The Wall Street Journal: Democrats Release Text of Bill Banning Stock Trading for Congress, Judges

THE WALL STREET JOURNAL, NATALIE ANDREWS

House Democrats released their bill to ban stock trading by members of Congress, judges and senior government officials as they work to gather enough votes to pass legislation through the House before the midterm elections.

The bill text was released late Tuesday and lawmakers hoped to vote on it this week.

Proponents say new rules are needed to eliminate potential conflicts of interest, but they have struggled to iron out the details on the specific language and who should be subject to the restrictions. Critics say that insider trading is already against the law and that new rules would impose unnecessary burdens on lawmakers.

One big hurdle: House Majority Leader Steny Hoyer (D., Md.) has repeatedly stated in private meetings that he will be voting against the bill, according to two people who have been in meetings with him recently. Mr. Hoyer and his staff set the floor schedule for votes, so his opposition makes passing the bill difficult and could also open the door for other members to follow him in dissent.

A spokeswoman for Mr. Hoyer said he would like to see increased penalties for lawmakers who violate insider trading laws. She said that Mr. Hoyer “has also not seen final legislation, and will reserve his official decision until that time.”

Illinois Rep. Rodney Davis, the top Republican on the House Administration Committee, has criticized the Democratic effort as lacking GOP input and “more focused on scoring cheap political points rather than passing sound policy.” House Minority Leader Kevin McCarthy (R., Calif.) has indicated he would support limiting lawmakers’ stock ownership but hasn’t delved into details.

Democrats have a narrow majority in the House, and can only afford to lose a few votes if all Republicans are opposed.

Democrats expect this week to consider the legislation that would ban senior government officials—including members of Congress, executive branch officials and Supreme Court justices and their spouses and dependent children—from trading stocks or directly holding investments in securities, commodities, futures, cryptocurrency and other similar investments, as well as from shorting stocks. The legislation would also apply to senior congressional staff but not their spouses.

There is an exemption for spouses and children of lawmakers who receive stock from their employer, as opposed to purchasing individual stocks.

The legislation would force lawmakers and government officials to divest themselves of these holdings or place them in a qualified blind trust. Because a forced divestment could have tax implications, the bill would allow those affected to defer payment of capital-gains taxes, as is allowed for cabinet members who have to divest ownership.

Members would be allowed to hold diversified mutual funds, exchange-traded funds and U.S. Treasurys as well as state and local government bonds.

Some lawmakers, including Rep. Dean Phillips (D., Minn.), have placed their holdings in a blind trust. Mr. Phillips, who set up a blind trust before signing onto bipartisan investment-restrictions legislation by Reps. Abigail Spanberger (D., Va.) and Chip Roy (R., Texas), said the process took months and was complicated.

Backers say current rules requiring regular disclosure of holdings don’t do enough to address potential conflicts of interest or potential trading on access to nonpublic information. Lawmakers can be aware of planned legislation or hearings before the information is released to the public, and markets can move depending on how Congress acts.

“Members of Congress should be leaping at the chance to demonstrate that they care more about the people they serve than their own stock portfolios,” Ms. Spanberger said.

While initially being resistant to the idea, House Speaker Nancy Pelosi (D., Calif.) has backed legislation banning lawmakers and spouses from owning stocks. Her husband, Paul Pelosi, frequently discloses trades, some of which have come under scrutiny.

Mrs. Pelosi has long maintained that she doesn’t discuss trades with her husband.

Currently, lawmakers must publicly file and disclose any financial transaction involving stocks, bonds, commodities, futures and other securities within 45 days. Last year, activists and many lawmakers, including Ms. Spanberger and Mr. Roy, began pushing for tighter rules, with some liberal and conservative groups finding common cause on the issue.

Mrs. Pelosi assigned House Administration Committee Chairwoman Zoe Lofgren (D., Calif.) to steer the legislation. In a letter to Democrats last week, Ms. Lofgren said the legislation would increase transparency around large securities transactions and increase the penalties for violating the imposed rules, from a $200 fee now for late disclosures to a $1,000 fee for every 30-day period in which a person is in violation of the new restrictions.

Lawmakers have been divided on how expansive to be on the legislation, whether it should include spouses and children and senior staff. The negotiations around the bill have also alienated Republicans, who have called the process partisan.

Late last year, the Federal Reserve imposed new restrictions on senior officials in a bid to address a stock-trading controversy that prompted the resignation of two reserve bank presidents. Meanwhile, lawmakers have proposed legislation requiring federal judges to report stock trades over $1,000 within 45 days and post their financial-disclosure forms online, following a Wall Street Journal investigative series that found 131 federal judges violated federal law by hearing lawsuits involving companies in which they reported owning stock.

Mrs. Pelosi had planned to vote on the bill by the end of September, before House lawmakers leave Washington for a month to campaign for the midterm elections. Still, it was unclear on Tuesday whether the bill had enough backing to pass this week.

“It’s a lame food fight to be having if we don’t, in fact, have the votes,” said a senior Democratic aide.

The legislation is unlikely to move forward in the Senate. While some senators, including Sen. Jeff Merkley (D., Ore.) and Sen. Mark Kelly (D., Ariz.), have backed legislation that would prevent lawmakers from owning stock, they have failed to gain consensus on one bill.

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