Insider trading by members of Congress

The recent insider trading by members of Congress (notably but not exclusively by Senator Burr) is appalling.  One policy response – advocated for by Elizabeth Warren – would prohibit MOCs from investing in the stock of individual companies, requiring them instead to invest in mutual funds.  This would prevent the type of corruption evident in the Chris Collins case.  However, under this proposal MOCs could still have cashed out of stock funds and moved into bond funds based on their advance knowledge of the coming epidemic.

An alternative or complementary approach would be to require MOCs to place their buy and sell orders in advance – say, 6 or 12 months in advance.  This would prevent them from trading on private information, such as classified briefings about the likely economic impact of the covid-19 epidemic.  A similar rule could also be imposed on corporate insiders to (largely) eliminate insider trading and perhaps reduce incentives to manipulate financial statements.  (Executives would still have an incentive to pump up the stock price prior to an announced sale date and to lower it prior to an announced purchase, but at least other investors would be aware of their incentive to do so.)

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