Insider Trading: It's Time to Close a Surprising Loophole

Did you know it is perfectly legal in Minnesota for state legislators to engage in insider trading?  I’m sorry to say that’s not a misprint.  It is, in fact, completely legal for a state lawmaker to use confidential information gained at the Capitol for personal gain.   

That’s wrong, and it ought to be fixed.  Having recently learned of this loophole in Minnesota law, I expect to introduce legislation on the first day of the 2012 legislative session to address this flaw.

In Minnesota, if you're a judge, it's illegal to engage in insider trading.  If you're the governor, or work for the governor, it's illegal to engage in insider trading. If you're a CEO or a business person or a private citizen, it's illegal to engage in insider trading.  But if you are a Minnesota state legislator, you can use confidential information gained at the Capitol for financial gain, and there’s no law or rule to prohibit it.

As many Capitol insiders will confirm, the stock prices of certain Minnesota-based companies can rise and fall dramatically depending upon the outcome of key votes at the Capitol.  3M stock is one example.  Similarly, Canterbury Park Holding Company, which is proposing a “Racino” to fund various projects, including a stadium for the Minnesota Vikings, has seen its stock suddenly soar and swoon based on action at the State Capitol.

When legislators know the likely outcome of committee or floor votes before the general public does, or have access to key information before anyone else does, it places those legislators in a position to benefit financially by buying a stock that is expected to rise, selling or “shorting” a stock that is expected to fall, or buying land that will be necessary for a certain project or public improvement.

That’s wrong, it’s unethical, and it ought to be illegal.

Worth noting is that I’m not suggesting any particular Minnesota legislator is engaging in insider trading.  I don’t know if it is occurring.  What I do know, however, is that legislators should not be able to legally do something that is illegal for everyone else. 

I applaud Rep. Tim Walz for offering similar legislation that would apply to members of the U.S. Congress.  Congressman Walz’s legislation, which sat dormant for quite some time, has started to make progress following a “60 Minutes” expose on November 13, 2011 that raised questions about stock trades involving some prominent Congressional leaders.

Hopefully, it won’t take a scandal to pass my proposed prohibition on insider trading by state legislators.  It’s the right thing to do, and I’m hopeful the Minnesota State Legislature will pass it early in the 2012 legislative session.