Why Members of Congress Shouldn’t Trade Stocks
House Speaker Nancy Pelosi (D-California) just gave Republicans a huge political opportunity. Despite overwhelming evidence that allowing members of Congress and their spouses to trade individual stocks is a terrible idea, the speaker insists they should be allowed to do so.
Pelosi’s husband is a very active stock market trader, and a few weeks after she announced her stance on this issue, he resumed trading.
Republicans, without acknowledging their own stock market scandals in the House and Senate, are now racing to fill the ethical vacuum. Several, including Sen. Josh Hawley (R-Mo.), have proposed bills to ban congressional stock trading that they say will become law if the GOP wins control of Congress in November.
By now it should be clear why it is wrong for members of Congress to trade stocks while in office.
Conflict of interest with official duties
First, the conflict of interest with official duties is untenable. It is a crime, potentially a crime, for a federal official who is not an elected official to participate in any government business that has a direct and foreseeable effect on a financial interest of the official or a spouse of the official.
But Congress, when it passed this law, exempted itself and the president and vice president. Hypocrisy to say the least.
Second, members of Congress have vast amounts of non-public inside information that can be used to buy or sell stocks. Insider trading is a crime, but it is also difficult to prove. In 2012, Congress passed the Stop Trading on Congressional Knowledge Act (STOCK Act) which confirmed that insider trading laws apply to members of Congress and their spouses; using nonpublic information learned in Congress to trade in securities is illegal. But in the nearly 10 years since the STOCK Act was passed, no one in Congress has been prosecuted for insider trading based on congressional information.
One problem is the Speech and Debate Clause of the Constitution which specifically states that “”for any speech or debate in either House, they [members] will not be questioned in any other place. The scope of this ban is not entirely clear, but it prevents federal investigators from asking members what they have said to each other about pending legislation, investigations and other matters before Congress.
Third, even if members of Congress did not allow actions to influence their votes on legislation and did not use nonpublic information to negotiate actions, the emergence of corruption undermines public trust. in government. They should invest in broadly diversified mutual funds, not individual stocks.
The fact that they don’t leads the audience to believe they are using an inside advantage. It also makes it very difficult for Congress to oppose conflicts of interest within the executive branch.
Personal efforts for reform
In December 2020, Donna M. Nagy, a professor at Indiana University’s Maurer School of Law and one of the nation’s foremost experts on insider trading law, and I wrote a letter to congressional leaders from both parties in the House and Senate and why they should put a ban on stock trading during the term.
We received no response.
We then published an Insight with Bloomberg Law saying essentially the same thing.
Until now, financial conflicts of interest have been the weak point of Republicans. The Congressional GOP ignored four years of Trump’s conflict of interest. Trump companies would have received sponsorship and likely debt and equity from entities controlled by foreign governments in violation of the Constitution’s emoluments clause.
Norman Eisen, former ambassador, chief ethics counsel at the Obama White House and now a member of the Brookings Institution, Laurence Tribe, a Harvard law professor, and I raised this issue in an article published by the Brookings Institution shortly after Trump won the 2016 election.
Then, as vice president of Citizens for Responsibility and Ethics in Washington, I sued Trump on his first day in office for his violation of the emoluments clause, a case the Second Circuit Court of Appeals dismissed. cleared to proceed after lengthy federal court hearings. But Trump ran for time in court and never shied away from his financial conflicts of interest until he lost the presidency in 2020 and the US Supreme Court dismissed the case as not applicable.
Congress did nothing to investigate Trump’s finances when Republicans controlled both houses. Even after he lost control of Congress in 2018, Republicans did everything they could to derail investigations and supported him in his refusal to comply with congressional subpoenas.
Political setbacks involving stock trading
Democrats and Republicans in the House and Senate do a lot of stock trading, but so far Republicans have suffered the most political setbacks because of this issue.
In 2017, Health and Human Services Secretary Tom Price resigned after stories broke that when he was in Congress as chairman of a powerful committee overseeing health care, he had traded healthcare stocks. And Rep. Chris Collins (RN.Y.) was charged, convicted, and sentenced to 26 months in prison for insider trading on nonpublic information, before being pardoned by President Trump.
In a January 2021 runoff election, Republicans lost Georgia’s two US Senate seats amid allegations that the two Republican senators traded stocks during volatile stock markets at the start of the coronavirus pandemic. Covid-19.
Hypocrisy on both sides of the aisle
Financial conflicts of interest for elected officials are not the strong point of the Republicans. Until now.
Hypocrisy is rampant in politics, and voters often focus on what politicians say about the present, not what they have done in the past. Currently, Pelosi opposes constraints on congressional stock trading.
High-profile Democrats with large stock portfolios have been caught up in stock-trading allegations, including Sen. Dianne Feinstein (D-California), whose husband is an active trader in stocks, especially d tech stocks.
Others, like Sen. Tina Smith (D-Minn.) and her husband didn’t trade stocks while in office, but held large portfolios in industries — in Smith’s case, technology companies. medical devices – which overlap with official functions.
In 2018, I raised these financial conflicts of interest when I ran unsuccessfully against Smith as a political independent in a Democratic primary; the GOP then went a step further and used the issue to run misleading ads in their failed bid to unseat Smith.
Despite Pelosi’s reluctance, influential Democrats support a ban on congressional stock trading. On January 14, the White House said President Biden would support legislation banning Congressional stock trading. And several years ago, Sen. Elizabeth Warren (D-Mass.) introduced a bill in the Senate that would do the same. Sen. Jon Ossoff (D-Ga.) introduced a similar bill to the current Congress. Reps. Abigail Spanberger (D-Va.) Virginia and Chip Roy of (R-Texas) have a companion bill in the House.
Rep. Angie Craig (D MN) plans to introduce a bill that would ban members from owning stock. Craig is in a very tight race in a swing district where her Republican opponent, and potentially an independent candidate, could still use Pelosi’s stance on stock trading against her in November. Never mind that Craig disagrees with the speaker on this issue. Republicans will point out that who controls Congress determines what laws are passed. Whatever promises Republicans make on Congressional stock trading could easily be broken if they take control.
This should not be a partisan issue. Neither party should be allowed to use it to take control of the House or Senate in November. Both are to blame, and now we have proposed bills from both sides of the aisle to ban congressional stock trading.
All Congress needs to do is pass them.
This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Richard W. Painter is the S. Walter Richey Professor of Corporate Law at the University of Minnesota Law School and served as Chief White House Ethics Counsel for President George W. Bush.