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In 2008, the U.S. House of Representatives created the Office of Congressional Ethics to function in bipartisan fashion to explore possible congressional ethics breaches. OCE's creation was salutary, designed to give the public confidence that those who create legal standards are themselves faithful to the same high standards imposed on the rest of us.
But, as government inquisitors have long understood, the power to inquire "carries with it the power to defame and destroy." This imposes special obligations on those examining the conduct of others to ensure their efforts cannot be used to further individual, or partisan, agendas. In that respect, unfortunately, the House's vehicle for examining alleged ethical lapses has functioned as a tool capable of pernicious partisan abuse.
A recent case in point is the leak that OCE is allegedly reviewing purported "insider trading" by U.S. Rep. Spencer Bachus, R-Vestavia Hills, chairman of the House Financial Services Committee. Putting to one side, for a moment, the legally dispositive fact that stock trades based on the general direction of our economy cannot constitute "insider trading," the immediate question is how details of a review required to be kept confidential became grist for public rumor mills.
A subsidiary question is what accounts for this breach of OCE's strict confidentiality policy, disclosing its review of four-year-old securities trades within weeks of an impending election, when OCE is expressly precluded from referring even adverse conclusions for action during an election. In essence, the leak of a mere review -- unproven and, here, incapable of being proved -- effectively overrides the House's careful efforts to preclude utilizing knowledge of OCE's activities for partisan purposes.
The news stories engendered by the leaks contain detailed information regarding specific trades under review, information those representing Bachus undoubtedly lacked, narrowing the probable source of these leaks as one within OCE itself, in violation of its mandated policies. If those who claim to enforce high ethical standards are themselves guilty of severe ethical breaches, it is of little comfort that, months after the pending election, this group eventually will reach the only permissible conclusion -- that here, no violations of law could have occurred.
The original source for these allegations was a sensational, but factually inaccurate, book, followed by an adulatory (but equally inaccurate) "60 Minutes" segment about it. The allegations in the book, vis-a-vis Bachus, are inaccurate; far worse, however, is that these allegations are laughable to serious students of insider trading law. If Bachus attended a meeting in which the troubled state of the economy (and how to deal with it) was discussed, that was hardly a state secret at the time of the meeting. Moreover, immediately after the meeting, the organizers disclosed what had been discussed.
Wrongful insider trading requires, among other things:
> "Theft" or "misappropriation" of undisclosed material information.
> Knowledge about specific public companies (or a limited class of companies).
> A breach of a known duty to keep the information confidential, or to use it for personal purposes.
All three elements are missing here. Attending a briefing on the declining economy and what to do about it -- known to anyone breathing and alive, and unrelated to specific companies (or classes of companies) -- cannot create "insider trading" liability. In the meeting of policymakers to consider responses to our economic meltdown, no one discussed information related to any specific company (or class of companies) that was useful to someone seeking to obtain an advantage in connection with securities transactions.
Insider trading is a marketplace evil the SEC vigilantly combats. But, when other entities, lacking discernible expertise about either our capital markets or insider trading, purport to review spurious and sensational claims of insider trading, and the existence of that review is leaked, that damages our capital markets by confusing everyone about the proper scope of the federal securities laws.
Whatever well-intended goals led to OCE's creation, its recent performance reminds us of Will Rogers' apt observation: "We should be thankful we're not getting all the government we're actually paying for."
About the writers: Roderick M. Hills and Harvey Pitt are both past chairmen of the Securities and Exchange Commission.
The Birmingham News