About two weeks ago, the Wall Street Journal published an article Exposed The number of judges who hold or trade the stocks of the company in the legal proceedings they preside. article Identify 131 federal judges across the country did so between 2010 and 2018. Among the 131 judicial officers, 61 judges reportedly traded the litigant’s listed company stocks during the case. Imagine! In fact, this is incredible.
Turn on the power… It is the monthly opinion column of Marc Powers. For most of his 40-year legal career, he has dealt with complex securities-related cases after working with the US Securities and Exchange Commission. He is now an adjunct professor at the Florida International University School of Law, where he teaches a course on “Blockchain, Encryption, and Regulatory Considerations.”
There seems to be a moral reason for the judge to not allow himself to fall into this situation. When I filed a lawsuit, the parties were required to disclose the listed companies associated with the parties so that the judges could assess whether there were any possible conflicts in the specific cases assigned to them. These conflicts may be that the judge personally knows the litigants or witnesses. Written disclosures by the parties should also trigger the duty of the judge to see if they or family members own the stock of the public company involved in the litigation.
There is also a 1974 law that prohibits judges from presiding over cases when their family members own shares in litigants of listed companies. It was passed shortly after the Watergate crisis and the resignation of President Richard Nixon. This is a complete prohibition; this is not the discretion of jurists. The parties cannot give up. Judges should cancel or avoid their own litigation qualifications. So why does this happen, and should we tolerate it from the judicial branch of the government?
Now, let us turn to the Federal Reserve and its 12 Reserve Bank governors as part of the executive branch of our government. The presidents of the Federal Reserve Banks of Boston and Dallas — Eric Rosengren and Robert Kaplan — both resigned last month, possibly because they were accused of trading stocks last year while helping to guide our country’s Macroeconomic policy. To me, this is undoubtedly the unwise behavior of these former presidents. They know on an ongoing and confidential basis how the Fed may use certain monetary instruments that tend to support certain industries, and as a corollary, the stock prices of companies in these industries.
In another publication of the Wall Street Journal last week, Report Fed Chairman Jerome Powell has imposed comprehensive personal investment restrictions on the Fed Chairman and the seven governors of the central bank’s board of directors. These include a prohibition on buying and selling individual stocks, a one-year holding period, and a 45-day pre-approval process for buying and selling mutual funds. No wonder the crypto crowd has lost confidence in our organization and seeks autonomous driving technologies like blockchain to purify us and provide a level playing field for everyone.
Stocks Act 2012
Now, although in the eyes of many people, before Powell’s new investment policy, there was nothing prohibiting the judiciary or Fed officials from holding or trading stocks, but I disagree. Into the 2012 Stock Act, pass through In April of that year, Congress passed it during Barack Obama’s administration. “STOCK” stands for “Stop trading with the knowledge of Congress.” Catchy, right? Congress likes its acronym.
The STOCK Act applies to members of Congress, executive branch employees-including the president and vice president-as well as judicial officials and employees. The purpose of the bill is:
“Prohibit members of Congress and employees of Congress [and the executive and judicial branch] Use non-public information from his official position for personal gain [or profit], And for other purposes.“
It was issued in part because “political intelligence” companies began to appear, advising hedge funds on the possibility of government action. Sometimes, these companies learn from government officials some information that is not easily available in the public domain and pass it on to hedge fund managers who trade stocks based on this information. It is also required to report stock transactions.
Before the passage of the law, a problem faced by regulators and prosecutors was that the securities law on insider trading was a bit gray for the source of information—government officials—to pass it on to intelligence companies for any misconduct. The law clearly states that this is wrong and is actually a felony. A part of the bill specifically targets these government officials, stating that “every member of Congress or congressional employee shall bear the responsibilities arising from the relationship of trust and trust.” It also pointed out that the government employees covered “cannot be exempted from the provisions of the Securities Law Insider trading ban”.
Therefore, as certain jurists and the chairman of the Federal Reserve disclose trading activities, the question now arises whether they have non-public information and use it to trade stocks. Regarding disputes, I think that the judge obviously has non-public information before making a decision in court in writing or verbally before ruling in favor of one of the parties in the litigation. For the chairman of the Federal Reserve, the problem is even greater. They don’t always have non-public information. Does this mean that any stock transaction to avoid losses or profit from the upcoming Fed policy can be said to be a violation of this law?
So far, I don’t even know the criminal proceedings brought under the Stock Law.The closest to using the bill is 2018 indictment Former Congressman Chris Collins. But the insider trading allegations are related to his claim to have information during his tenure on the board of a public company, not because of his congressional duties. It will be interesting to see if the Securities and Exchange Commission or the criminal investigation will be informed by the Wall Street Journal report in the next few days or months.
Mark Bowles He is currently an adjunct professor at the Florida International University School of Law, teaching “Blockchain, Encryption and Regulatory Considerations” and “Fintech Law”. He recently retired from a practicing position at the Am Law 100 law firm, where he established a national securities litigation and regulatory enforcement practice team and hedge fund industry practice. Marc started his legal career in the law enforcement department of the SEC. During his 40-year legal career, he participated in lawsuits including the Bernie Madoff Ponzi scheme, the recent presidential pardon, and the Martha Stewart insider trading trial.
The views expressed are those of the author and do not necessarily reflect the views of Cointelegraph or the Florida International University School of Law or its affiliates. This article is for general reference only and is not intended and should not be regarded as legal or investment advice.