BUSINESS
10/11/2010 09:33 am ET | Updated May 25, 2011

Congressional Aides Allowed To Trade Stocks In Companies Their Bosses Oversee

UPDATE: Reuters' Felix Salmon calls Monday's WSJ investigation a "non-story," saying, "there's no indication in the WSJ story that what they found was anything more than you'd expect from chance alone." He supports the bill that would ban trading with non-public information but says it's not urgent.

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Original entry:

Some congressional aides trade stocks in companies they may have privileged information about, the Wall Street Journal reports. And it's not illegal.

According to the WSJ investigation, at least 72 aides for lawmakers of both parties traded shares in companies that their bosses are charged with monitoring. They deny that this practice amounts to "insider trading," saying in some cases that their spouses make the trades without their knowledge, or that they wait until the information becomes public before making their trading decisions (hat tip to Politico's Morning Money).

But they won't have to use those defenses in court because, as the WSJ notes, their actions aren't illegal. Back in 2006, the WSJ reported that Reps. Louise Slaughter (D-N.Y.) and Brian Baird (D-Wash.) introduced a bill that would prevent members of Congress from making trading decisions based on information they learn on Capitol Hill. "The potential for abuse there is incredible," Slaughter said.

But the bill never passed, as the WSJ reported in May of this year. Only six lawmakers in the House supported this year's new version of the bill, which has no companion legislation in the Senate. As Slaughter told the WSJ, the bill is hardly a high priority for Congress. And as Stan Brand, a former counsel for the House Ethics Committee, put it to the WSJ, "There are no rules."

Some members of Congress profited by betting against stocks in 2008, during the financial crisis, the WSJ reported in May, noting that there was no proof these lawmakers used insider information. Be that as it may, the practice "doesn't look real great when the economy is tanking and people are blaming the government," former Rep. Joel Hefley (R-Colo.) told the WSJ.

The rules that do exist on this issue justify the stock-trading practice because, according to the recent WSJ story today, a ban on trading for lawmakers and aides could "insulate a legislator from the personal and economic interests that his or her constituency, or society in general, has in governmental decisions and policy."

The WSJ notes that this sort of trading has gone largely unnoticed by the public.

"Perhaps you knew this. I didn't," Politico's Ben White writes. "And it's pretty incredible."