WASHINGTON, Dec 1 (Reuters) - U.S. prosecutors face obstacles that could keep them from ever pursuing an insider-trading case against a member of Congress, even if prosecutors decide the activity is illegal, a top securities regulator said on Thursday.

Robert Khuzami, director of enforcement for the Securities and Exchange Commission, said courts have yet to consider the duty a lawmaker might have after coming into contact with nonpublic, material information.

Members have an additional protection from investigation in a provision of the U.S. Constitution granting them sweeping privilege in their official actions, Khuzami said in written testimony for a U.S. Senate hearing.

Under a 1934 U.S. law, a company insider may be guilty of fraud if he uses nonpublic, material information to trade in a way that is deceptive or violates a duty of loyalty. Lawmakers might not have the same duty as corporate employees, he said.

"While trading by members of Congress or their staff is not exempt from the federal securities laws, including the insider trading prohibitions, there are distinct legal and factual issues that may arise in any investigations or prosecutions of such cases," Khuzami said.

Momentum to restrict the securities trading of lawmakers and their staff has grown since a report on Nov. 13 by the CBS television news program "60 Minutes" and an earlier report by the Wall Street Journal.

Congress has the authority to police itself, Khuzami said, quoting an ethics rule that prohibits public officials from using confidential information "as a means for making private profit."

(Reporting by David Ingram)

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