Tuesday, December 22, 2009

HR 682, Re 2005 Asbestos Trust Trading, Reintroduced

On June 12, HR 682, also known as the Stop Trading on Congressional Knowledge Act, was referred to the House Subcommittee on the Constitution, Civil Rights, and Civil Liberties.
The law relates to insider trading as a result of insider information gained by members of Congress or the legislative, administrative and judicial branches of government.
First introduced in 2006 by Congresswoman Louise Slaughter (D-NY) and Congressman Brian Baird (D-WA), brought up again in 2008, and now reintroduced for a third time, the bill was ostensibly inspired by the trading activities of Tony Rudy, a former aide to ex-Majority Leader Tom DeLay (R-TX), who pleaded guilty to a conspiracy charge in connection with the Jack Abramoff lobbying scandal.
But it has a larger connection, one related to asbestos and former Senate Majority Leader Bill Frist (R-TN), who in 2005 announced to the upper chamber of the Congress that laws would soon be put in place to provide a multi-billion dollar fund to settle legacy asbestos lawsuits, many of which had resulted in bankruptcy for major corporations like Johns Manville and Owens Corning.
It was big, and very new news to most of the nation, but not to Wall Street investors apparently. The day before Frist's announcement, shares in Chicago-based USG Corp., the world's largest sheetrock manufacturer - which had filed for Chapter 11 protection in 2001 in relation to its gypsum wallboard unit - jumped more than $2, with trading up by 300 percent. The obvious conclusion was that news of the trust had leaked from Congress to the Street.
Unfortunately, given current law, trading on such information is perfectly legal, and will continue to be until HR 682 is passed by Congress and signed into law. The question is, given the influence of politicians in the financial sector, are members of Congress willing to pass a law that limits their freedom to use such information to their advantage?
HR 682 aims to correct the imbalance by requiring lawmakers to disclose stock transactions of $1,000 or more within 90 days, and forcing political intelligence groups like Prudential Financial Inc., Lehman Brothers Holdings Inc.(the largest bankruptcy in the U.S., at $600 billion in assets), and Stanford Washington Research Group, to register with the government just like lobbying firms.
These firms, which have operated without impunity and largely without government oversight since their emergence in the 1970s, provide investors with inside information about pending legislation that will influence stock prices and the market, as demonstrated by the USG episode.
The transparency of such a law would do a great deal to improve confidence in Wall Street, at least in the eyes of most Americans, who have become seriously disenchanted with insider trading, hedge funds and derivatives as a result of the recent recession, which many tie to the housing bubble burst of 2008.
More important, it would prevent similar abuses in the future by impeding companies like USG and shareholders from capitalizing on pending legislation, which had the unfortunate effect (in USG's case) of benefiting the company and its shareholders while doing nothing to minimize legacy asbestos costs or aid those suffering with asbestos-related injuries or illnesses as a result of working for such firms.
Asbestos-related diseases are among the most distressing and lethal of illnesses, resulting in everything from asbestosis - a severe and debilitating respiratory ailment - to respiratory and digestive system cancers. Of these latter, the most serious is mesothelioma, which has a decades-long onset before producing symptoms. Mesothelioma is largely considered incurable, and most patients diagnosed are given about a year to live - a situation recently improved, if only slightly, by newer drugs like Alimta (pemetrexed), and dual drug therapies.

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