Friday, January 27, 2012
Wednesday, January 11, 2012
Why Congress Isn't Liable for Insider Trading
Why Congress Isn't Liable for Insider Trading
By Lawrence Greenberg | More Articles
January 10, 2012 | Comments (26)
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At one time or another, Congress self-servingly said its members didn't need to obey laws as varied (and burdensome) as the Civil Rights Act and the Freedom of Information Act. Nevertheless, Congress didn't exempt itself from the law against insider trading -- at least in part because there isn't one.
Unlike some other countries, the United States has no law forbidding people from trading on inside information. Does that mean that famous convicted inside-traders such as ImClone's Sam Waksal, corporate-raider Gordon Gekko, or Galleon Group's Raj Rajaratnam should call their lawyers and appeal their criminal convictions? No (although Gekko is fictional and Waksal already served his time).
What the law says
For lawyers, one of the neat characteristics of U.S. securities laws is that they're made up of statutes, Securities and Exchange Commission regulations, and court decisions interpreting those laws and regulations. The SEC's Rule 10b5, under the Securities Exchange Act of 1934, makes it illegal for anyone to "employ any device, scheme, or artifice to defraud" in connection with the purchase or sale of a security.
Over time, the courts have held that people engage in fraud or deception under Rule 10b5 when they trade on material, nonpublic information obtained as part of a relationship of trust or confidence -- so, to simplify, it's generally illegal for you or me to trade on the inside information we learn from our employers.
It's important to recognize, though, that the SEC's rules, as interpreted by the courts, don't make it illegal for people merely to trade on information that others don't have. We want people to conduct research and develop unique information. Rather, the securities laws try to level the playing field between corporate insiders, who generally have access to lots of information, and outsiders, who have less. That's why the courts have required that, in order for a person's trading on nonpublic information to be illegal, the person must have obtained that information because of a special, trusted status and have a duty to keep it confidential -- typically because the person has a position at a company or enjoys a relationship of confidence, as would a lawyer, for example.
Two theories of insider trading
There are two main theories of insider trading. The "classical" theory applies when people trade in a company's stock based on information they receive from that company, when they have some obligation to keep that information secret. In other words, if you're an executive at XYZ Co., and you learn that XYZ has been awarded a big defense contract, your decision to buy XYZ stock before the deal is announced could be a fashion choice, as well as an investment decision, and you'd better hope that you look good in prison stripes (or orange jumpsuits, as applicable).
Members of Congress aren't likely to be subject to liability under this theory because they don't owe confidentiality to companies in the marketplace. They're Congress, dagnabbit, not corporate flunkies (I could write something snarky here, but I won't).
The "misappropriation" theory of insider trading says that when people have a fiduciary or similar obligation to someone, they can't use that person's information for their own gain without disclosing their use of the information to that person. An example helps here: If a lawyer who represents PQR Co. learns that PQR is about to buy XYZ, he can't just run out and buy XYZ stock. Note that in a misappropriation case, the "victim" is actually the source of the information, not the faceless, uninformed chump on the other side of the transaction.
The enforcement challenge
You might think, as some legal scholars do, that members of Congress owe the American people at least as much loyalty as lawyers owe their clients, so that members who used congressional information for their own ends would be misappropriating it and thus breaking the law.
But other legal scholars, as well as the SEC, doubt that members owe that sort of duty. As Thomas Newkirk, former associate director of the SEC's Division of Enforcement, told The Wall Street Journal, members don't have "a duty of confidentiality to anybody and therefore ... would not be liable for insider trading."
Similarly, Robert Khuzami, director of the Enforcement Division, testified before Senate in November that to win an insider trading case against a member of Congress, the SEC would have to demonstrate that the lawmaker violated a fiduciary or other duty of trust and confidence, and it is not clear that such congressional trading "violates the fiduciary duty he or she owes to the United States and its citizens, or to the federal government as his or her employer."
