The Road to Banning Stock Trading in Congress
A representative democracy ceases to function when elected officials legislate for their own personal interests as opposed to the interests of those who elected them. The responsibilities entrusted to members of Congress grant them the potential to commit insider trading: the strategic trading of stocks or other financial assets given access to non-public information. While insider trading by members of Congress is illegal, no member of Congress has ever been prosecuted for insider trading as it is difficult to prove whether trades were made because of inside information. The legality of congressional stock trading not only incentivizes building personal wealth above providing for the general welfare of the congressperson’s constituents, but it also leaves the door open for insider trading with an extremely low likelihood of criminal repercussions. The trading of assets in the stock market by members of Congress has corroded our democracy for far too long; sweeping reform is overdue.
As the 2007-2008 Global Financial Crisis unfolded, members of the U.S. Congress were briefed by the Treasury Department and the Federal Reserve with non-public information to legislate accordingly in reaction to developments in our imperiled economy. Following meetings with Treasury Secretary Henry Paulson Jr. and Federal Reserve Chairman Ben Bernanke, numerous members of Congress––including then-House Minority Leader John Boehner––made significant stock trades. Regardless of whether the timing of the trades was coincidental or planned, these members of Congress benefitted from the transactions while most of the nation reeled from the devastating effects of the 2008 recession. More recently, several senators––Richard Burr of North Carolina, Kelly Loeffler of Georgia, Dianne Feinstein of California, and James Inhoffe of Oklahoma––aroused suspicion for making well-timed trades as the COVID-19 pandemic emerged.
While both instances spurred calls to pass legislation, only the STOCK Act survived the halls of Congress to become a law. Passed in 2012, this law requires members of Congress to report high value stock trades no “later than 45 days after such transaction”, and strictly prohibits them from engaging in insider trading. The STOCK Act clearly had a positive impact in curtailing stock trading in Congress. An analysis by Public Citizen found that after the passage of the STOCK Act, the number of stock transactions by senators decreased by 50 percent over the following three years. However, many members of Congress have remained active in stock trading activities, and there are doubts that the legislation has been effective in preventing insider trading and the STOCK Act’s most important transparency provisions were eviscerated in 2013 when a bill was rammed swiftly through Congress without debate or a recorded vote by the procedure of unanimous consent.
Initially, stock trading activities were required to be disclosed electronically and there were talks of establishing an online database for such information, to maximize its accessibility to the public. However, with the 2013 repeal of the STOCK Act’s online disclosure requirements, plans for implementing such a database were left dead in the water. While the repeal was rooted in concerns with publishing the personal information of government employees, the far-sweeping nature of the adjustment resulted in the perseverance of an outdated system to access the financial records of congresspeople. The information “is only readily accessible via computers located in windowless rooms in the House Cannon Building basement and the Senate Hart Building”. Requesting the documents over the phone via the Office of Public Records is reportedly a long and unreliable process. While those of going to school here in our nation’s capital are only a short journey on the metro away from these congressional office buildings, the rest of the country does not share this proximity, nor can most citizens afford to travel to Washington, DC merely to spend hours printing out untold single-page pdfs for 20 cents a page. The ability of citizens to obtain these records is crucial to holding members of Congress accountable in the public eye, yet the process of retrieving records is systematically tedious and inefficient.
Nevertheless, the media has acted as a key player in investigating and reporting the failures of lawmakers to follow the law. Journalists from Insider undertook the painstaking work of sorting through the records in the bowels of congressional office buildings. As of January of this year, Insider found that 78 members of Congress violated the STOCK Act, a disturbing statistic for anyone concerned with the effectiveness of the existing law. One of those who failed to comply was Florida Senator Rick Scott, the wealthiest member of Congress (who earned much of his profit through Colombia/HCA, which perpetrated the largest Medicare and Medicaid fraud in US history under his leadership). Scott reported selling nearly half a million dollars in stock “more than a year after a federal deadline”. No reports suggest that Scott has been penalized to any extent for this violation by Senate ethics officials.
Banning congressional stock trading in its entirety to remove all possibility of insider trading has garnered more traction in the halls of the Capitol following the COVID-19 pandemic. Members of both parties have crafted numerous bills in recent years aimed at banning the trading of stocks by members of Congress and their spouses altogether. Notably, in 2021, Senators Jeff Merkley of Oregon, Sherrod Brown of Ohio, and Raphael Warnock of Georgia introduced the Ban Conflicted Trading Act, and Representatives Chip Roy of Texas and Abigail Spanberger of Virginia also collaborated on a bill. In 2022, Senators Jon Ossoff of Georgia and Josh Hawley of Missouri introduced different bills. Both bills proposed that congresspeople divest “prohibited holdings or place those holdings in a blind trust for the remainder of their tenure in office”, though negotiations between Ossoff and Hawley’s offices to merge efforts for a co-authored bill fell through. A similar bipartisan bill co-authored by Senators Elizabeth Warren of Massachusetts and Steve Daines of Montana was also introduced. However, despite bipartisan support, these attempts met significant hurdles. In 2021, then-House Speaker Nancy Pelosi cited the “free market economy” as justification for members of Congress to continue trading stocks. A free market without guardrails breeds corruption; regulating the privileges of the Congress is an absolute necessity to deter our elected representatives from engaging in corruption. Unfortunately, while Speaker Pelosi eventually greenlit support for the aforementioned reforms, she did not treat the matter with urgency; no bill on the subject made it to the House floor during the 117th Congress.
The road to banning congressional stock trading will be long and hard-fought; after all, those needed to vote in favor of such a ban would be clearly incentivized by financial gain to reject any attempts to outlaw the practice. Nonetheless, the foremost duty of lawmakers is to represent the interests of their constituencies. As constituents we must do all in our power to hold our elected officials accountable. Public opposition to congressional stock trading is widespread and uninhibited by party affiliation; polling suggests that roughly 76% of voters support a ban. Bipartisan efforts are needed to diminish the outsized power of members in both parties who have gamed the system. Electing more congresspeople who will take a firm stand on the matter is possible if enough voters make it a higher priority issue during both primaries and general elections. The revitalization of American democracy requires our elected officials to stop prioritizing the accumulation of wealth above providing for the public good.
1. https://www.forbes.com/sites/insider/2020/05/26/how-senators-may-have-avoided-insider-trading-charges/?sh=7b48420527ba
2. https://www.washingtonpost.com/politics/lawmakers-reworked-financial-portfolios-after-talks-with-fed-treasury-officials/2012/06/24/gJQAnQPg0V_story.html
3. https://www.npr.org/2020/05/26/862692569/justice-department-closes-investigations-of-3-senators-burr-inquiry-continues
4. https://www.npr.org/2020/05/26/862692569/justice-department-closes-investigations-of-3-senators-burr-inquiry-continues
5. https://www.citizen.org/wp-content/uploads/migration/case_documents/2017_stock_act_report.pdf
6. https://www.npr.org/sections/itsallpolitics/2013/04/16/177496734/how-congress-quietly-overhauled-its-insider-trading-law
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