As the STOCK Act keeps marching through the Senate, on the heels of a State of the Union push from the President, and after a CBS news expose ignited interest in a longstanding proposal from Rep. Slaughter in the House, that Sunlight has supported.

We've been very involved in reviewing and suggesting changes to the draft bills, and here's a summary of our advice:

1. First, Sunlight is very supportive of the STOCK Act. This fall's expose made a convincing case that insider trading is a real problem, and that Members sometimes put personal financial profit over their official responsibilities.

2. Perhaps even more significant is the threat to public confidence in government posed by this phenomenon -- the public loathes insider trading, especially from Members of Congress.

3. Whether insider trading was technically illegal, recent hearings have made clear that no one was capable (or willing) to fully oversee the issue.

4. The Personal Financial Disclosure system, resulting from the post-Watergate 1978 Ethics in Government Act, is long, long overdue for serious examination and oversight. It may be the envy of much of the rest of the world, and serves as a model for accountable disclosure in other governments, but still suffers from a sort of inter-branch detente, where no one wants to legislatively reopen the complex issues involved in requiring personal finances to be disclosed. If the US is to lead on accountability systems, we should lead on maintaining and strengthening them, too. GAO and others should review the pfd system more broadly, and outside the narrow view of an insider trading scandal.(More on this from GAO to come soon.)

On to the bill text

1. We had significant concerns about earlier drafts of the bill, since overbroad language ran the risk of criminalizing leaks. Those concerns have been dealt with in more recent drafts. Either the Rules changing language has been watered down and turned into a requirement that the Ethics committee create appropriate prohibitions, or the language has been modified by adding "intent" to the kind of information sharing that is prohibited. In either case, sharing information is very unlikely to get accidentally criminalized.

2. On enforcing information sharing restrictions, though, the later drafts have significantly weakened the text of the bill, where "personal gain" is a pretty narrow standard, and the Ethics committee is unlikely to be the most reliable source of strong public interest standards. There's a difficult balance to strike here, between Speech or Debate clause issues (where the Executive is Constitutionally barred from meddling in inherently legislative tasks) and potential unintended consequences, the bill's enforcement mechanisms are tricky.  We have a strong preference towards Rules changes over executive branch enforcement, but have little experience in financial investigations, so have little advice on crafting the final shape of the mechanisms.

3. Sunlight has been pushing for stronger disclosure of both the a) personal financial disclosure forms and b) the new financial transaction reports (to be reported when Members move their money). Both categories of information should be required to be public, should be shared as soon as they are filed, and should be filed electronically.  Additionally, we have detailed advice about how such electronic filings systems should be designed, to capture as much information as possible, and to add useful structured data at the time of information collection. (Daniel will have more on this topic soon.)  The information should be available in bulk, and no login should be required at all to dowload the data.  (That's a ridiculous requirement contained in the most recent Senate draft.)

4. None of these forms should be destroyed after 6 years. The House and Senate can afford to preserve a two foot tall stack of paper (in the worst case), and can certainly afford to make a digital copy of information perpetually available, especially when it's as politically and historically significant as these disclosures will be.  This information should be maintained online in perpituity, and also regularly transferred to NARA's Center for Legislative Archives for safekeeping.

5. Sunlight supported the LDA reforms aimed at political intelligence firms, and also understands why the recent drafts suggest a GAO report on their function -- they're somewhat poorly understood.  For our thoughts on elite, commercial services that republish congressional information, see this post. The key point: insofar as these services are worth the price of admission, they reinforce disparities in privilege and access.

Those are our main points on the STOCK Act.  We've got other technical corrections and suggestions, and would be happy to talk to anyone looking for help or thoughts as the legislation moves. We're also happy to see this one piece of legislation pulling along other important reform issues that have languished -- from e-filing in the Senate (more on that soon) to honest services, and even a 72 hour rule in the Senate (where did that come from, Senator Coburn?). Maybe the Senate should have an open amendment process on a reform oriented bill once a quarter.

Update: There's one more provision we've strongly opposed that I should make note of: there's no justification for requiring logins in order to access dowloads of Senate data, as the latest draft requires.  That provision should be removed.  It's wasteful, and discourages reuse. If Data.gov can offer bulk downloads with no login requirement, so can the US Senate.

