Insider Trading Isn’t Illegal if You Are a Member of Congress

Cora Leeuwenburg

Journal of Regulatory Compliance

Loyola University of Chicago School of Law, JD 2022

Jon Ossoff, the freshman Senator from Georgia, has made it clear that he intends to put forth a bill that would ban members of Congress from trading individual stocks. This is a policy that seems likely to fail, but that doesn’t make it any less necessary. It is estimated that members of Congress and their families bought and sold over $500 million worth of assets. That’s not to say that all these trades were based on information not available to the general public, but it is clear that there is a massive conflict of interest in allowing law makers to trade stocks when their job is intrinsically tied to making decisions that affect the price of stocks.

Insider trading for Congress members

Simply put, insider trading is illegal. But, if you are a member of Congress, there is a loophole. Members of Congress and their families are allowed to trade stocks with almost no limitations. There isn’t a limit on lawmakers trading stocks based on classified information nor is there oversight regarding the trades that lawmakers are allowed to make based on other information they are privy to as part of their job. This is in glaring contrast to the strict insider trading laws that ban the same kind of behavior of everyone else in the county.

Companies also are well aware of this loophole and even give Congress members special access to IPO stocks prior to their being made available to the general public. One example of this kind of access being offered to lawmakers was seen in 2008 when Visa offered Nancy Pelosi early IPO stock access at the very time that legislation that Visa opposed was being brought to the House floor. In two days, Nancy Pelosi and her husband made over $100,000 in Visa stock alone and the legislation in question was never allowed on the House floor for a vote.

Laws against congressional insider trading

In April of 2012, Congress passed the STOCK Act, a policy that on its face would address the problem and curtail the type of insider trading that lawmakers have been able to profit off of. But the STOCK Act has effectively been gutted in the ensuing years following its adoption. One key portion of the STOCK Act that has been neutralized is the disclosure provision. This change removed the accessibility and transparency of the original version of the Act that made these trades by lawmakers readily available for the public to see.

Ossoff’s proposed ethics bill would make it illegal for lawmakers and their families to trade stocks while in office. Unsurprisingly, Ossoff has yet to find a Republican senator to co-sponsor his bill. This is a radical move by the Senator as it is a well-established practice for lawmakers and their families to engage in trading while in office and make millions in the process. Not only is this practice a massive ethical concern, but it also toes the line of corruption, especially if Congress members choose to make policy decisions based on their own financial self-interests.

Ossoff’s proposed bill isn’t a new idea. There is already a bill in the House which proposes something similar, the TRUST in Congress Act, which would ban close family members of lawmakers from engaging in trading while congress members are in office. Ossoff has also attempted something similar with the Ban Conflicted Trading Act which was introduced in the Senate in March by Ossoff and three other Democratic Senators.

Will it pass?

It is clear that Congress recognizes the inherent problem with lawmakers and their families engaging in trading when they are quite literally crafting the very laws that affect the market. But it will be an uphill battle for any of these many bills to actually become law. The main problem Ossoff and other Congress members face when trying to pass this kind of legislation is that it would require the majority of lawmakers to support a bill that would curtail their ability to profit off of the decisions they make while in office. And if Congress’ treatment of the STOCK Act is any indication, lawmakers are unlikely to pass such a bill.

But there may be hope for a bill banning congressional trading. Much like in 2012, there has been a massive public backlash against this sort of practice and in 2012 this public outcry resulted in the passing of the STOCK Act. This is by no means an easy problem to tackle but if public pressure continues, there is a chance that Ossoff’s bill or something like it may actually be passed in Congress.