Without a firm understanding that the law is on their side, SEC regulators or Justice Department prosecutors are unlikely to bring cases against members who trade on congressional information. Bringing an action against a member of the branch of government that sets your budget is hard enough, but it's particularly daunting when your legal basis is shaky.
So, for now, it appears that unlike the rest of us, members of Congress can trade on inside information with legal impunity. They didn't create that situation, but unless they pass the STOCK Act, or something like it, they're certainly perpetuating it.
By Lawrence Greenberg | More Articles
January 10, 2012 | Comments (26)
Don't let it get away!
Keep track of the stocks that matter to you.
Help yourself with the Fool's FREE and easy new watchlist service today.
Click Here Now
At one time or another, Congress self-servingly said its members didn't need to obey laws as varied (and burdensome) as the Civil Rights Act and the Freedom of Information Act. Nevertheless, Congress didn't exempt itself from the law against insider trading -- at least in part because there isn't one.
Unlike some other countries, the United States has no law forbidding people from trading on inside information. Does that mean that famous convicted inside-traders such as ImClone's Sam Waksal, corporate-raider Gordon Gekko, or Galleon Group's Raj Rajaratnam should call their lawyers and appeal their criminal convictions? No (although Gekko is fictional and Waksal already served his time).
What the law says
For lawyers, one of the neat characteristics of U.S. securities laws is that they're made up of statutes, Securities and Exchange Commission regulations, and court decisions interpreting those laws and regulations. The SEC's Rule 10b5, under the Securities Exchange Act of 1934, makes it illegal for anyone to "employ any device, scheme, or artifice to defraud" in connection with the purchase or sale of a security.
Over time, the courts have held that people engage in fraud or deception under Rule 10b5 when they trade on material, nonpublic information obtained as part of a relationship of trust or confidence -- so, to simplify, it's generally illegal for you or me to trade on the inside information we learn from our employers.
It's important to recognize, though, that the SEC's rules, as interpreted by the courts, don't make it illegal for people merely to trade on information that others don't have. We want people to conduct research and develop unique information. Rather, the securities laws try to level the playing field between corporate insiders, who generally have access to lots of information, and outsiders, who have less. That's why the courts have required that, in order for a person's trading on nonpublic information to be illegal, the person must have obtained that information because of a special, trusted status and have a duty to keep it confidential -- typically because the person has a position at a company or enjoys a relationship of confidence, as would a lawyer, for example.
Two theories of insider trading
There are two main theories of insider trading. The "classical" theory applies when people trade in a company's stock based on information they receive from that company, when they have some obligation to keep that information secret. In other words, if you're an executive at XYZ Co., and you learn that XYZ has been awarded a big defense contract, your decision to buy XYZ stock before the deal is announced could be a fashion choice, as well as an investment decision, and you'd better hope that you look good in prison stripes (or orange jumpsuits, as applicable).
Members of Congress aren't likely to be subject to liability under this theory because they don't owe confidentiality to companies in the marketplace. They're Congress, dagnabbit, not corporate flunkies (I could write something snarky here, but I won't).
The "misappropriation" theory of insider trading says that when people have a fiduciary or similar obligation to someone, they can't use that person's information for their own gain without disclosing their use of the information to that person. An example helps here: If a lawyer who represents PQR Co. learns that PQR is about to buy XYZ, he can't just run out and buy XYZ stock. Note that in a misappropriation case, the "victim" is actually the source of the information, not the faceless, uninformed chump on the other side of the transaction.
The enforcement challenge
You might think, as some legal scholars do, that members of Congress owe the American people at least as much loyalty as lawyers owe their clients, so that members who used congressional information for their own ends would be misappropriating it and thus breaking the law.
But other legal scholars, as well as the SEC, doubt that members owe that sort of duty. As Thomas Newkirk, former associate director of the SEC's Division of Enforcement, told The Wall Street Journal, members don't have "a duty of confidentiality to anybody and therefore ... would not be liable for insider trading."
