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Taking Stock of Congressional Rules on Investing
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Taking Stock of Congressional Rules on Investing

Bipartisan efforts to limit trading individual stocks have met resistance from leadership.

Good morning. Congress is preparing to leave for the holidays, without President Joe Biden’s Build Back Better advanced through the Senate as Democratic leaders had hoped. Read more in today’s TMD, here.

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Is It Time to Ban Lawmaker Stock Trading?

A bipartisan group of lawmakers is seeking to prohibit members of Congress from buying and selling individual stocks while in office—but with opposition from leadership, reform seems destined to go nowhere, for now.

House Speaker Nancy Pelosi poured cold water on the idea this week: “This is a free market and people, we are in a free market economy,” she told reporters. “They should be able to participate in that.”

Supporters of new rules against trading stock say lawmakers have an unfair advantage because they are privy to investigations, classified briefings, and hearings; and they are involved in debating and passing legislation that can impact market prices. They add that it can incentivize lawmakers to block or stall legislation that conflicts with their financial interests. 

“It creates an appearance of a conflict of interest,” Sen. Kirsten Gillibrand, a New York Democrat, told The Dispatch on Thursday. She applauded legislation that seeks to boost transparency around member trading, but she said it doesn’t go far enough. “As you’ve seen, many members of Congress still mess up the disclosure requirements, arguably intentionally. And so it’s still not perfect, it still results in an appearance of inappropriateness—or an appearance of buying and selling with nonpublic information.”

In 2012, former President Barack Obama signed into law the Stop Trading on Congressional Knowledge Act (STOCK). The bill prohibits lawmakers and congressional employees from “using nonpublic information derived from their official positions for personal benefit, and for other purposes.” It also required members of Congress, the executive branch, and congressional employees to disclose their financial information on a larger scale.

But that law was significantly weakened when a year later, Obama signed another bill that watered down the transparency requirements of the STOCK Act. That bill, S.717, eliminated the requirement for high-ranking government officials to make their financial disclosures publicly available online. That bill passed via unanimous consent and ever since, those interested in financial disclosure forms of high-level staffers have to travel to Washington, D.C. to a room in the basement of the Cannon House Office Building to access the database in question.

A wide-ranging investigation by Business Insider published Monday found that 49 members of Congress and 182 senior staffers had violated the STOCK Act throughout 2020 and 2021, primarily by tardiness in filing their financial dealings. 

Lawmakers and aides who have missed the filing disclosure deadlines are required to pay a $200 late fee on the first violation, and they rack up higher fines if they continue to be late. Business Insider found no public documentation of whether the fines for the lawmakers and staff in question were ever paid. This, the reporters write, raises the question of whether the STOCK Act is toothless in its efforts to promote transparency, and recent investigations of lawmakers have spurred support for stronger measures.

“It is absolutely wild that members of Congress are still allowed to buy and sell individual stock. It shouldn’t be legal,” Rep. Alexandria Ocasio-Cortez, a progressive from New York, tweeted in August. “We’ve introduced legislation to end the practice, but as one can imagine, it’s a very uphill battle to pass.”

Last week, Ocasio-Cortez tweeted that “the access and influence we have should be exercised for the public interest, not our profit. It shouldn’t be legal for us to trade individual stock with the info we have.”

Pelosi does not own stocks herself. Her husband, Paul Pelosi, has holdings in corporations such as Slack, Disney, Meta (Facebook), and Netflix. Members of Congress are allowed to trade stocks under the current rules. 

Some lawmakers have run afoul of the ban on insider trading.

One of the more notorious recent cases is former New York Rep. Chris Collins, who received confidential information about a biopharmaceutical company’s disappointing drug trial results in advance. Collins, who sat on the board of the company while in Congress, gave an illegal stock tip to his son, Cameron Collins, and some others, who sold off their shares in the following days. They were able to avoid losses when news of the results became public and the stock price declined over 90 percent.

Collins was sentenced to 26 months in prison and fined for securities fraud and lying to federal investigators. Collins spent 10 weeks in prison before former President Donald Trump pardoned him. (Collins had the distinction of being the first member of Congress to endorse Trump’s presidential campaign.)

