Mendes Hershman Winner Abstract: "Creating an Effective Vaccine to Prevent Congressional Insider Trading: Legislation Is Needed To Cure Deficiencies of the STOCK Act"

2 Min Read By: Kristen Kelbon

The Mendes Hershman Student Writing Contest is a highly regarded legal writing competition that encourages and rewards law students for their outstanding writing on business law topics. Papers are judged on research and analysis, choice of topic, writing style, originality, and contribution to the literature available on the topic. The distinguished and highly-regarded former Business Law Section Chair, Mendes Hershman (1974-1975) lends his name to this legacy. See the abstract of this year’s third place winner, Kristen Kelbon of the Villanova University Charles Widger School of Law, Class of 2021, below.

The effects of the novel coronavirus pandemic (“COVID-19”) altered operations, financial performance, and market predictions for a vast majority of companies and industries in virtually a matter of weeks. In January 2020, the Senate held a private briefing where senators learned of classified information pertaining to COVID-19. Four U.S. senators subsequently dumped their stocks—just days before the market plummeted. The senators faced intense disparagement and accusations of potential insider trading, thus, the overarching question was whether these senators actually violated insider trading laws.

Prior to 2012, the conventional insider trading laws arguably did not apply to
 Congress. However, in 2012, Congress passed the Stop Trading on Congressional Knowledge Act (“STOCK Act”) into law, expressly prohibiting members of Congress from trading on material, nonpublic information they gleaned on Capitol Hill. The STOCK Act attempted to clarify whether members of Congress are subject to prohibitions on insider trading. However, it remains unclear whether the Securities and Exchange Commission or Department of Justice can successfully pursue civil and criminal actions against members of Congress under the current securities laws. Indeed, the STOCK Act has some deficiencies making it difficult to successfully prosecute congressional insider trading, and the coronavirus controversy renewed concerns about its effectiveness as a deterrent.

The recent insider trading scandal illustrates that the STOCK Act and preexisting insider trading statutes are not sufficient to prevent corruption and financial conflicts of interest. As such, high- profile stock transactions during the country’s worst pandemic, and accompanying economic crisis, should provide a sufficient impetus for a new Congress to revisit the issue of congressional insider trading and take appropriate action.

By: Kristen Kelbon

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