX--ETHICS IN GOVERNMENT ACT OF 1978

           *       *       *       *       *       *       *



TITLE I--FINANCIAL DISCLOSURE REQUIREMENTS OF FEDERAL PERSONNEL

           *       *       *       *       *       *       *


Sec. 101. Persons required to file

    (a) * * *
    (b) * * *
    (c) * * *
    (d) * * *
    (e) * * *
    (f) * * *
    (g) * * *
    (h) * * *
    (i) * * *
    (j) Within 30 days after any transaction required to be 
reported under subparagraph 102(a)(5)(B) of this Act, a Member 
of Congress or officer or employee of Congress shall file a 
report of the transaction.

           *       *       *       *       *       *       *


Sec. 105. Custody of and public access to reports

    (a) * * *
    (b) * * *
    (c) * * *
    (d)(1) Any report filed with or transmitted to an agency or 
supervising ethics office or to the Clerk of the House of 
Representatives or to the Secretary of the Senate pursuant to 
this title shall be retained by such agency or office or by the 
Clerk or the Secretary of the Senate, as the case may be.
    (2) Such report shall be made available to the public[ for 
a period of six years after receipt of the report]--
          (A) in the case of a Member of Congress until a date 
        that is 6 years from the date the individual ceases to 
        be a Member of Congress; and
          (B) in the case of all other reports filed pursuant 
        to this title, for a period for six years after receipt 
        of the report.
    (3) After [such six-year period] the relevant time period 
identified under paragraph (2), the report shall be destroyed 
unless needed in an ongoing investigation, except that in the 
case of an individual who filed the report pursuant to section 
101(b) and was not subsequently confirmed by the Senate, or who 
filed the report pursuant to section 101(c) and was not 
subsequently elected, such reports shall be destroyed [one] 1 
year after the individual either is no longer under 
consideration by the Senate or is no longer a candidate for 
nomination or election to the Office of President, Vice 
President, or as a Member of Congress, unless needed in an 
ongoing investigation.

           *       *       *       *       *       *       *


TITLE 7--AGRICULTURE

           *       *       *       *       *       *       *


CHAPTER 1--COMMODITY EXCHANGES

           *       *       *       *       *       *       *



SEC. 6C. PROHIBITED TRANSACTIONS.

    (a) In General.--
          (1) * * *
          (2) * * *
          (3) Contract of sale.--It shall be unlawful for any 
        employee or agent of any department or agency of the 
        Federal Government or any Member of Congress or 
        congressional employee who, by virtue of the employment 
        or position of the Member, employee or agent, acquires 
        information that may affect or tend to affect the price 
        of any commodity in interstate commerce, or for future 
        delivery, or any swap, and which information has not 
        been disseminated by the department or agency of the 
        Federal Government holding or creating the information 
        or by Congress in a manner which makes it generally 
        available to the trading public, or disclosed in a 
        criminal, civil, or administrative hearing, or in a 
        congressional, administrative, or Government 
        Accountability Office report, hearing, audit, or 
        investigation, to use the information in his personal 
        capacity and for personal gain to enter into, or offer 
        to enter into--
                  (A) a contract of sale of a commodity for 
                future delivery (or option on such a contract);
                  (B) an option (other than an option executed 
                or traded on a national securities exchange 
                registered pursuant to section 78f(a) of Title 
                15); or
                  (C) a swap.
          (4) Nonpublic information.--
                  (A) Imparting of nonpublic information.--It 
                shall be unlawful for any employee or agent of 
                any department or agency of the Federal 
                Government or any Member of Congress or 
                congressional employee who, by virtue of the 
                employment or position of the Member, employee 
                or agent, acquires information that may affect 
                or tend to affect the price of any commodity in 
                interstate commerce, or for future delivery, or 
                any swap, and which information has not been 
                disseminated by the department or agency of the 
                Federal Government holding or creating the 
                information or by Congress in a manner which 
                makes it generally available to the trading 
                public, or disclosed in a criminal, civil, or 
                administrative hearing, or in a congressional, 
                administrative, or Government Accountability 
                Office report, hearing, audit, or 
                investigation, to impart the information in his 
                personal capacity and for personal gain with 
                intent to assist another person, directly or 
                indirectly, to use the information to enter 
                into, or offer to enter into--
                          (i) a contract of sale of a commodity 
                        for future delivery (or option on such 
                        a contract);
                          (ii) an option (other than an option 
                        executed or traded on a national 
                        securities exchange registered pursuant 
                        to section 78f(a) of Title 15); or
                          (iii) a swap.
                  (B) Knowing use.--It shall be unlawful for 
                any person who receives information imparted by 
                any employee or agent of any department or 
                agency of the Federal Government or any Member 
                of Congress or congressional employee as 
                described in subparagraph (A) to knowingly use 
                such information to enter into, or offer to 
                enter into--
                          (i) a contract of sale of a commodity 
                        for future delivery (or option on such 
                        a contract);
                          (ii) an option (other than an option 
                        executed or traded on a national 
                        securities exchange registered pursuant 
                        to section 78f(a) of Title 15); or
                          (iii) a swap.
                  (C) Theft of nonpublic information.--It shall 
                be unlawful for any person to steal, convert, 
                or misappropriate, by any means whatsoever, 
                information held or created by any department 
                or agency of the Federal Government or by 
                Congress that may affect or tend to affect the 
                price of any commodity in interstate commerce, 
                or for future delivery, or any swap, where such 
                person knows, or acts in reckless disregard of 
                the fact, that such information has not been 
                disseminated by the department or agency of the 
                Federal Government holding or creating the 
                information or by Congress in a manner which 
                makes it generally available to the trading 
                public, or disclosed in a criminal, civil, or 
                administrative hearing, or in a congressional, 
                administrative, or Government Accountability 
                Office report, hearing, audit, or 
                investigation, and to use such information, or 
                to impart such information with the intent to 
                assist another person, directly or indirectly, 
                to use such information to enter into, or offer 
                to enter into--
                          (i) a contract of sale of a commodity 
                        for future delivery (or option on such 
                        a contract);
                          (ii) an option (other than an option 
                        executed or traded on a national 
                        securities exchange registered pursuant 
                        to section 78f(a) of Title 15); or
                          (iii) a swap, provided, however, that 
                        nothing in this subparagraph shall 
                        preclude a person that has provided 
                        information concerning, or generated 
                        by, the person, its operations or 
                        activities, to any employee or agent of 
                        any department or agency of the Federal 
                        Government to Congress or any Member of 
                        Congress or congressional employee 
                        voluntarily or as required by law, from 
                        using such information to enter into, 
                        or offer to enter into, a contract of 
                        sale, option, or swap described in 
                        clauses (i), (ii), or (iii).

           *       *       *       *       *       *       *


                                  
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