The STOCK Act, Insider Trading, and Public
Financial Reporting by Federal Officials
Jack Maskell
Legislative Attorney
April 19, 2012
Congressional Research Service
7-5700
www.crs.gov
R42495
CRS Report for Congress
Pr
epared for Members and Committees of Congress
The STOCK Act, Insider Trading, and Public Financial Reporting by Federal Officials
Summary
The STOCK Act (Stop Trading on Congressional Knowledge Act of 2012), which was signed into
law on April 4, 2012, affirms and makes explicit the fact that there is no exemption from the
“insider trading” laws and regulations for Members of Congress, congressional employees, or any
federal officials. The law states that all federal officials have an express “duty” of trust and
confidentiality with respect to nonpublic, material information which they may receive in the
course of their official duties, and a duty not to use such information to make a private profit. The
act also requires expedited public disclosure of covered “financial transactions” by all officials in
the executive and legislative branches of the federal government who are covered by the public
reporting provisions of the Ethics in Government Act of 1978, as amended. The act requires not
only annual public reporting of such transactions, but also public reporting within 30 days of
receipt of a notice of a covered financial transaction, however, in no event more than 45 days
after such transaction. All public financial disclosure statements filed under the Ethics in
Government Act in the legislative and executive branches will eventually be made in electronic
form, and will be posted on the Internet where they may be publicly searched, sorted, and, if a
log-in protocol is followed, downloaded from official government websites.
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The STOCK Act, Insider Trading, and Public Financial Reporting by Federal Officials
Contents
Insider Trading................................................................................................................................. 1
Commodity Exchange Act......................................................................................................... 2
Initial Public Offerings (IPOs) .................................................................................................. 3
Public Financial Disclosure Reports................................................................................................ 3
Posting Disclosure Reports on Internet; Electronic Reporting.................................................. 3
Elimination of Mortgage Exemption for Personal Residences of Certain Officials.................. 4
Prompt Public Reporting of Financial Transactions ........................................................................ 4
Pensions of Members of Congress................................................................................................... 5
Other Provisions .............................................................................................................................. 5
Influencing Private Employment Decisions .............................................................................. 5
Negotiations for Post-Government Employment ...................................................................... 5
Bonuses to Fannie Mae and Freddie Mac Executives ............................................................... 6
Study on Political Intelligence................................................................................................... 6
Contacts
Author Contact Information............................................................................................................. 6
Congressional Research Service
The STOCK Act, Insider Trading, and Public Financial Reporting by Federal Officials
n April 4, 2012, the STOCK Act (Stop Trading on Congressional Knowledge Act of
2012) was signed into law.1 The act clarifies and confirms the application of the “insider
O trading” rules to all government officials, including Members of Congress, and provides
for more transparency and access to the reports on the personal financial information, assets, and
transactions of federal officers and employees.
The STOCK Act has, in summary, four major features:
• First, the law reaffirms the fact that the existing “insider trading” provisions of
securities law and regulations do not contain any exemption or exclusion for
Members of Congress, congressional staff, or other federal officials.
Furthermore, the law makes explicit the duty of confidentiality and trust that all
public employees have concerning material, nonpublic information that comes to
them by virtue of their federal employment.
• Secondly, the law requires the establishment of an electronic filing system for all
financial disclosure reports that must be filed by legislative and executive branch
officials under the Ethics in Government Act of 1978, and requires that the public
reports of personal financial information and details filed by all legislative and
executive branch personnel are to be available to be publicly accessed on the
Internet in a searchable and sortable format.
• Thirdly, the law requires public reporting within 30 days after receiving a report
concerning, but no later than 45 days after, a covered financial transaction in
income-producing property (such as the purchase or sale of stocks or bonds) by
all legislative and executive branch personnel who are required to file the annual
public financial disclosure reports under the Ethics in Government Act of 1978.
• Finally, the law expands the list of crimes, conviction of which would result in a
Member of Congress losing all of his or her creditable service as a Member for
congressional pension purposes, and broadens the time period when such
conviction would apply to federal pension forfeiture.
Insider Trading
The provisions of the new law expressly affirm that there exists no exemption for Members of
Congress, congressional employees, or for other federal officers or employees from the “insider
trading” prohibitions in federal securities law and regulation.2 It should be emphasized that there
never was any exemption or exception from the “insider trading” provisions of securities law for
Members of Congress, congressional staff, or for other federal employees, and such persons were
subject to the insider trading restrictions in the same manner as members of the general public.3
1 P.L. 112-105, 112th Cong., 126 Stat. 291 (2012); S. 2038, 112th Congress, as amended and passed by the House on
February 9, 2012, and adopted by the Senate, agreeing to the House Amendments, on March 22, 2012.
2 P.L. 112-105, Sections 4 (Members of Congress and the legislative branch) and 9 (executive and judicial branches).
3 Securities Exchange Act of 1934, 15 U.S.C. §§78a et seq., specifically 15 U.S.C. §78j(b); and the Insider Trading
Sanctions Act of 1984, P.L. 98-376, and 15 U.S.C. §§78t-1(a), (b), and §78ff; S.E.C. regulations at 17 C.F.R.
§§240.10b-5, 240.10b-5-1, 240.10b-5-2. See testimony of Robert Khuzami, Director, Division of Enforcement, U.S.
Securities and Exchange Commission, before the House Financial Services Committee, December 6, 2011
(http://www.sec.gov/news/testimony/2011/ts120611rk.htm); note also Donna M. Nagy, Insider Trading, Congressional
Officials, and Duties of Entrustment, 91 BOSTON UNIV. L.R. 1105 (2011). Members of Congress were and are subject to
(continued...)
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The STOCK Act, Insider Trading, and Public Financial Reporting by Federal Officials
However, certain media reports and allegations created the public impression that Members of
Congress and staff were actually exempt or had “excepted themselves” from the insider trading
provisions.4 This legislation addressed that perception.
In addition to affirming that the insider trading restrictions of securities law and regulation apply
to Members of Congress and to other federal officials, the STOCK Act further affirms expressly
that there exists a duty of “trust and confidence” owed by each officer and employee of the
legislative branch, each executive branch official, and each judicial officer and employee, to the
United States and the citizens of the United States with respect to material, nonpublic information
derived from such person’s public employment.5
The STOCK Act directs the ethics entities in the House and Senate—the House Ethics Committee
and the Senate Select Committee on Ethics—to issue interpretations of chamber rules “clarifying”
that Members and staff are prohibited from using nonpublic information derived from their
positions “as a means for making a private profit.” Although such explicit regulations already
exist in the executive branch,6 the legislation directs that the Office of Government Ethics issue
such interpretive guidance, and that the Judicial Conference of the United States issue such
guidance to federal judges and to judicial employees.
From the inclusiveness of the language of the legislation, and from previous guidance, it would
appear that the restrictions on the use of nonpublic, material information extends not only to
trading directly by the Member of Congress or by staff on such information, but would extend
also to passing on such material, nonpublic information to another so that such other person may
make a private profit for himself or herself, or for the public official.7
Commodity Exchange Act
The STOCK Act now expressly includes Members and employees of Congress within those
employees or agents of the federal government, including all executive branch and judicial branch
officers and employees, who are prohibited from using nonpublic information, imparting such
nonpublic information, or stealing or converting nonpublic information to purchase or sell
commodities, commodities futures, or options, for personal gain.8
(...continued)
the restrictions to the extent that any enforcement action by an entity outside of Congress must conform to the “Speech
or Debate” privilege in the United States Constitution, art. I, §6, cl. 1.
4 See, for example, Wall Street Journal, “Congress’s Insider-Trading Non-Scandal,” at A15 (November 16, 2011).
5 P.L. 112-105, Sections 4(b) and 9(b)(2). Existing congressional rules and executive branch regulations and standards
recognize such a “duty of trust” of federal officials (See Standing Orders of the Senate, §87, Senate Manual, S. Doc.
107-1, at 118-119 (2002); House Ethics Manual, 110th Cong., 2nd Sess., at 2 (2008); Code of Ethics for Government
Service, ¶ 8 (H. Con. Res. 175, 72 Stat., pt. 2, B12 (July 11, 1958)), 5 C.F.R. §§2635.702, 2635.703. Federal case law
has expressly recognized the “fiduciary” relationship of trust towards to the public inherent in the position of a Member
of Congress. United States v. Podell, 572 F.2d 31, 32 (2d Cir. 1978).
6 5 C.F.R. §§2635.702, and 2635.703.
7 See House Ethics Committee discussion of “tipping” violations, in Memorandum to All House Members, Officers and
Employees, “Rules Regarding Personal Financial Transactions,” November 29, 2011; see 15 U.S.C. §78j(b), and 17
C.F.R. §240.10b-5.
