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Congress’s not-so-covert cash grab
Members of Congress make a minimum of $174,000 a year. With a salary that substantial, asking that they refrain from buying and selling stocks while in office is reasonable. The public shouldn’t have to question whether representatives are abusing their positions to advance their portfolios.
At the moment, there is a law in place to discourage the abuse of confidential knowledge for insider trading, but more than one in every ten members of the previous Congress had violated that law. With no stock trading restrictions in place, how can we trust that Congress is acting in our country’s best interests and not just cashing in?
In this edition:
- Congress’s bad habit
- The toothless STOCK Act
- Violations on violations
- Rebuilding TRUST in Congress
A new episode of the second season of The Continuous Action, hosted by POGO Senior Ethics Fellow and former Bridge author Walter Shaub, comes out today. This episode of the podcast dives into the issue of stock trading in Congress and what can be done to fix it. Listen to the new episode here.
During the COVID-19 pandemic, lawmakers made hundreds of lucrative trades — including selling hotel and travel stocks and investing in remote work, telemedicine, and alcohol producers that were switching over to producing hand sanitizer. These trades were made following closed-door briefings about the nation’s pandemic response. While the rest of the country was struggling to stay employed, pay rent, and buy groceries, some members of Congress were betting on catastrophe.
In 2021, investors in Congress were found to have beaten the stock market, outperforming even the S&P 500. Some TikTokers are now tracking lawmakers’ trades for stock tips. Also in the spirit of joining ‘em if you can’t beat ‘em, there are now two ETFs (exchange-traded funds) that mimic exactly how lawmakers are trading.
How is this even allowed?
By the very nature of their work, lawmakers are privy to privileged, non-public information. They have the power to move markets with every decision they make. Sorestricting members’ ability to trade stocks should be a no-brainer. Insider trading is, in fact, illegal. But there is a loophole in the fact that members of Congress are allowed to trade stocks with almost no limitations. The lack of restrictions has resulted, time and time again, in stories of members of Congress making suspicious trades. 2011 was a turning point, when a 60 Minutes exposé revealed that some lawmakers had abused the public’s trust by making lucrative trades after closed-door briefings during the Great Recession of 2008.
The very next year, Congress passed the Stop Trading on Congressional Knowledge (STOCK) Act, which requires members to disclose their (and in some cases, their spouses’ and dependents’) securities transactions within 30 to 45 days so they could be made public on the House or Senate websites. The bill was based on the belief that transparency would encourage ethical behavior from Congress. But apparently, the threat of a watchful eye was not enough motivation to keep our representatives in line.
Congress snubs the rulebook
In the previous Congress, 78 members violated the STOCK Act. That’s more than one in every ten representatives in Congress. Members often forgo the reporting deadline, and it’s easy for them to skirt accountability for suspicious trades by claiming that it’s not insider information they’re heeding but their own financial intuition or recommendations from The Motley Fool. Unfortunately, we only have their word to take for it.
These violations are routine because the STOCK Act is toothless. Penalties are inconsistently applied and aren’t recorded publicly. Even if a member is penalized, their violation will only set them back $200: laughably measly, when considering members often make hundreds of thousands, if not millions, off these trades.
But while these lawmakers’ net worth sees huge gains, they’re suffering devastating losses of the public’s trust. It’s become increasingly difficult for people to believe Congress is making decisions with the public’s best interests in mind when their personal financial interests are on the line.
It’s time they played fair
A ban on stock trading is one of the few issues that has both Democratic and Republican backers, on and off the Hill. Somewhere between 60% and 80% of American voters want a ban on stock trading in Congress.
The time is riper than ever for a ban. Representative Abigail Spanberger’s (D-VA) TRUST in Congress Act, which had a lot of momentum last year, would require members, along with their spouses and dependent children, to put their investments into a blind trust or divest for the duration of their tenure in Congress. The bill now has 54 cosponsors. When it was first introduced in 2020, it had just eight. Widespread voter support for a ban is something our representatives can’t ignore. They know they have the public to answer to, and they’re heeding our frustration.
Continued pressure and continuous action is making a difference for the TRUST in Congress Act. We’re going to continue working with Representative Spanberger to make insider trading in Congress a thing of the past.
To go even deeper into Congress’s insider trading problem, and to hear an interview with Representative Spanberger herself, be sure to queue up Episode 2 of the new season of The Continuous Action, out today.