Questions have been raised by Senator Elizabeth Warren over potential insider trading by top Fed officials. but this is a major issue throughout the government.
On Monday, Senator Warren called on the Securities and Exchange Commission (SEC) to investigate transactions made by three senior officials. Warren sits on a committee that oversees the Federal Reserve, and in a letter to the Chair of SEC Gary Gensler, identified the three individuals and asked to investigate the “ethically questionable” trades to see if they went against insider trading rules.
Two of the officials resigned last week after their financial disclosures caused many to raise ethical and legal questions.
The Issue of Government
Trading based on non-public knowledge is illegal, and these officials had access to and took advantage of their knowledge of future Fed decisions in its most volatile and important moment in the past decade.
This issue is not new when it comes to government.
Speaker of the House Nancy Pelosi attracted media scrutiny when transactions by her husband where made public. Paul Pelosi had taken a major position prior to congress introducing a bill targeting big tech firms, netting him a cool $5.3 million.
Pelosi isn’t alone. Senators have for years traded in financial instruments before passing legislation that affects those positions. This year alone Business Insider and several other media organizations found that 37 members of Congress violated the “Stop Trading on Congressional Knowledge” Act of 2012.
Where Is The SEC?
Well, that’s a bit of an issue. The ‘Speech and Debate’ clause of the US constitution gives members of congress immunity from being prosecuted for actions taken while carrying out their civic duty. This means that although they most likely received and acted upon private information, investigators cannot find out what was said in closed-door meetings where the alleged information was discussed.
Without the necessary proof that they had traded on insider information, it is difficult for prosecutors to build a case against them.
While it is unlikely any public officials will be formally prosecuted, the ‘naming and shaming’ of officials breaching public trust is the best we can hope for, and as evident by the resignations of Fed officials, is relatively effective.