8 P.L. 112-105, Section 5, amending the Commodity Exchange Act, 7 U.S.C. §6c(a).
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The STOCK Act, Insider Trading, and Public Financial Reporting by Federal Officials
Initial Public Offerings (IPOs)
The STOCK Act amends the Securities Exchange Act of 1934 to provide that all officers or
employees of the federal government who are required to file annual public financial disclosure
reports under the Ethics in Government Act are now prohibited from purchasing securities that
are the subject of an “initial public offering ... in any manner other than is available to members
of the public generally.”9
Public Financial Disclosure Reports
Under current law, Members of Congress and certain employees of the legislative branch
(including those paid at a rate of pay exceeding 120% of the base salary of a GS-15), as well as
executive branch officials who occupy “a position classified above GS-15,” or, if not on the
General Schedule, are in a position compensated at a “rate of basic pay ... equal to or greater than
120 percent of the minimum rate of basic pay payable for GS-15,” are generally subject to the
public financial disclosure provisions of the Ethics in Government Act of 1978, as amended.10
Those employees compensated at the rate of pay described above are required to file detailed
public financial disclosure statements by May 15 of the following year if the individual works for
the government for more than 60 days in the calendar year. These disclosure reports have been
available to the public for viewing at the office of the agency ethics officer, or a copy may be
furnished to those requesting a copy.11
Posting Disclosure Reports on Internet; Electronic Reporting
Under the new provisions of the STOCK Act, the annual financial disclosure reports (as well as
the new prompt reporting disclosures of financial transactions) made in 2012 by Members,
officers of the House or Senate, candidates to Congress, and employees of the entire legislative
branch who are required to file public financial disclosure reports under the Ethics in Government
Act, are required to be posted on the respective official websites of the House and Senate no later
than August 31, 2012.12 Similarly, the public disclosure reports made in 2012 by officers and
employees of the executive branch under the Ethics in Government Act are to be posted no later
than August 31, 2012, on the official websites of the respective executive branch agencies.13 In
subsequent reporting years, these reports are to be posted on the publicly accessible websites no
later than 30 days after filing.14
Within 18 months of the passage of the act, the Clerk of the House and Secretary of the Senate, as
well as the appropriate entities in the executive branch of government, are instructed to develop
and implement an electronic filing system for the financial disclosure reports required to be filed
under the Ethics in Government Act.15 The system is to allow the public to search the reports on
9 P.L. 112-105, Section 12, amending 15 U.S.C. §78u-1.
10 See now 5 U.S.C. app., §101(f).
11 5 U.S.C. app., §105(b).
12 P.L. 112-105, Section 8(a)(1).
13 P.L. 112-105, Section 11(a)(1).
14 P.L. 112-105, Sections 8(a)(1), 11(a)(1).
15 P.L. 112-105, Sections 8(b), 11(b).
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The STOCK Act, Insider Trading, and Public Financial Reporting by Federal Officials
the Internet and, with a login, to be able to download the reports. The system for the executive
branch is to be maintained on the official website of the Office of Government Ethics.
In the legislative branch, the reports filed by Members of Congress are to be kept for a period of
six years after the date the person is no longer a Member; and other reports filed by legislative
officers and employees are to be retained for a period of six years after receipt.16
Elimination of Mortgage Exemption for Personal Residences of
Certain Officials
Under existing law in the Ethics in Government Act, one of the “liabilities” of over $10,000 that
did not have to be disclosed on an annual personal financial disclosure report was the mortgage
on officers’ or employees’ personal residences.17 By removing the exemption for such disclosure
from reports made by the President, the Vice President, Members of Congress, and nominees and
incumbents in positions which are appointed by the President and confirmed by the Senate (other
than Foreign Service officials below the rank of ambassador, military personnel at or below grade
0-6, or special government employees), the STOCK Act now requires disclosure of information
about the mortgages on such officials’ own personal residences.18
Prompt Public Reporting of Financial Transactions
The Ethics in Government Act of 1978 requires the annual reporting of all “transactions” in
income-producing property of over $1,000 in value.19 This requirement applies generally to the
purchase or sale of real property, or of such assets as stocks, bonds, commodity futures, or other
securities. The STOCK Act now requires, as of July 3, 2012, the public reporting of covered
transactions in these income-producing assets to be made within 30 days of receiving notice of
the transaction, but not later than 45 days after the transaction, from every federal officer and
employee in the legislative and executive branches of government who are required to file public
financial disclosure reports under the Ethics in Government Act of 1978, as amended.20
This requirement for more prompt reporting of financial transactions will not apply to a widely
held investment fund, such as mutual funds, if the fund is publicly traded, the assets are widely
diversified, and the reporting individual neither exercises nor is allowed to exercise control over
the financial interests of the fund.21
16 P.L. 112-105, Section 8(c).
17 5 U.S.C. app. §102(a)(4)(A).