Today, the House Committee on Financial Services held a hearing designed, it seems, to derail growing momentum in favor of the Stop Trading Congressional Knowledge Act (the STOCK Act). In response, Sunlight along with the Campaign Legal Center, Citizens for Responsibility and Ethics in Washington, Common Cause, Democracy 21, Public Citizen and US PIRG sent a letter to all members of Congress urging them to quickly enact legislation that would clearly state that Members of Congress are prohibited from engaging in insider trading.

For years, efforts have been made to enact a version of the STOCK Act. The bill recently gained momentum when news reports disclosed the unseemly specter of congressional insider trading. Now it seems some in Congress would like to slow that train by saying a new law isn’t necessary because insider-trading laws have always applied to Congress.

That argument misses the very relevant point that whether or not current laws apply, they clearly aren’t working. As far as we know, there has never been an enforcement action against a Member of Congress for insider trading. Yet some members do remarkably well in the market.

The groups on the letter to Congress—none of whom were invited to testify today, by the way—recognize the need for strong, clear legislation that would eliminate any doubt about Congress’s obligation to abide by the same rules as the rest of us. In addition, legislation should also ensure that when Members’ engage in legal stock transactions, those are made publicly available in real time and online in a searchable database.

A law that curtails congressional self-dealing and increases transparency should not be controversial. The STOCK Act should pass.

Letter on the Need for the STOCK Act

Since the 60 Minutes expose on insider trading, the STOCK Act (HR 1148)has gained enormous steam in both the House and Senate.

Designed to prohibit insider trading from Congressional insiders, the bill is designed to address an important concern: Members should be serving the public, not their own personal profits.

But is the STOCK Act, as it's currently written, an appropriate solution?

Today's Roll Call raises a few concerns about the design of the bill.  A quick read adds a few additional concerns to the list.

Most significantly, read Section 3.

That section changes the House Ethics manual to prohibit Members from disclosing "material nonpublic information" about "any pending or prospective legislation" that the Member has "has reason to believe that the information will be used to buy or sell the securities of such publicly traded company". This is probably a well-intended provision: Members shouldn't disclose legislative information in order to give secret signals that affect markets.

But the way this provision is drafted would effectively prohibit most disclosure of nonpublic information about legislation.  Any time a Member describes things moving through Congress, there's a good chance that it could affect a publicly traded company, and there's reason to believe that the information will be used to buy or sell securities.

We should prohibit Members inappropriately using insider information.  And we should also protect their ability to share information about Congressional activity.  This provision appears to achieve the first, but at the expense of the second.

My other concern with the bill has to do with Section 5.  If Members and top staff must report transactions to the Clerk of the House (or Secretary of the Senate), then they should do it publicly.  The Clerk and Secretary should be instructed to make that information public by putting it online, just as they should be doing for a variety of other pieces of information as well, that are currently only available on paper.

We may have more updates on this as we review it further, but these two concerns should be addressed as the bill moves quickly through the process.

Update:  To be clear, Sunlight is very supportive of the STOCK Act effort, as we have been earlier in the year.  The concerns I raise above should certainly be addressed, and we hope that they're addressed through a quick and successful consideration of the STOCK Act by the House and Senate.  The insider trading issue threatens to even further erode public trust in Congress, and it's entirely appropriate for Congress to respond promptly.  The STOCK Act should be the vehicle through which that response is made.

Are Members of Congress using inside information gathered as part of their jobs to make financial investments (and get rich...er?) That question is at the heart of yesterday's 60 Minutes report. Reporter Steve Kroft accused current House Speaker John Boehner and former speakers Nancy Pelosi and Dennis Hastert, among others, of engaging in a legal form of insider trading. (We first broke the Hastert story in 2006.)  What the story didn't explore was how transparency aided Hoover Institution research fellow Peter Schweizer in drawing these connections, and how better transparency would deter problems from arising.

