Update 582 — The Millionaire Majority:
Stock Trades on Hill, MOCs on the Take
Surprised to learn that a majority of members of Congress are millionaires? In fact, the median net worth of members of Congress who filed disclosures is now just over $1 million. Then maybe it’s not surprising that the STOCK Act — the law passed in 2012 requiring members and their spouses to disclose when they buy or sell stocks — carries parking ticket fines and is routinely flouted.
But last week, House Speaker Nancy Pelosi reversed her position on the matter. After stating earlier this month that the current system needs no change, the Speaker is now open to efforts to beef up the STOCK Act — banning securities trading by members of Congress, families, and staff. With growing momentum for reform of rules governing securities trading by members of Congress, now fortified by support from Congressional leadership, this update will cover the STOCK Act, reform proposals, and the value of blind trusts to the public trust.
In Blindness We Trust
Before the STOCK Act of 2012, it was unclear if insider trading in Congress was a crime. This law codified it as a federal crime and increased transparency. The law prohibits members, staff, and senior executive branch officials from using any nonpublic information they receive from their job for personal gain. Members of Congress and their staff are required to report any stock trading they, their spouses, or dependents participate in within 45 days. This disclosure requirement technically also applies to very senior executive branch officials, such as cabinet officers, but the Office of Government Ethics (OGE) has never set up a stock transaction disclosure portal for the executive branch.
The STOCK Act has fallen short of its objectives. The disclosure requirement was expected to discourage members from even playing in the stock market. One study found the disclosure requirement of the STOCK Act has reduced stock trading activity in the U.S. Senate by two-thirds. However, one-third of senators continued to play in the market, buying and selling stocks in businesses they directly oversee. The window of opportunity for insider trading by some members of Congress remained open.
The same window of opportunity was exploited during the pandemic. In early 2020, several Senators— Burr, Loeffler, Purdue, Inhofe, and Feinstein— traded stocks after being briefed that COVID was going to adversely impact the economy and the stock markets. Loeffler, Inhofe, and Feinstein were investigated by the Justice Department and Senate ethics committee, who both dropped their investigations in May of 2020. Burr is currently under investigation by the Securities and Exchange Commission for these trades.
According to a report from Business Insider, 54 Members of Congress and 182 senior staffers were found in the past year to violate reporting requirements of the STOCK Act. Violators either improperly disclosed their trades or were late in reporting. Members and staff are required to pay a $200 fine for their first late report and then increasingly higher penalties after that, but lawmakers are paying the fines since there are no public records on STOCK Act penalties. Members of Congress tend to be millionaires who could care less about a $200 fine.
Strong reform is popular amongst Americans: 76% of voters support banning members of Congress from trading stock altogether. With support from voters and lawmakers on both sides, there has been growing momentum for reform on congressional stock trading.
Reform Options on the Table
Recently introduced reform bills vary from strengthening reporting requirements to having members sell all their stocks upon swearing-in. There are many reform options in Congress, but the best option is to get rid of conflicts of interests while increasing accountability and transparency.
- Sens. Ossoff and Kelly introduced the Ban Congressional Stock Trading Act earlier this month. The bill would require all members of Congress, their spouses, and their dependents to put their investments into a qualified blind trust within 120 days after being sworn in. Sens. Kelly and Ossoff did just that when they were sworn into the Senate last year.
- Last year, Reps. Spanberger and Roy introduced a similar bill, The Transparent Representation Upholding Service and Trust (TRUST) in Congress Act. Both bills require each chamber’s Ethics committee to make documents related to the qualified blind trust publicly available. Spanberger and Roy have worked hard in achieving bipartisan support for this measure.
- Rep. Craig introduced the Halt Unchecked Member Benefits with Lobbying Elimination (HUMBLE) Act which would permanently ban Members of Congress from serving as lobbyists and require them to sell individual stocks upon being sworn in. Additionally, the HUMBLE Act would prevent Members from using taxpayer dollars on first-class flights. With either a qualified blind trust or banning stock ownership outright, these three bills are among the most substantial reforms,
- Last March, Sen. Merkley and Rep. Krishnamoorthi introduced the Ban Conflicted Trading Act, which bans members and higher-level staff from purchasing or selling stocks while in office. They could hang on to their stock portfolios as long as they made no transactions, or transfer the investments into a qualified blind trust or mutual funds. This bill would also prevent staff and members from entering a transaction that creates a net short or serving as a board member for a for-profit company. Furthermore, the measure vastly strengthens the penalties and enforcement of the law. This measure has been around and debated ever since the original STOCK Act in 2012. On the House side, it has bipartisan support.
- Last Congress, Sen. Gillibrand and Rep. Porter introduced the STOCK Act 2.0 which would strengthen reporting requirements. This bill would have expanded what members and staff are required to report including any loans, grants, or contracts from the federal government. It would have also increased accountability, making the reporting website easily searchable, sortable, and downloadable.
Any of these reform options would improve the current reality of the rarely enforced STOCK Act. The ultimate reform would prevent members and upper-level staff from having control over their investments at all. Either selling their stocks or placing these investments into a qualified blind trust or mutual funds, along with their spouses and dependents, would prevent the possibility of illegal insider trading and profiting from their positions in government.
Prospects for Reform
Candidates running for this year’s midterm elections have spoken in support of banning members from trading stocks. Pennsylvania Senate candidate John Fetterman called stock trading by members and their spouses “a clear conflict of interest.” North Carolina House candidate Nida Allam tweeted in support of a ban, “Members of Congress shouldn’t be more accountable to their bank accounts than their constituents. We should get politicians out of the stock market and elect folks who are invested in their communities.” Arizona Republican Senate candidate Blake Masters has also stated he supports a stock trading ban. Republican and Democratic candidates across different states have announced support for a ban.
On Monday, 27 House members (25 Democrats and two Republicans) signed a letter to House Leaders Pelosi and McCarthy to “swiftly bring legislation to prohibit members of Congress from owning or trading stocks.” The congressional letter did not pick sides on which of the many bills that would prohibit congressional trading is best; the letter simply demanded that action must be taken to stop stock trading activity by members of Congress.
House Minority Leader Kevin McCarthy now thinks lawmakers shouldn’t buy and sell individual stocks. Originally, Speaker Nancy Pelosi was opposed to banning members from stock trading saying, “We’re a free-market economy, they should be able to participate in that.” Then last week she said she was open to advance legislation if it has the support of her caucus. The TRUST In Congress Act has 27 cosponsors, 21 Democrats and 6 Republicans. The Ban Conflicted Trading Act has 30 cosponsors in the House, including some Republicans and 3 Democratic cosponsors in the Senate. With growing bipartisan support for legislation and openness from the leadership of both parties, reform is increasingly likely.
Members of Congress should not be able to participate in insider trading. Reducing conflicts of interest will inspire more trust in Congress from the American people. When elected officials can make money off their positions, it distracts from their true purpose of representing their constituents. Congress must act quickly and ban stock trading for their members and staff to bring a necessary ethics reform to make Congress work for the people, not profit.