THE HILL, KARL EVERS-HILLSTROM
The push to bar lawmakers from trading stocks is gaining momentum as lawmakers and congressional candidates in both parties seek to capitalize on the proposal’s huge popularity.
Members of Congress historically haven’t been eager to police themselves — particularly when the legislation would hit their wallets — but public outcry over lawmakers’ pandemic-era stock trades has made the issue impossible to ignore.
Last week, Sens. Jon Ossoff (D-Ga.) and Mark Kelly (D-Ariz.) — who is up for reelection this year — introduced a bill to require lawmakers to put their stocks in a blind trust. Sen. Josh Hawley (R-Mo.) unveiled his own stock trading ban on the same day. Those follow similar House bills introduced last year, including a proposal from Reps. Abigail Spanberger (D-Va.) and Chip Roy (R-Texas).
The influx of legislation follows explosive allegations of insider trading against prominent lawmakers, Speaker Nancy Pelosi’s (D-Calif.) defense of congressional stock trading and polling showing that most Americans want to crack down on the practice.
Two-thirds of Americans support banning lawmakers from trading stocks, including a large majority of Democrats and Republicans, according to a Data for Progress poll released Tuesday. That figure increased to 74 percent when respondents were given arguments in favor of and against a ban.
“I’m hopeful that we will get a change this time because there is a bipartisan push to address this problem that everyone sees,” said Kedric Payne, a former congressional ethics official and senior director of ethics at the nonpartisan Campaign Legal Center.
Lawmakers will have to decide which bill is the most effective at addressing the problem and convince congressional leaders to get on board.
The Ossoff-Kelly bill, which is similar to the Spanberger-Roy legislation and other House proposals, would require lawmakers and their immediate family members to divest from stocks or transfer them into a qualified blind trust within 120 days of the bill’s enactment. It would not apply to mutual funds or diversified exchanges. Lawmakers who violate the law would face a fine equal to their entire congressional salary.
Hawley’s bill would prevent members of Congress and their spouses from holding or trading company stocks but would allow them to invest in mutual funds and exchange-traded funds. Those affected by the law would have six months to divest or place their assets in a blind trust. Violators would be required to forfeit their investment income to the Treasury and lose the ability to subtract investment losses from their income taxes, in addition to potential fines.
Lucas Kunce, a Democratic Missouri Senate candidate who wants to ban lawmakers from trading stocks, criticized each of the existing proposals as “another shiny little object.” He said that violators should face criminal penalties and argued that voters won’t accept blind trusts, which Sen. Mitt Romney (R-Utah) once called “an age-old ruse” during a 1994 Senate debate.
“It’s another fake half measure,” Kunce said. “There’s a real opportunity here to build trust, to actually do something real to take away conflicts of interest, and Congress is not doing it.”
Ethics experts see the blind trust as the best way to effectively end stock trading in a way that doesn’t force lawmakers to sell all of their assets. But they’ve stressed that the provision needs to be strongly enforced.
“We do have to be careful when making this law that we don’t create loopholes that can be exploited,” Payne said. “If the stocks go into the blind trust but the lawmaker still has some knowledge of what is in there or is involved in the trades in some way, it could be the worst-case scenario where the public doesn’t know what the investments are but the member does.”
The renewed effort comes one decade after stock trading scandals surrounding the financial crisis prompted Congress to pass the STOCK Act, which prevents lawmakers and their staffers from using nonpublic information to enrich themselves and requires them to disclose their financial holdings and transactions.
Mounting evidence reveals that the STOCK Act does little to deter that kind of activity. Despite dozens of apparent violations in recent years, only a handful of lawmakers have faced public investigations.
In October, the Office of Congressional Ethics issued a report finding that Rep. Tom Malinowski (D-N.J.) may have violated the law by failing to report hundreds of trades. The House watchdog also found that Rep. Mike Kelly (R-Pa.) may have engaged in insider trading when his spouse bought stock in a steel company shortly after then-Commerce Secretary Wilbur Ross informed Kelly that the Trump administration would take action to protect the firm from going under.
The Securities and Exchange Commission is investigating whether Sen. Richard Burr (R-N.C.) broke insider trading laws when he unloaded stocks following a classified briefing detailing the COVID-19 threat at the onset of the pandemic. But he did not face penalties from the Senate Ethics Committee, which hasn’t sanctioned a single lawmaker in 14 years.
For years, members of Congress have ignored the STOCK Act’s transparency requirements, and it’s unclear whether they faced any real penalties. Business Insider identified more than 50 lawmakers who violated the STOCK Act in recent years, and only a handful of members have paid a fine, which can be as little as $200.
Pelosi, whose husband is a prolific trader, came under fire after she defended lawmakers’ right to trade stocks during a December press conference. The Democratic leader has since directed Rep. Zoe Lofgren (D-Calif.), chairwoman of the House Administration Committee, to scrutinize STOCK Act violations and examine the need for stiffer penalties.
“To be clear, insider trading is already a serious federal criminal and civil violation and the Speaker strongly supports robust enforcement of the relevant statutes by the Department of Justice and the Securities and Exchange Commission,” Pelosi spokesperson Drew Hammill said in an email to The Hill.
Advocates have warned that bolstering existing laws alone won’t satisfy the public’s appetite for substantial reforms.
Another recent poll from conservative advocacy group Convention of States Action found that 76 percent of voters believe that lawmakers and their spouses have an “unfair advantage” when trading stocks, including 70 percent of Democrats, 78 percent of Republicans and nearly 80 percent of independents.
In recent months, numerous high-profile Senate candidates on both sides of the aisle, including Pennsylvania Lt. Gov. John Fetterman and Rep. Conor Lamb (D-Pa.), have come out in favor of a ban on congressional stock trading.
White House National Economic Council Director Brian Deese on Friday expressed support for proposals to end the practice, suggesting that the measure could help restore trust in government.
The White House noted in a statement that while President Biden supports holding government officials “to the highest ethical standards, including the avoidance of any suggestion of conflicts of interest,” he has not yet endorsed any bills on the issue.