Similarly, Robert Khuzami, director of the Enforcement Division, testified before Senate in November that to win an insider trading case against a member of Congress, the SEC would have to demonstrate that the lawmaker violated a fiduciary or other duty of trust and confidence, and it is not clear that such congressional trading "violates the fiduciary duty he or she owes to the United States and its citizens, or to the federal government as his or her employer."
Without a firm understanding that the law is on their side, SEC regulators or Justice Department prosecutors are unlikely to bring cases against members who trade on congressional information. Bringing an action against a member of the branch of government that sets your budget is hard enough, but it's particularly daunting when your legal basis is shaky.
So, for now, it appears that unlike the rest of us, members of Congress can trade on inside information with legal impunity. They didn't create that situation, but unless they pass the STOCK Act, or something like it, they're certainly perpetuating it.
Wednesday, January 4, 2012
Google, Amazon, Facebook, and Twitter considering “nuclear option” to protest SOPA
Google, Amazon, Facebook, and Twitter considering “nuclear option” to protest SOPA
By Joel Hruska on January 3, 2012 at 12:00 pm
The battle against SOPA reached fever pitch just before Christmas when a Reddit-led boycott of Go Daddy over the domain registrar’s support for the controversial legislation led to some 37,000 domains leaving the company for greener, freedom-loving pastures. Go Daddy, meanwhile, is now buried in complaints that it’s improperly blocking domain transfer requests to rival Namecheap.
With debate over SOPA’s future tabled until Congress reconvenes, you might think the issue would have entered a similar lull, but that’s not happened. According to Markham Erickson, head of the NetCoalition trade association, there’s been talk of a so-called “nuclear option,” in which the likes of Google, Amazon, eBay, and Yahoo! would go simultaneously dark to protest the legislation to highlight the fundamental danger the legislation poses to the function of the internet.
There’s been no formal decision on the matter, and the companies in question obviously risk consumer anger and backlash over any suspension of services. There is, however, safety in numbers — and a few simple sentences identifying why the blackout is in place will ensure that the majority of the rage flows in the proper direction.
It’s a trump card that the likes of the MPAA and RIAA have no way of matching. There’s solid technical data behind the tech industry’s claims that implementing SOPA could damage the function of the internet, and plenty of evidence (some of it just weeks old) that copyright holders will abuse existing judicial processes to eliminate content they don’t like. The MPAA and RIAA are willing to talk about jobs lost to piracy in the abstract, but won’t (and can’t) promise that passing SOPA will allow them to hire thousands of Americans or create jobs in a statement they’d be held accountable for fulfilling.
There’s no information yet on when the blackout would occur, but the most likely date right now would be January 23. The Senate is scheduled to debate SOPA on January 24. Speaking in December, Senate Majority Leader Harry Reid highlighted the importance of passing the legislation. “This is a bipartisan piece of legislation which is extremely important,” Reid said Saturday. “I repeat, it is bipartisan. I hope we can have a productive couple of days, pass this bill, and move on to other matters.”
Bring on the nukes.
Friday, December 23, 2011
Thursday, December 22, 2011
An aphorism is an original thought, spoken or written in a laconic (concise) and memorable form.
1. In my many years I have come to a conclusion that one useless man
is a shame, two is a law firm and three or more is a congress.
- John Adams
2. If you don't read the newspaper you are uninformed, if you do read
the newspaper you are misinformed.
- Mark Twain
3. Suppose you were an idiot. And suppose you were a member of
Congress. But then I repeat myself.
- Mark Twain
4. I contend that for a nation to try to tax itself into prosperity is
like a man standing in a bucket and trying to lift himself up by the
handle.
- Winston Churchill
5. A government which robs Peter to pay Paul can always depend on the
support of Paul.
- George Bernard Shaw
6. A liberal is someone who feels a great debt to his fellow man,
which debt he proposes to pay off with your money.
