In the ever-changing world of corporate political law regulation, one of the new kids on the block is the Stop Trading on Congressional Knowledge Act of 2012 (“STOCK Act”). This new law was intended to apply criminal insider trading laws to trading on material, non-public information obtained from Congress, the executive branch, or the judiciary. As the stock market surges today (as of this writing), based on reports that a resolution of the budget impasse and government shutdown might be near, we can’t help but think about the STOCK Act implications.
Washington is awash right now with lobbyists and consultants who are trying to divine when a deal will be struck, and what it will look like. Most of what they will learn is speculative, and very little of it will be “actionable” intelligence that could be used as the basis for trading in the financial markets. There is nothing illegal about punditry. In theory, though, it is possible that someone in-the-know on the Hill, or in the executive branch, could leak very specific information about an imminent budget deal, or the terms of such a deal, to a trader. Private access to that sort of very material information could be used to make a quick profit on the markets. The line that defines what would constitute material, non-public information, in the context of governmental information, is very fuzzy. The STOCK Act is so new that there is little available guidance from the SEC or from case law.
We recently published an article in Wall Street Lawyer that describes the STOCK Act and some of its implications for those who gather information from the government that could be used for trading purposes. Previously, we posted a client advisory summarizing the STOCK Act’s key provisions and providing some practical advice for complying with it. We also recently posted a client advisory addressing the first signs of enforcement activity concerning the STOCK Act. Covington has a unique, cross-disciplinary team of political lawyers and securities lawyers who advise clients on STOCK Act compliance programs and enforcement matters. Such advice is in high demand at the moment.