Jake Parentis
Associate Editor
Loyola University Chicago School of Law, JD 2024
As of September 2022, the current Congress has an approval rating of just 17% – an ignominious reality – and a series of recent investigations won’t serve to ease the mounting public frustration. Insider recently identified at least 72 members of Congress in noncompliance with the Stop Trading on Congressional Knowledge Act (STOCK). This revelation – among others – has prompted a push for the enactment of more stringent congressional stockholding limitations.
Corruption & compliance unveiled
As stated by President Obama’s Office of the Press Secretary, the federal STOCK Act was enacted in 2012 to prevent members of Congress from trading stocks based on nonpublic information they gleaned on Capitol Hill. STOCK was designed in response to several investigations– such as a November 2011 60 Minutes report – suggesting that several members of Congress engaged in extensive stock trading after learning classified details regarding the financial crisis of 2008. STOCK requires members of Congress to publicly and promptly – within 45 days – disclose any stock trade made by themselves, a spouse, or a dependent child, whenever a trade is valued at $1000 or more. This requirement was one amongst several others outlined in the Act meant to combat insider trading and to encourage lawmaker transparency in regard to their personal financial dealings. Insider recently identified 72 lawmakers who violated the STOCK Act by making disclosures late, inaccurately, or not at all.
Among these culprits are Sen. Dianne Feinstein (D-CA), who was months late disclosing a five-figure investment her husband transformed into a private, youth-focused polling company, and Sen. Rand Paul (R-KY), who was 16 months late in disclosing that his wife bought stock in a biopharmaceutical company that manufactures an antiviral COVID-19 treatment, as reported by the Washington Post. Many accused members of Congress blame oversights, clerical errors, and inattentive accountants for their STOCK noncompliance. Some lawmakers claim that trades were executed without their knowledge, yet the nature of such claims can be difficult to substantiate. Lawmakers who violate the STOCK Act face a notably insignificant fine of $200. That fine is often waived by House or Senate ethics officials.
To make matters worse, the New York Times conducted an investigation using the comprehensive database Capitol Trades, which compiles all congressional trading disclosures. The Times matched these trades against committee assignments, hearings, and investigations to track how personal, congressional financial transactions might interact with the lawmakers’ political work. The study revealed 3,700 potentially conflicting trades, which amounted to nearly 10 percent of all transactions by members of Congress from 2019–2022. The test also revealed that during that three-year span, of the 183 current senators or representatives who reported a trade of a stock or another financial asset by themselves or immediate family members, “more than half of them sat on congressional committees that potentially gave them insight into the companies whose shares they reported buying or selling.” It is also worth noting that this investigation is non-exhaustive, excluding various cases of suspected corruption, such as the alleged insider trading scandal carried out by the husband of House Speaker Nancy Pelosi, because Pelosi does not sit in on committees. Thus, this reality suggests the existence of ample corruption beyond the scope of the investigations already conducted.
Congressional calls to action – all bark, no bite?
Both prominent Democrats and Republicans have come forward to suggest plans to limit or even outright bank stock trading. In January 2021, Rep. Chip Roy (R-TX) and Rep. Abigail Spanberger (D-VA) introduced the Trust in Congress Act (TRUST), which would require members of Congress, along with their spouses and dependent children, to put relevant investments in a qualified blind trust during their entire congressional tenure. Spanberger commented that the bill would ensure lawmakers “cannot use their positions . . . to unethically inform investment decisions or influence the value of their existing investments.” In January 2022, Senators Mark Kelly (D-GA) and Jon Ossoff (D-GA) introduced a similar bill, and as of September 2022, several other similar proposals – and notably mostly bipartisan – are floating around Congress. In April of 2022, Sen. Elizabeth Warren (D-MA) even suggested an outright ban on congressional stock trading at a federal hearing on insider trading.
Most recently, on September 22, House Democratic leadership released a framework for congressional stockholding limitations. That same day, Rep. Hakeem Jeffries (D-NY) announced that the chamber may consider legislation to reform the STOCK Act as soon as the subsequent week. The framework calls for increasing the penalties for violating the STOCK Act from $200 to $1,000 for every 30-day period in which a member of Congress is not in compliance, and calls for greater transparency surrounding enforcement of the law. The framework additionally calls for mandating electronic filing of financial disclosures and prohibiting Supreme Court Justices from trading stocks.
Despite such announcements, several prominent proponents of a stock trading ban have reported they’ve been largely excluded from the Democrat leadership’s legislative plans. While Rep. Raja Krishnamoorthi (D-IL) has expressed “concern about the lack of detail,” as the clock “[winds] down pretty fast,” Rep. Pramila Jayapal (D-WA) has also made it clear that she has “not exactly heard what’s happening,” and “can’t say [she’s] confident.” The “irony” of these seemingly disjointed efforts has not been lost on Spanberger, who claims she’s been “ghosted by Democratic leadership,” noting the “comical” aspect of these disorganized efforts, despite goals of governance reform to promote “greater transparency in the system.” Meanwhile, Sen. Jeff Merkley (D-OR) reported to Insider that the Senate version of a stock trading ban is unlikely to come until after the midterm elections in November.
The public majority demands and deserves immediate change. A January Fox News poll revealed broad, national bipartisan support, finding 70 percent of Trump and Biden voters – in nearly equal numbers – favoring a ban restricting current members of Congress and their immediate family from trading stocks. It remains to be seen how the federal government will proceed.
Your move, Congress.