- G. Gordon Liddy
7. Democracy must be something more than two wolves and a sheep voting
on what to have for dinner.
- James Bovard, Civil Libertarian (1994)
8. Foreign aid might be defined as a transfer of money from poor
people in rich countries to rich people in poor countries.
- Douglas Casey, Classmate of Bill Clinton at Georgetown University
9. Giving money and power to government is like giving whiskey and car
keys to teenage boys.
- P.J. O'Rourke, Civil Libertarian
10. Government is the great fiction, through which everybody endeavors
to live at the expense of everybody else.
- Frederic Bastiat, French economist(1801-1850)
11. Government's view of the economy could be summed up in a few short
phrases: If it moves, tax it. If it keeps moving, regulate it. And
if it stops moving, subsidize it.
- Ronald Reagan (1986)
12. I don't make jokes. I just watch the government and report the
facts.
- Will Rogers
13. If you think health care is expensive now, wait until you see what
it costs when it's free!
- P.J. O'Rourke
14. In general, the art of government consists of taking as much money
as possible from one party of the citizens to give to the other.
- Voltaire (1764)
15. Just because you do not take an interest in politics doesn't mean
politics won't take an interest in you!
- Pericles (430 B.C.)
16. No man's life, liberty, or property is safe while the legislature
is in session.
- Mark Twain (1866)
17. Talk is cheap...except when Congress does it.
- Anonymous
18. The government is like a baby's alimentary canal, with a happy
appetite at one end and no responsibility at the other.
- Ronald Reagan
19. The inherent vice of capitalism is the unequal sharing of the
blessings. The inherent blessing of socialism is the equal sharing of
misery.
- Winston Churchill
20. The only difference between a tax man and a taxidermist is that
the taxidermist leaves the skin.
- Mark Twain
21. The ultimate result of shielding men from the effects of folly is
to fill the world with fools.
- Herbert Spencer, English Philosopher (1820-1903)
22. There is no distinctly Native American criminal class...save
Congress.
- Mark Twain
23. What this country needs are more unemployed politicians.
- Edward Langley, Artist (1928-1995)
24. A government big enough to give you everything you want, is strong
enough to take everything you have.
- Thomas Jefferson
25. We hang the petty thieves and appoint the great ones to public
office.
- Aesop
FIVE BEST SENTENCES
1. You cannot legislate the poor into prosperity, by legislating the
wealth out of prosperity.
2. What one person receives without working for...another person must
work for without receiving.
3. The government cannot give to anybody anything that the government
does not first take from somebody else.
4. You cannot multiply wealth by dividing it.
5. When half of the people get the idea that they do not have to work
because the other half is going to take care of them, and when the
other half gets the idea that it does no good to work because somebody
else is going to get what they worked for, that is the beginning of the
end of any nation!
is a shame, two is a law firm and three or more is a congress.
- John Adams
2. If you don't read the newspaper you are uninformed, if you do read
the newspaper you are misinformed.
- Mark Twain
3. Suppose you were an idiot. And suppose you were a member of
Congress. But then I repeat myself.
- Mark Twain
4. I contend that for a nation to try to tax itself into prosperity is
like a man standing in a bucket and trying to lift himself up by the
handle.
- Winston Churchill
5. A government which robs Peter to pay Paul can always depend on the
support of Paul.
- George Bernard Shaw
6. A liberal is someone who feels a great debt to his fellow man,
which debt he proposes to pay off with your money.
- G. Gordon Liddy
7. Democracy must be something more than two wolves and a sheep voting
on what to have for dinner.
- James Bovard, Civil Libertarian (1994)
8. Foreign aid might be defined as a transfer of money from poor
people in rich countries to rich people in poor countries.
- Douglas Casey, Classmate of Bill Clinton at Georgetown University
9. Giving money and power to government is like giving whiskey and car
keys to teenage boys.
- P.J. O'Rourke, Civil Libertarian
10. Government is the great fiction, through which everybody endeavors
to live at the expense of everybody else.
