Agency Officials Trade Stock in Companies their Agencies Oversee

Justice Martin

Associate Editor

Loyola University Chicago School of Law, JD 2024

More than 2,500 government officials ranging from the Commerce Department to the Treasury Department reported owning stock in companies whose share prices correspond to decisions made by their respective agencies. With obvious conflicts of interest arising, what has happened, and what are some major takeaways from this investigative report?

What happened?

On October 11, 2022, the Wall Street Journal (WSJ) released a bombshell investigative report. WSJ pored over 30,000 financial disclosure forms of “about 12,000 senior career employees, political staff and presidential appointees” spanning over 5 years. Most of these disclosures are not accessible or public information. The WSJ discovered that during both Democratic and Republican presidential administrations, federal agency officials traded stocks on companies that either benefit or suffer from the regulations their federal agency implements.

For example, a federal official in the Environmental Protection Agency, Michael Molina, and his husband directly traded stocks while Molina was serving as senior adviser to the deputy EPA administrator. While Molina was in this position, he was heavily involved in closed-door deliberation of regulations that dealt with the environment and energy. Specifically, when he assumed his position Molina purchased stock totaling between $16,000 and $65,000 in the gas-producing energy company, Cheniere Energy. He reported buying the stock of Cheniere Energy for over a year when senior EPA officials were simultaneously pushing for increased production of natural gas in the United States.

Similarly, Food and Drug Administration official Malcolm Bertoni reported that he and his wife owned about 70 pharmaceutical and medical device companies regulated by the agency in 2018 and 2019 when Bertoni was working there. Bertoni’s lawyer stated that Bertoni and his wife owned $120,000 to $1.1 million worth of stocks the FDA supposedly banned. The couple believed they owned the stocks despite the supposed bans due to inaccurate advice given to them by the FDA ethics office. Once Bertoni was notified of his non-compliance, the FDA decided to have Bertoni recuse himself whenever a matter involved one of the companies whose stock he purchased. Shortly thereafter, “after considering the tax and retirement planning consequences of having to sell the stock and other personal factors, Mr. Bertoni chose to retire instead.”

Possible impact on the Government?

Federal agency officials trading stock are not given the same public attention as our lawmakers engaging in the same conduct. In 2012, then-President Barack Obama passed the Stop Trading on Congressional Knowledge (STOCK) Act to hold congressional members and their staff accountable for insider trading. “The law mandates that government employees and members of Congress report investment transactions within 45 days of making a trade, instead of the annual basis under the old law.”

Specifically, U.S. law prohibits federal officials from working on any matters that could have an impact on their finances. Nowadays, most officials’ financial disclosures are publicly available only upon request because “under federal regulations, owning $15,000 or less in individual stocks or holdings of $50,000 or less in mutual funds are not deemed personal conflicts”.  The Office of Government Ethics directly oversees executive-branch potential conflicts of interest and most senior officials’ financial disclosures are posted on the government ethics website.

Some major takeaways from the investigative report include not only officials trading stocks of companies that lobby their agencies, but also that federal officials are making incredibly risky trades that involve abnormally large sums of money. According to the WSJ, “about 70 federal officials or their family members reported using sophisticated techniques such as options trading and short selling, with some individual trades of between $5 million and $25 million.”  Moreover, some disclosures showed over 90,000 stock trades over six years.

Another takeaway is the fact that officials tend to trade before regulatory actions which provide the opportunity for insider trading and conflicts of interest. Over 60 officials from about five agencies reported trading stocks of companies before new enforcement actions against those companies were made public. Most agencies’ ethics rule focus on the kinds of stocks federal officials can trade, but not when they trade. This begs the question of whether there are blatant conflicts of interest, and will these federal officials be liable for penalties for their conduct?  As this is a new bombshell investigative report, only the future will be able to provide any of the answers to the question presented.