Schweizer's analysis drew upon congressional financial disclosure reports, one of many ethics-related documents that the House and Senate make available to the public. While all these documents should be available online, in real-time, and in machine-readable formats, most are not.* Usually, members of the public must physically travel to the House or Senate and print out ethics documents, one page at a time -- you will not be provided an electronic copy, no matter how much you ask,  even though the documents are already digitized. In fact, we compiled the first public list of all the "publicly-available" documents from the House and Senate, with information about how to obtain the reports and what they contain. We also called for the GAO to finally live up to its statutory obligation to review whether the personal financial disclosure forms should be updated.

Looking at the financial disclosure reports, only the House publishes them online; the Senate archaically requires you to go to the Senate in person to ask for this information. If you want to analyze the Senate's financial disclosure reports, you have to re-key the data into a computer by hand; there's no database to facilitate analysis. This is equally true if you want to see which Member or senior staffer has been promised a plum job by an outside company, foreign travel expense reports, legal defense fund contributions, and more. If you're not in Washington, you'd better be willing to book a plane ride to DC; otherwise, you're out of luck.

We won't know how much effort it took to make the connection between congressional activity and investing, which formed the basis of the 60 Minutes report and Schweizer's well-timed book "Throw Them All Out," but it likely was considerable. Without better data, it is hard to tell who actually benefited from trading on inside information. We also don't know the extent to which investors mine data from capitol hill about industry activities to help make investment decisions, and we can't know that until legislation like the STOCK Act (which we wrote about here) becomes law.

But what we do know is that the House and Senate can do much more to be transparent. They need to make it easier for the public to see who is trying to influence them, how they behave while in office, and the work that they're doing. That's why we are advocating for lobbying reform, ethics reform, and a lot more Sunlight on the process.

• Update 1: These documents are not available online from the House or Senate, but some third parties, such as the Center for Responsive Politics and Legistorm, have digitized many of the documents. However, it's not always possible to access the data in bulk, and it is possible that the third parties introduced errors in the digitization process.

• Update 2: I should also mention that Sunlight gave a grant to CRP for digitization of the personal financial disclosure forms, travel disclosures, and other documents in 2007.

Just like on Elm Street, Freddie killed bills in Congress. The Ted Stevens trial is set to wrap up today amidst cross examination of the Alaska senator. Lawmakers pressure AIG to stop lobbying. A look inside lawmaker insider trading. All of that in today's news:

In 2005, when Republicans still ruled Washington, Freddie Mac deployed a stealth lobbying effort targeting 17 Republican senators in an effort to beat back a reform effort pushed by Sen. Chuck Hagel. The lobbying firm employed, DCI, never filed a lobbying disclosure form as they avoided direct contacts with lawmakers and staff. Instead, the firm, whose lobbying effort Freddie Mac chief Hollis McLoughlin wanted to stay on the down-low, deployed high-profile constituents - businessmen, trade associations, etc... - to push back against the regulation effort to their senators. Freddie Mac was very happy with DCI's efforts as they kept 9 of the 17 targeted senators from signing a letter to then-Majority Leader Bill Frist asking that the bill be brought to the floor for a vote.

Sens. Dianne Feinstein and Mel Martinez responded to the appalling revelation that AIG is using taxpayer money to lobby against already enacted regulations by calling for the partially privatized insurer to stop its lobbying activities. AIG exists solely because of a $120 billion loan from the federal government, making the United States taxpayer the majority shareholder of the insurance giant.

Final fireworks are expected to fly as the fast moving ethics trial of Sen. Ted Stevens comes to a close today. Stevens is expected to face further cross examination today. The cross has already brought out the Incredible Hulk in Sen. Stevens as he showed his temper in court the other day. The defense attorneys are likely hoping that Stevens can better control himself. They don't want to see him when he's mad.

Open Secrets points to ProCon.org and their look into the issue of insider stock trading in Congress. Earlier this year, Rep. Brian Baird proposed the STOCK Act, which would make it illegal for lawmakers, staff, and executive branch officials to trade stocks with the benefit of nonpublic information obtained through the status of their official position. Another bill proposed by Rep. Baird would require "political intelligence" firms to publicly disclose their activities in the same way lobbyists do. In case you were wondering whether there is an actual insider trading positive effect on Congress' stock sheets, check out this graph: