August 11th, 2010


From the Wikipedia article on National Security Letters:
A National Security Letter (NSL) is a form of administrative subpoena used by the United States Federal Bureau of Investigation and reportedly by other U.S. Government Agencies including the Central Intelligence Agency and the Department of Defense. It is a demand letter issued to a particular entity or organization to turn over various record and data pertaining to individuals. They require no probable cause or judicial oversight. They also contain a gag order, preventing the recipient of the letter from disclosing that the letter was ever issued. The gag order was ruled unconstitutional as an infringement of free speech, in the Doe v. Ashcroft case.[1] From 2003 to 2006 the bureau issued 192,499 national security letter requests.[2]
Ruling the gag order unconstitutional evidently did not lift existing orders. This week, one man who filed suit against an NSL, Nicholas Merrill, came forward once his gag order was finally partially lifted.

From the Washington Post's story:
[F]ollowing the partial lifting of his gag order 11 days ago as a result of an FBI settlement, Merrill can speak openly for the first time about the experience, although he cannot disclose the full scope of the data demanded.

On a cold February day in 2004, an FBI agent pulled an envelope out of his trench coat and handed it to Merrill, who ran an Internet startup called Calyx in New York. At the time, like most Americans, he had no idea what a national security letter was.

The letter requested that Merrill provide 16 categories of "electronic communication transactional records," including e-mail address, account number and billing information. Most of the other categories remain redacted by the FBI.

Two things, he said, "just leaped out at me." The first was the letter's prohibition against disclosure. The second was the absence of a judge's signature.

"It seemed to be acting like a search warrant, but it wasn't a search warrant signed by a judge," said Merrill. He said it seemed to him to violate the constitutional ban against unreasonable searches and seizures.

The letter said that the information was sought for an investigation against international terrorism or clandestine intelligence activities. Merrill said he thought it "outlandish" that any of his clients, many of whom were ad agencies and major companies as well as human-rights and other nonprofit groups, would be investigated for terrorism or espionage.

Although Merrill cannot further discuss the types of data sought, he said, "I wouldn't want the FBI to demand stuff like that about me without a warrant." The information an Internet company maintains on customers "can paint a really vivid picture of many private aspects of their life," he said, including whom they socialize with, what they read or write online and which Web sites they have visited.
192,499. I suppose the authorities got the information they demanded most of the other times.

Insider Trading Inside the Beltway

From Prof. Bainbridge's article abstract:
A 2004 study of the results of stock trading by United States Senators during the 1990s found that that Senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade.

Under current law, it is unlikely that Members of Congress can be held liable for insider trading. The proposed Stop Trading on Congressional Knowledge Act addresses that problem by instructing the Securities and Exchange Commission to adopt rules intended to prohibit such trading.
The Financial Times Alphaville blogpost Insider Trading: go for it, Senator comments and quotes from the body of the article:
As reported by the Wall Street Journal in May, a bill that would require faster disclosure on lawmakers’ trading activities and prohibit them from trading in the securities of companies that have “pending or prospective legislative action”–the unimaginatively named Stop Trading on Congressional Knowledge Act–has been held up in Congress for years. No surprise, really, as it is the lawmakers themselves who would be burdened by it.

But Bainbridge argues that even this bill, though a step in the right direction, would not go far enough. First, it is restricted to punishing abuses that fall within the narrow framework of the “pending or prospective legislative action” provision. Bainbridge writes:
As to the former condition, it is unclear how broadly “legislative action” will be interpreted. As to the latter, it fails to account for the fact that information about one issuer may often allow one to profit by trading in the securities of another company.
It would also rely more on the willingness of the SEC to go after congressman. With equal parts hope and pessimism, Bainbridge writes (our emphasis):
To be sure, as already noted, the SEC to date has been “unwilling to take any sort of initiative against insider trading by senators and other congressional officers.” It is plausible that this failure is an intractable one. Any government agency is likely to be reluctant to bite the budgetary hand that feeds it. To the extent the SEC’s failure stems from a recognition that current law does not reach Members of Congress, however, a clear statement of the SEC’s authority to regulate Congressional insider trading could prompt a more aggressive enforcement stance on the SEC’s part.
Regardless, we are left with the current situation, which requires that congressmen police themselves and that the public trust them to do so. That is probably asking too much of everyone.