INSIDER TRADING PROHIBITIONS

SUMMARY

  • Insider trading refers to government ‘insiders’, such as elected representatives and other high level government officials and their families, buying and selling investments that are set to benefit from government actions before the general public knows what those actions are
  • These investments by government insiders, such as buying stock market shares of a corporation right before that corporation announces a very profitable government contract award, enables them to make profits from their investments without any of the risk that the average investor faces
  • Government insiders might also be tempted to make governance decisions that will influence their investments in a more positive way while being bad for our state
  • By making it illegal for insiders to profit from their positions within our government, we discourage people who might only run for office because of the potential to generate profits while in office
  • The 2012 Stop Trading on Congressional Knowledge Act, or STOCK Act, is a federal law that prohibits members of the United States Congress and other high level federal officials from profiting off of non-public information they may have access to because of their government positions
  • The STOCK Act also requires monthly disclosures to be filed but has little in the way of penalties
  • Some states, such as New York, have put in place their own version of the STOCK Act that applies to state level government employees and elected officials
  • New Jersey has no such law, NJ state legislators are not prohibited from making investments based on inside, non-public information

WHAT IT IS

The word ‘Trading’ refers to the buying and selling of investments with the intent to make more money in the sale than it cost to make the purchase.  If done successfully, a profit is generated.  Do it enough times and we’re talking about a lot of money!  

The act of trying to generate profits based on information that hasn’t been made public yet is called ‘Insider Trading’.  People who work for publicly traded companies are prohibited from using information they have as employees to trade stocks in their own companies.  In the business world, insider trading is not only prohibited, the punishments can be severe!  Martha Stewart went to jail for it!

Publicly traded companies have strict requirements about how they are to release information to the public to ensure investors are all using the same basic information when making investment decisions.  When a person in government has information that isn’t public yet about a publicly traded company, it can be valuable.  

WHY PROHIBITING INSIDER TRADING IS GOOD FOR NEW JERSEY

We want our elected officials and high level government employees to be devoted to making New Jersey better for everyone.  We don’t want people seeking public office as a get rich quick scheme.

By enacting a law that prohibits insider trading by elected officials and high level government employees (and their immediate families), we would ensure that decisions being made on behalf of New Jersey residents are only being made for the benefit of New Jersey residents and not for the personal financial gain of people in government.

STATUS OF INSIDER TRADING PROHIBITIONS IN NEW JERSEY 

At this time, the State of New Jersey legislature does not appear to be considering new laws to prohibit insider trading by state legislators, high level government officials, or their family members.

LEARN MORE

  1. Article on US Representatives from New Jersey that were caught up in insider trading reporting requirements
  2. Article on inadequacies of STOCK Act
    • https://www.businessinsider.com/congress-stock-act-violations-senate-house-trading-2021-9
  3. STOCK Act (Stop Trading on Congressional Knowledge), signed into law by Pres. Obama in 2012
  4. Sample corporate insider trading policy
  5. New York State STOCK Act reporting
  6. Cornell Law Review, article