STOCK Act Could Expand Insider Trading Laws and Restrict Investment Advisers' Use of "Political Intelligence"


Last month, the Senate Homeland Security & Governmental Affairs Committee passed the “Stop Trading on Congressional Knowledge Act,” or “STOCK Act” and the House Financial Services Committee held hearings on similar legislation. The primary purpose of this Act is to close a loophole in the law that may allow Members of Congress to legally trade securities based upon nonpublic “political intelligence.” However, the legislation could have significant, perhaps unintended, consequences for investment advisers and those in the financial services industry.

The current Senate and House versions of the bill differ significantly. The House version would expand insider trading laws to prevent any person – including investment advisers – from purchasing or selling securities while in the possession of material nonpublic “political intelligence” they received from certain federal sources. It would also regulate “political intelligence” firms and establish a disclosure regime for “political intelligence activities” similar to the reporting requirements now in place for federal lobbying activities. The Senate bill is narrower, and merely confirms that Members of Congress owe a duty of trust and confidence and calls for a study of political intelligence firms.

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Published In: Administrative Agency Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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