- Frederic Bastiat, French economist(1801-1850)
11. Government's view of the economy could be summed up in a few short
phrases: If it moves, tax it. If it keeps moving, regulate it. And
if it stops moving, subsidize it.
- Ronald Reagan (1986)
12. I don't make jokes. I just watch the government and report the
facts.
- Will Rogers
13. If you think health care is expensive now, wait until you see what
it costs when it's free!
- P.J. O'Rourke
14. In general, the art of government consists of taking as much money
as possible from one party of the citizens to give to the other.
- Voltaire (1764)
15. Just because you do not take an interest in politics doesn't mean
politics won't take an interest in you!
- Pericles (430 B.C.)
16. No man's life, liberty, or property is safe while the legislature
is in session.
- Mark Twain (1866)
17. Talk is cheap...except when Congress does it.
- Anonymous
18. The government is like a baby's alimentary canal, with a happy
appetite at one end and no responsibility at the other.
- Ronald Reagan
19. The inherent vice of capitalism is the unequal sharing of the
blessings. The inherent blessing of socialism is the equal sharing of
misery.
- Winston Churchill
20. The only difference between a tax man and a taxidermist is that
the taxidermist leaves the skin.
- Mark Twain
21. The ultimate result of shielding men from the effects of folly is
to fill the world with fools.
- Herbert Spencer, English Philosopher (1820-1903)
22. There is no distinctly Native American criminal class...save
Congress.
- Mark Twain
23. What this country needs are more unemployed politicians.
- Edward Langley, Artist (1928-1995)
24. A government big enough to give you everything you want, is strong
enough to take everything you have.
- Thomas Jefferson
25. We hang the petty thieves and appoint the great ones to public
office.
- Aesop
FIVE BEST SENTENCES
1. You cannot legislate the poor into prosperity, by legislating the
wealth out of prosperity.
2. What one person receives without working for...another person must
work for without receiving.
3. The government cannot give to anybody anything that the government
does not first take from somebody else.
4. You cannot multiply wealth by dividing it.
5. When half of the people get the idea that they do not have to work
because the other half is going to take care of them, and when the
other half gets the idea that it does no good to work because somebody
else is going to get what they worked for, that is the beginning of the
end of any nation!
Saturday, December 10, 2011
Current European tax Rates
United Kingdom
Income Tax: 50%
VAT: 17.5% TOTAL: 67.5%
France
Income Tax: 40%
VAT: 19.6% TOTAL: 59.6%
Greece
Income Tax: 40%
VAT: 25% TOTAL: 65%
Spain
Income Tax: 45%
VAT: 16% TOTAL: 61%
Portugal
Income Tax: 42%
VAT: 20% TOTAL: 62%
Sweden
Income Tax: 55%
VAT: 25% TOTAL: 80%
Norway
Income Tax: 54.3%
VAT: 25% TOTAL: 79.3%
Netherlands
Income Tax: 52%
VAT: 19% TOTAL: 71%
Denmark
Income Tax: 58%
VAT: 25% TOTAL: 83%
Finland
Income Tax: 53%
VAT: 22% TOTAL: 75%
If you've started to wonder what the real costs of socialism are going to be - once the full program in these United States hits your wallet - take a look at the table. As you digest these mind-boggling figures, keep in mind that in spite of these astronomical tax rates, these countries are still not financing their social welfare programs exclusively from tax revenues! They are deeply mired in public debt of gargantuan proportions. Greece has reached the point where its debt is so huge it is in imminent danger of defaulting. That is the reason the European economic community has intervened to bail them out. If you're following the financial news, you know Spain and Portugal are right behind Greece.
