November 17, 2015
The SEC Goes After Congress
Posted by David Zaring

The  conflict between the SEC and Congress over its investigation of a tip from a committee staffer on Medicaid reimbursement regulations has resulted in an opinion requiring the House and the staffer to respond to an agency subpoena.  Matt Levine has the opinion and a review of it (meh, he says), here.  Here's a wrap.

I'm not sure I agree with the opinion.  On the one hand, Congress could not have more clearly waived sovereign immunity for insider trading in the STOCK Act, which applied that doctrine explicitly to itself.  On the other hand, the Speech and Debate Clause is meant to prevent the executive branch (for which read the SEC, although it less in the sway of the executive than is, say, the Department of Justice) from intimidating the legislative one when it is legislating, and there's lots of good precedent applying the protections enjoyed by members of Congress to their staffers, and applying them to investigations as well as prosecutions.  The tip in question in this case went from a staffer to a lobbyist, and I can't think of a more legislative thing to do than to have those conversations - indeed, the court acknowledges that Congress was legislating at the time.

It could be that there is no good reason to protect insider tipping by staffers, but that's not clear to me, at least under the facts of this case.  Staffers are going to want to talk to lobbyists about how to get things done, and that could easily involve discussions about what Congress is likely to do next, and that could easily be seen as market moving information.  It would make it hard to legislate if staffers had to worry about these conversations.

So maybe Congress is standing up for its staffers as a true matter of principle.  I don't quite follow the political economy here, though.  If Congress is upset about this, I'm surprised the agency is willing to take it to litigation, but maybe they take the STOCK Act especially seriously over there.

Administrative Law, Securities | Bookmark

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