There is growing scrutiny of members of Congress trading individual stocks and momentum to ban or limit the practice to avoid conflicts of interest, and House Minority Leader Kevin McCarthy is among those who see an opportunity.
But Republicans in the House are divided on the proposed limits even as House Speaker Nancy Pelosi faces criticism for resisting restrictions while profiting off investments.
Punchbowl News reported last week that McCarthy is considering ways to limit or ban members trading individual stocks or preventing them from trading stocks in industries subject to oversight from committees they sit on.
A political opportunity to signal support for “cleaning up” Congress arose after Pelosi faced pushback, including from members of her own party, after she brushed off the idea of banning members from trading stocks.
“We are a free market economy. They [members] should be able to participate in that,” Pelosi, whose husband’s stock trades and millions in gains have gained notice, said in a press conference last month.
Democratic Rep. Abigail Spanberger, who has introduced a bipartisan bill to ban members from trading individual stocks, pushed back on Pelosi: “No. It cannot be a perk of the job for Members to trade on access to information,” she said in a tweet.
Reforming stock trading for members of Congress is a rare issue that can unite New York Democratic Rep. Alexandria Ocasio-Cortez and Republican Rep. Matt Gaetz, who are both co-sponsors of another bipartisan bill to bar members of Congress from buying or trading stocks. And as legislative momentum is building (four such bills aimed at limiting member trading are outlined at the bottom of this article), vocal support is also growing.
“Members should not trade at all, period,” Florida Republican Rep. Byron Donalds told the Washington Examiner. “We do have a potential issue here in Congress with serious ethical and moral hazard issues, because we have information that’s just not readily available to the public.”
Donalds, who is a licensed investment adviser and has a background in the banking, finance, and insurance industries, said that an investment advisory group manages his IRAs. And he does not think that spouses should have free rein on stock trades, either.
“You shouldn’t be able to profit from being a public policy maker and making policy decisions. And for the love of God, you’ve been there for 40 years, if you want to go trade stocks, retire,” Texas Republican Rep. Chip Roy, who introduced a bill with Spanberger to limit congressional trading, said on WMAL radio last week.
But a number of less vocal House Republicans think that restricting members’ ability to trade outweighs the benefits.
“You don’t want a Financial Services Committee with no knowledge of financial services,” Ohio Rep. Warren Davidson told the Washington Examiner. “In fact, I think more of our members should actually own financial services products.”
One unnamed Republican lawmaker who spoke to the New York Post said it was a “stupid idea” to ban members from trading stocks, and another blasted McCarthy’s proposal as “short-term political gain against Pelosi, while making members worse off for the long term.”
‘WE ARE A FREE MARKET ECONOMY’: PELOSI REJECTS BAN ON MEMBERS OF CONGRESS TRADING STOCKS
“There’s an urban legend that members of Congress are exempt from insider trading laws, and they’re not,” Davidson said.
Former New York Republican Rep. Chris Collins is serving a 26-month prison sentence after he pleaded guilty to conspiring to commit securities fraud and making false statements to the FBI for giving his son an illegal stock tip.
The House Ethics Committee is also investigating two members of the House for stock trades. The committee is investigating whether Republican Rep. Mike Kelly of Pennsylvania had privileged information when his wife bought stock in a steel company and whether Democratic Rep. Tom Malinowski of New Jersey’s failed to properly report stock trades. Malinowski has since put his assets in a blind trust.
But others believe that the legal constraints on members do not go far enough, or that they should be held to a higher standard. The Department of Justice investigated four senators in 2020 for their stock trades that took place just before COVID-19 lockdown restrictions drastically altered the economy but closed the investigation without making any charges.
Republican North Carolina Sen. Richard Burr, though, did step down from his chairmanship on the Senate Intelligence Committee due to the investigation.
The law that currently governs the trading activity of members of Congress is called the 2012 Stop Trading on Congressional Knowledge Act, or STOCK Act. It requires members to report their stock trades within 30 to 45 days.
A Business Insider investigation last year asserted that dozens of members had recently failed to meet those requirements and reported that members have been trading stocks in industries where they have oversight responsibilities.
Last week, Republican Sen. Josh Hawley introduced a bill to restrict members from trading individual stocks, and Democratic Sens. Jon Ossoff of Georgia and Mark Kelly of Arizona introduced another one. Those add to the existing bills with similar aims.
The pressure and momentum prompted Pelosi to direct Committee on House Administration Chairwoman Zoe Lofgren to “examine the issue of Members’ unacceptable noncompliance with the reporting requirements in the STOCK Act.”
“The speaker believes that sunlight is the best disinfectant,” a Pelosi spokesperson told Business Insider.
While Davidson opposes the restrictions on trading, he also understands the problems that can arise from members holding financial assets in areas that they can influence through policy. He is a longtime advocate for Bitcoin and cryptocurrency technology but deliberately decides not to buy cryptocurrency himself (though a company he owned at one point held stable coins, which is tied to an outside asset like the dollar).
“Frankly, when I came into Congress, Bitcoin was trading, like, $1,000. So that’s a 60x return that I’ve taken a hard pass on,” Davidson said. “It’s been painful sometimes, because I believed passionately that I was right about it.”
“While people get spun up on the one hand when there’s people that make money, they certainly don’t seem to reward people that forgo making, which is what I’ve done,” Davidson said. “I’m like, ‘I think I might be the dummy here.’”
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Legislation to restrict member stock trading includes:
Transparent Representation Upholding Service and Trust (TRUST) in Congress Act
- First introduced in the House January 2020 by Democratic Rep. Abigail Spanberger of Virginia and Republican Rep. Chip Roy of Texas.
- Would require all members, their spouses, and dependent children to put certain assets in a qualified blind trust. That does not include Treasury bills, notes, or bonds.
- Has support from advocacy groups on both the left and right, including the Project on Government Oversight, FreedomWorks, Public Citizen, Americans for Prosperity, Government Accountability Project, End Citizens United Action Fund, and Citizens for Responsibility and Ethics in Washington.
- Nineteen additional bipartisan co-sponsors.
Ban Conflicted Trading Act
- Introduced in both the House and the Senate and was first proposed by Oregon Sen. Jeff Merkeley in 2018.
- Would ban members and their staffs, but not their spouses or dependents, from trading securities, commodities, futures, and other covered investments unless it is in a qualified blind trust. It allows members to keep control of investments they had when they entered office, though. It also prevents them from sitting on for-profit corporate boards.
- Co-sponsors in the House include Democratic Reps. Alexandria Ocasio-Cortez of New York and Joe Neguse of Colorado, as well as Republican Reps. Matt Gaetz of Florida and Michael Cloud of Texas.
Ban Congressional Stock Trading Act
- Introduced in the Senate by Democratic Sens. Jon Ossoff of Georgia and Mark Kelly of Arizona.
- Similar to the Spanberger-Roy legislation, it would require members, their spouses, and their dependent children to put stock portfolios in a blind trust. Does not apply to diversified mutual funds, diversified exchange-traded funds, primary compensation from a spouse or dependent, or Treasury bills, notes and bonds.
- Has support from the Project on Government Oversight and FreedomWorks, among other groups.
Banning Insider Trading in Congress Act
- Introduced in the Senate by Republican Sen. Josh Hawley last week.
- Prohibits members and their spouses, but not dependents, from holding or selling securities, futures, commodities. That does not apply to diversified mutual funds, diversified exchange-traded funds, Treasury bonds, or qualified blind trusts.
- Would penalize members who violate the act by requiring them to give profits to the U.S. Treasury, not allowing losses to be deducted from income taxes and fines.