18 P.L. 112-105, Section 13.
19 5 U.S.C. §102(a)(5).
20 P.L. 112-105, Section 6.
21 P.L. 112-105, Section 14
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Pensions of Members of Congress
Under current law, if convicted of certain offenses relating to corruption in public office while
serving as a Member, a Member of Congress forfeits all of his or her creditable service as a
Member for federal pension purposes.22 This bill expands that provision so that a Member of
Congress would lose the credit for service as a Member for pension purposes if convicted of one
of the numerous corruption offenses not only during time served as a Member of Congress, but
also if convicted of any of such offenses while the President, the Vice President, or as an elected
official of a state or local government.23
The STOCK Act also adds numerous other federal criminal laws relating generally to public
corruption or elections, for which a final felony conviction would result in losing creditable
service as a Member of Congress for federal pension purposes. Such other criminal offenses
include conflicts of interest (18 U.S.C. §203); conspiracy to make false claims (18 U.S.C. §286);
making false claims to the government (18 U.S.C. §287); vote buying (18 U.S.C. §597); illegal
solicitation of political contributions from federal employees (18 U.S.C. §602); soliciting political
contributions in a federal building or office (18 U.S.C. §607); theft, conversion, or embezzlement
of government funds or property (18 U.S.C. §641); false statements to the government (18 U.S.C.
§1001); obstruction of proceedings before government agencies (18 U.S.C. §1505); attempt to
evade or defeat paying taxes (26 U.S.C. §7201), among other offenses.24
Other Provisions
Influencing Private Employment Decisions
Section 18 of the Stock Act amends 18 U.S.C. §227 to include officers and employees of the
executive branch of government in the prohibition on wrongfully attempting to influence private
employment decisions based on partisan political affiliations.
Negotiations for Post-Government Employment
The STOCK Act now requires any individual who must file a public financial disclosure report
under the Ethics in Government Act to report all negotiations or agreements for future private
employment within three days after commencement of such negotiations or agreement to the
employee’s supervising ethics office, and then to recuse himself or herself when there is a conflict
of interest or an appearance of a conflict of interest “with respect to the subject matter of the
statement.”25 These provisions do not appear to supersede, but appear to add to the existing
criminal conflict of interest provision in 18 U.S.C. §208. With respect to all executive branch
employees, 18 U.S.C. §208 requires recusal of such executive branch officer and employee from
22 5 U.S.C. §8332(o) (CSRS), and 5 U.S.C. §8411(l) (FERS), added by the “Honest Leadership and Open Government
Act of 2007,” P.L. 110-81, title IV. See also “Hiss Act” provisions, at 5 U.S.C. §8311 et seq., relating to national
security offenses.
23 P.L. 112-105, Section 15(a).
24 P.L. 112-105, Section 15(b).
25 P.L. 112-105, Section 17.
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any particular governmental matter when that matter may affect the financial interests of “any
person or organization with whom he [the employee] is negotiating or has any arrangement
concerning prospective employment.” Additionally, there exist detailed executive branch
regulations on negotiating and seeking private employment, at 5 C.F.R. §2635, Subpart F,
§§2635.601- 2635.606.
Bonuses to Fannie Mae and Freddie Mac Executives
The STOCK Act prohibits the receipt of bonuses by “senior executives” at the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation during any period of
conservatorship for those entities after the passage of this act.26
Study on Political Intelligence
The compromise agreed to in the STOCK Act requires a report to be made by the Comptroller
General of the Government Accountability Office, in consultation with the Congressional
Research Service, within one year concerning the role of “political intelligence” in the financial
markets, including the extent that such information sold is considered nonpublic; the legal and
ethical issues in the sale of political intelligence; benefits from imposing reporting and
registration requirements on those who engage in political intelligence; and legal and practical
issues in imposing such reporting and registration requirements.27
Author Contact Information
Jack Maskell
Legislative Attorney
jmaskell@crs.loc.gov, 7-6972
26 P.L. 112-105, Section 16.
27 P.L. 112-105, Section 7.
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