The United States is now heading right down the same path. The VAT tax in the table is the national sales tax that Europeans pay. Stay tuned because that is exactly what you can expect to see the administration proposing after the fall elections. The initial percentage in the United States isn't going to be anywhere near the outrageous numbers you now see in Europe. Guess what. the current outrageous numbers in Europe didn't start out as outrageous either. They started out as minuscule - right around the 1% or 2% where they will start out in the United States. Magically, however, they ran up over the years to where they are now. Expect the same thing here.
It is the very notion that with hard work and perseverance, anybody can get ahead economically here in the USA. Do you think that can ever happen with tax rates between 60% and 80%? Think again. With the government taking that percentage of your money, your life will be exactly like life in Europe.... You will never be able to buy a home. You will never buy a car. You will never send your children to college. Let's not shuffle the battle cry of the socialists under the rug either. It's always the same cry. Equalize income. Spread the wealth to the poor (whoever they are). Level the economic playing field. Accomplish that and everything will be rosy.
It's time to take a really hard look at reality. Greece is a perfect example. Despite the socialism system that has ruled this country for decades, with a 65% tax rate, they are drowning in public debt, would have defaulted without hundreds of billions in bailout money from the EU, and still: 20% of their population lives in poverty. What has all that socialism money bought, besides ultimate power for the politicians running the show? Do you think these people are "free?" They're not. They are slaves to their economic "system."
Income Tax: 50%
VAT: 17.5% TOTAL: 67.5%
France
Income Tax: 40%
VAT: 19.6% TOTAL: 59.6%
Greece
Income Tax: 40%
VAT: 25% TOTAL: 65%
Spain
Income Tax: 45%
VAT: 16% TOTAL: 61%
Portugal
Income Tax: 42%
VAT: 20% TOTAL: 62%
Sweden
Income Tax: 55%
VAT: 25% TOTAL: 80%
Norway
Income Tax: 54.3%
VAT: 25% TOTAL: 79.3%
Netherlands
Income Tax: 52%
VAT: 19% TOTAL: 71%
Denmark
Income Tax: 58%
VAT: 25% TOTAL: 83%
Finland
Income Tax: 53%
VAT: 22% TOTAL: 75%
If you've started to wonder what the real costs of socialism are going to be - once the full program in these United States hits your wallet - take a look at the table. As you digest these mind-boggling figures, keep in mind that in spite of these astronomical tax rates, these countries are still not financing their social welfare programs exclusively from tax revenues! They are deeply mired in public debt of gargantuan proportions. Greece has reached the point where its debt is so huge it is in imminent danger of defaulting. That is the reason the European economic community has intervened to bail them out. If you're following the financial news, you know Spain and Portugal are right behind Greece.
The United States is now heading right down the same path. The VAT tax in the table is the national sales tax that Europeans pay. Stay tuned because that is exactly what you can expect to see the administration proposing after the fall elections. The initial percentage in the United States isn't going to be anywhere near the outrageous numbers you now see in Europe. Guess what. the current outrageous numbers in Europe didn't start out as outrageous either. They started out as minuscule - right around the 1% or 2% where they will start out in the United States. Magically, however, they ran up over the years to where they are now. Expect the same thing here.
It is the very notion that with hard work and perseverance, anybody can get ahead economically here in the USA. Do you think that can ever happen with tax rates between 60% and 80%? Think again. With the government taking that percentage of your money, your life will be exactly like life in Europe.... You will never be able to buy a home. You will never buy a car. You will never send your children to college. Let's not shuffle the battle cry of the socialists under the rug either. It's always the same cry. Equalize income. Spread the wealth to the poor (whoever they are). Level the economic playing field. Accomplish that and everything will be rosy.
It's time to take a really hard look at reality. Greece is a perfect example. Despite the socialism system that has ruled this country for decades, with a 65% tax rate, they are drowning in public debt, would have defaulted without hundreds of billions in bailout money from the EU, and still: 20% of their population lives in poverty. What has all that socialism money bought, besides ultimate power for the politicians running the show? Do you think these people are "free?" They're not. They are slaves to their economic "system."
Wednesday, November 23, 2011
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