STOCK Act: Insider Trading Ban May Muzzle Whistleblowers

WASHINGTON -- The bill to ban insider trading by members of Congress may have unintended consequences, including possibly muzzling whistleblowers and putting any business owner who talks to legislators at risk of breaking the law, some observers warn.

At issue is an amendment added to the STOCK Act that passed the Senate last week.

The provision, sponsored by Sen. Chuck Grassley (R-Iowa), requires people who offer "political intelligence" that can be used to make money to register alongside lobbyists as political intelligence consultants. According to the firm Integrity Research Associates, political intelligence is a $100 million-a-year business with 30 to 50 firms operating in Washington alone.

Such disclosure has long been sought by good-government groups, but lobbyists and watchdog experts told The Huffington Post that Grassley's amendment could have a greater impact than intended because it kicks in with just one contact between Congress and someone who might benefit financially from what they learn.

"If you ever make an investment decision, if this bill passes in current form, you probably should never talk to any member of Congress, because it's just going to be too big of a burden," said one former congressional staffer who analyzes financial legislation.

A lobbyist unaffected by the bill because he already is registered predicted that any business person who might learn something in an interaction with a member of Congress or a staffer would have to avoid such encounters in order to be safe.

"It would probably lead them to not wanting to have any interaction with those people," the lobbyist said, speaking anonymously because his employer had not granted permission to address the matter. "You would have to avoid meetings, conferences, meetings with your regulators, even congressional fundraisers, for fear that you would learn something that can conceivably later be determined to be information that informed an investment decision."

"I can't imagine that what the Senate wanted to do was bar people within the financial services industry and the rest of corporate America from being able to attend congressional fundraisers unless they're willing to register as political intelligence firms," the lobbyist said.

Some others were concerned that whistleblowers or activists who disseminated information about pending legislation -- perhaps seeking to stop or expose a sweetheart deal -- could run afoul of the measure if someone else used that information to profit.

"The problem is it's just so incredibly broad -- one contact, and then you'd have to prove that whatever you learned didn't influence an investment decision," the lobbyist said.

The analyst noted that the issue is complicated by the fact that it includes an exemption for the press, but not for others whose intent is not to profit off information. If a business interest was harmed by a leak from someone opposed to a measure that might have helped the business, there would be little to stop them from accusing the source of the leak of breaking the law.

"The industry that's impacted, they're going to love to find any way to go after these people and have a chilling effect," said the analyst, who also was not authorized by his employer to speak to reporters.

A Republican aide who requested anonymity downplayed potential negative impacts, arguing that staffers would not be subject to registering, and didn't need to worry. The aide found it unlikely that an injured industry would be able to cite the bill to go after a whistleblower, or an activist who simply gets email from a lawmaker about an issue.

"If you receive emails from them on a regular basis, that doesn't mean you're a lobbyist and you have to register as a lobbyist," the aide said, pointing to the Lobbying Disclosure Act. "This provision dovetails on that."

The aide added, though, that if an activist brought an issue to a legislator, then made, or helped someone else make, a financial decision based on an action they learned the lawmaker was going to take, it could be another matter.

"In a situation like that, there is a possibility you might have to register," the aide said. "But I think if you are just a passive recipient, then I don't think there's going to be a really strong case that you have to register."

Melanie Sloan, who runs Citizens for Responsibility and Ethics in Washington, said that she also had been hearing complaints, and was concerned that the language of the bill could inadvertently snare people.

But she was also dubious of many of the gripes, suggesting some were being made in a last-ditch effort to kill the bill in the House.

"There seems to be some problems, but there also seems to be some misinformation being spread by Wall Street because they don't want it to pass," said Sloan. "I will say that I think some of those interpretations are a stretch."

She insisted that whatever the problems, they should be fixed, not used as an excuse to strip the provision entirely.

"I think part of what you're seeing is a little backroom lobbying by political intelligence agencies that want to stay in the backroom," Sloan said. "They are not anxious to be in the limelight. That's bad for their business model."

"We're listening. We're trying to hear if there are folks coming up that are coming up with actual situations where there might be a harm done," a GOP aide said, suggesting there is room for tweaks to the bill. "You're dealing with live ammunition, and you want to make sure there aren't any unintended consequences, so it's good to talk it through."

House Majority Leader Eric Cantor has promised to bring his version of the STOCK Act forward for a vote on Wednesday, although Democrats complained bitterly Monday that he was crafting it behind closed doors.

"You can't make this stuff up," said Rep. Louise Slaughter (D-N.Y.), who has pushed the STOCK Act for years.

"This bill is designed to make our Congress better, yet House Republican leadership is shutting out minority opinions and changing a popular piece of legislation behind closed doors," she said in a press conference. "Apparently, they’re giving K Street the chance to weigh in. The House Republican leadership is hoping to vote on this issue in two days, on a bill we haven’t seen yet."