Update 798 — Harris Launches Campaign;
HSCAG OKs Bill to Ban MOC Stock Trading
On Sunday, after weeks of uncertainty, President Biden stepped down from the Democratic presidential ticket, endorsing Vice President Kamala Harris, who moved swiftly this week to consolidate sufficient support among DNC delegates to secure a first-ballot nomination at next month’s convention. Harris also raised over $100 million in record time, most of it from small-dollar donors. Trump and the GOP appeared unprepared for, if not flummoxed by, the change at the top of the Democratic ticket.
Meanwhile, legislative history was made today, as the Senate Homeland Security and Government Affairs Committee, approved a bipartisan bill to ban trading of individual securities by members of Congress for the first time, with the support of all but four GOP members of the Committee. We detail the provisions of the amended ETHICS Act — agreed upon by Sens. Jeff Merkley (D-OR), Gary Peters (D-MI), Jon Ossoff (D-GA) and Josh Hawley (R-MO) — in today’s update.
Best,
Dana
Senate Cmte. OKs Bill to Ban Congressional Stock Trades
This morning, the Senate Homeland Security and Governmental Affairs Committee (HSGAC) advanced the Ending Trading and Holdings In Congressional Stocks (ETHICS) Act at a markup in a bipartisan 8-4 vote, with Senators Tom Carper (D-DE), Richard Blumenthal (D-CT), and Kyrsten Sinema (I-AZ) voting aye by proxy. Senators Rand Paul (R-KY), Mitt Romney (R-UT), Ron Johnson (R-WI), and James Lankford (R-OK) were the only members who voted against the bill.
Today’s Committee markup and vote came about two weeks after ETHICS Act sponsor Senator Jeff Merkley (D-OR), Committee Chair Gary Gary Peters (D-MI), along with Committee members Senators Jon Ossoff (D-GA) and Josh Hawley (R-MO), announced an agreement to move the bill forward with several agreed-upon changes, made by a substitute amendment. Senators Ossoff and Hawley had both previously led their own stock trading bills. Another Committee member, Senator Jacky Rosen (D-NV) joined the bill as a cosponsor in May and this morning, said that she was proud to join her colleagues in filing the bipartisan amendment today.
Legislation to ban congressional stock trading activity has been years in the making, with the ETHICS Act emerging with broad support from civil society groups, including 20/20 Vision, earlier this Congress. In order to secure bipartisan agreement on the ETHICS Act a few changes were negotiated and agreed upon, including:
- extending the scope of the ban to the President and Vice President;
- eliminating the option of placing stock values into a “qualified blind trust” (the actual blindness of which has raised questions); and
- allowing members tax deferral on the mandatory sale of assets through a certificate of divestiture.
What Would the Amended ETHICS Act Do?
The approved bill would cover assets including securities, commodities, futures, options, trusts, and other comparable holdings, and implement the following changes:
- Ban on buying and selling covered assets – Members of Congress, the President, and the Vice President would be banned from buying covered investments on the day of enactment and from selling covered investments 90 days after enactment.
- Universe of covered persons and divestment timeline – Members of Congress, the President, the Vice President, and their spouses and dependent children, would be required to divest all covered investments in 120 days, beginning on the effective date of March 31, 2027.
- Exclusions – Covered investments do not include several types of investments, notably diversified mutual funds, exchange-traded funds (ETFs), U.S. Treasury bills, notes, or bonds, compensation of the primary occupation of a covered spouse and interest in a small business concern.
- Cooling off period – Covered individuals will have a 90-day cooling off period after leaving office, during which they cannot buy new stocks.
- Penalties for violation of divestment requirements – Penalties for violations of the divestment requirements will be the greater amount of either:
- 1) the monthly salary of the covered official or
- 2) ten percent of the value of each covered asset in violation of the law.
- Disclosures – Penalties for non-reporting under the Stop Trading on Congressional Knowledge (STOCK) Act would be raised from $200 to $500 and disclosures under the STOCK Act would be required to be cataloged in a public searchable database.
Serving Constituents, Not Stock Portfolios
Those supporting the bill recognized the enormous conflict of interest inherent in members of Congress owning and trading individual stocks and acknowledged that the activity harms public trust and the integrity of the legislative process.
Members of Congress influence the stock market every day. In their roles as elected officeholders, they often have access to sensitive non-public information. This provides the incentive for them to abuse this information for their own financial gain by buying or selling stocks when they know an impending event may affect the value of those stocks. Members of Congress also have the power to influence the stock market with their votes, so there is potential for members’ personal stock holdings to influence the decisions they make and the votes they cast.
While many elected representatives consider public office to be a public trust, even the perception of abuse can undermine public trust in elected officials and the institution. Congress recognized this twelve years ago when it passed the STOCK Act in 2012 by overwhelming bipartisan majorities. The STOCK Act established requirements for members to report securities transactions made throughout the year closer to when those transactions are actually made and affirmed that insider trading prohibitions apply to federal officials.
When discussing his objection to the bill in today’s markup, Senator Romney asked unironically “Is this a solution looking for a problem?” It should be self-evident that a problem very much exists. Indeed, a majority of the American people of all political leanings agree. Despite requirements under the STOCK Act, members of Congress on both sides of the aisle outperformed the market, beating the S&P 500 every year since 2020. Members of Congress also routinely trade stocks in sectors directly related to their committee assignments.
In 2022, an analysis by the New York Times found that 97 then-members of Congress traded stocks, bonds, or other financial assets that intersected with their congressional work or reported similar transactions by their spouse or a dependent child. Reports of apparent congressional insider trading have also become routine, including members selling millions of dollars in stocks in early 2020 in an apparent effort to avoid expected losses after being briefed about the coming economic impact of COVID-19. The enforcement mechanisms under the STOCK Act were not strong enough to prevent the apparent abuse.
The American public has understandably questioned whether members of Congress are more focused on their own bottom line rather than representing their constituents’ interests. Trust in Congress has fallen to 32 percent and the American public’s trust in people in political life is at a record low.
It’s Time to Make the ETHICS Act Law
Today’s advancement of the ETHICS Act is a win for the American people. The legislation passed out of committee today is the result of a years-long collaborative process of refinement involving dozens of members of Congress in both chambers, civil society groups, and experts. Critically, this bill includes provisions that a range of good governance organizations, including 20/20 Vision, have called for. Firstly, the bill prohibits members of Congress from owning or trading individual stocks or other similar financial assets, with very limited exceptions for non-conflicting assets. Secondly, the bill covers members’ spouses and dependent children. Finally, the ETHICS Act includes an augmented enforcement mechanism now strong enough to serve as a deterrent.
Banning congressional stock trading is broadly popular among voters. In a September 2022 poll of likely voters by Stand Up America, P Street, and Data for Progress, 70 percent of likely voters indicated that they want new federal legislation to ban members of Congress from buying or selling individual stocks while in office, including 69 percent of Republicans and 74 percent of Independents. 68 percent of respondents said a stock trading ban should extend to lawmakers’ spouses. In the same poll, 49 percent of voters indicated that they would be more likely to support candidates for Congress in the November 2022 midterm election who agreed that members of Congress should not be allowed to trade stocks, including 49 percent of Democrats and 50 percent of Republicans.
With the ETHICS Act advanced out of Committee, it is time to bring the bill up for a vote on the Senate floor, get the House to adopt a similar version of the bill, and ensure that legislation banning Congressional stock trading becomes law this Congress.