And in March 2020, the Justice Department opened investigations into several senators, including California Democrat Dianne Fienstein, North Carolina Republican Richard Burr, Oklahoma Republican James Inhofe, and former Sen. Kelly Loeffler, a Georgia Republican, due to suspicions that they used nonpublic information about the COVID-19 pandemic to dump stocks. All denied wrongdoing.

None were charged: In May 2020, the DOJ cleared all of the senators under scrutiny but Burr. The DOJ ended its investigation of Burr in January 2021. However, the Securities and Exchange Commission was still investigating Burr for his actions as of October, according to the Washington Post. The senator is set to retire at the end of his term in 2022.

Burr and his wife dumped stock February 13, 2020, and his brother-in-law did so as well. The move came after a series of briefings on the pandemic that Burr was privy to due to his committee positions. Some of the dumped shares were in sectors that suffered sharp financial decline due to the pandemic, such as the hospitality and shipping industries.

Burr has denied wrongdoing and said he got his information from watching news outlets in Asia. 

It can be difficult for investigators to identify whether lawmakers get their information from publicly available information or from work briefings.

Members also are constitutionally protected by the speech or debate clause, which can at times complicate investigations. The speech or debate clause essentially prohibits investigators from questioning members of Congress about their legislative acts. According to the nonpartisan Congressional Research Service, protected activities extend beyond floor speeches and debates “and have also been interpreted to include ‘all legislative acts’ undertaken by Members or their aides.” Courts have further interpreted the clause to mean that it provides members with “general criminal and civil immunity for ‘all legislative acts’ taken in the course of their official responsibilities.” 

The clause is designed to prevent the judicial or executive branch from intimidating members or exerting improper influence.

Lawmakers have turned to the clause to claim protection in multiple corruption investigations, the Washington Post noted in 2011. In 2007, for example, the U.S. Appeals Court for the District of Columbia ruled that FBI agents violated the speech or debate clause when they searched a lawmaker’s Capitol Hill office as part of a corruption investigation. The panel decided agents must have the consent of the lawmaker in question to review materials that pertain to legislation. The Supreme Court declined to hear the case, leaving the ruling in place.

Patrick Hedger with the Taxpayers Protection Alliance told The Dispatch in an interview earlier this year that one of the difficulties of implementing a ban on congressional stock trading is that “the line is unclear of what is and what is not insider trading.”

He added one way to curb corruption could be to limit individual stock selling while still making it possible for members to own broad based index funds. But, Hedger said he is skeptical more legislation is needed because voters are able to hold lawmakers accountable at the ballot box. 

In the House, a bipartisan group of lawmakers have backed the Transparent Representation Upholding Service and Trust in Congress or TRUST Act. The measure calls for lawmakers, their spouses, and dependents to “put certain investment assets into a qualified blind trust” for the duration of their time in Congress. This, the backers say, would establish a “firewall” to make sure lawmakers do not benefit financially from their position. The bill has been endorsed by a broad coalition of nonprofit groups, from the Project on Government Oversight and FreedomWorks to Americans for Prosperity.

Democrats, with slight GOP support, have introduced another bill, the Ban Conflicted Trading Act, in both chambers of Congress. It would prohibit members of Congress and senior Hill staff from buying and selling individual stocks.

Stan Veuger, a senior fellow in economic public policy at the American Enterprise Institute, noted in an interview with The Dispatch over the summer that rules prohibiting these kinds of trades already exist for Federal Reserve and Securities and Exchange Commission employees. 

“We’re not singling out members of Congress here necessarily. A bunch of different agencies have rules that restrict this kind of trading,” he said. “To the extent that there is a downside—members won’t be able to engage in certain profitable trades they would like to engage in—I think that’s a pretty small downside.”

Of Note

Harvest Prude is a former reporter at The Dispatch.

Ryan Brown is a community manager for The Dispatch. He previously served as a researcher and production assistant for Meet the Press.

Haley Wilt is a former associate editor for The Dispatch.