“Thank you for your positive response to my request at the Securities Subcommittee hearing on February 24, 1987 to provide us with a plain language, workable restructuring of the law on insider trading. I am particularly pleased that you will be working closely with Jim Treadway and John Olson in this effort. As you know, I also have a high degree of confidence, based on their reputations, in Lewis Black, Gary Lynch, Daniel Goelzer, Stanley Sporkin, Ted Levine, Irving Pollack, Sam Scott Miller and Richard Phillips.”
In addition to the competence of Congressional staff, some Representatives and Senators looked outside of normal channels for experts to assist them with the drafting and management of legislative proposals. They sought to involve prominent members of the national securities bar, many of whom had served at the U.S. Securities and Exchange Commission, but who now operated independently from, and at times at odds, with the SEC. In some cases, it was precisely that independence that Congress sought.
When the insider trading scandal exploded, U.S. Senator Donald Riegle, Jr. (D-MI) was serving as Chairman of the Senate Committee on Banking, Housing and Urban Affairs. He had succeeded Senator Proxmire after serving several terms in the House of Representatives. Riegle had experience dealing with the SEC and industry representatives. At the time, the SEC was facing criticism for what some perceived to be its insider trading regulatory failures. In addition, the SEC, concerned about being boxed in by recent Supreme Court decisions, opposed creating a specific legal definition for insider trading, preferring to rely on administrative rule-making to address the problem. Legislatively, however, a specific definition had some advantages.
Remaining non-committal to any specific proposal, Senator Reigle decided that, instead of relying on the SEC to draft legislation to deal with insider trading, he needed to create an outside group of experts to advise him and the committee. He personally recruited Harvey Pitt, former SEC General Counsel, to lead an ad hoc committee to help draft insider trading legislation. Pitt accepted, and the committee, consisting primarily of former SEC staff, was formed. 23
The ad hoc committee drafted new legislation, coordinating its work with Congressional staff and with the SEC. The committee’s influence cannot be overstated; it drafted specific provisions, negotiated with the SEC on areas of difference, and gained the confidence and support of the most influential members of Congress.
Before final passage of the Insider Trading and Securities Fraud Enforcement Act (ITSFEA), Chairman Ruder advised Senators Riegle and D’Amato about “potential compromise” between the SEC position and that of the committee. 24 This shift in legislative influence from the SEC to private experts was dramatic. One would be hard pressed to imagine early 1960s SEC Chairman William Cary deferring to any such committee.
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