Banning Trades in Congress
Terry H. Schwadron
Feb. 15, 2022
On its face, it seems difficult to understand why a ban on members of Congress from trading stocks is something about which we need a lot of argument.
After all, doesn’t it make sense that lawmakers should not be able to enrich themselves — or be perceived as doing so — because they hear what amounts to inside information while in government?
There are several versions of this type of ban now proceeding towards bipartisan agreement, and the issue will look to be exactly who is covered, whether it will extend to cryptocurrencies and how such a trading ban might be structured.
But what’s held it up seem not to be the details, but the various notions that such a ban could hurt the personal pocketbook of members of Congress or keep candidates who otherwise might consider public service from running.
Plus, it doesn’t account for people like Sen. Joe Manchin (D-W.Va.) whose family interests include coal, an industry that has benefited over years from a variety of positions he has taken. Or how Donald Trump as president consistently shunted international visitors and his own Secret Service detail to stay at luxurious Trump properties. Nor does it deal with the Republican obsession with members of the Joe Biden family seeming to get money through Biden’s international contacts in China, Ukraine and elsewhere.
Despite the apparent momentum for a trading ban, there have been some slowdown notes sounded on both sides of the aisle over whether proposals go too far or would be too difficult to implement.
Current requirements of the Stock Act, a law that passed in 2012 bars members of Congress from using nonpublic information derived from their official position for personal benefit. These proposals go further to bar trades altogether for members and spouses.
Some Senate Republicans are voicing concerns that restricting stock ownership will put the most burden on colleagues with less money. Sen. Chuck Grassley (R-Iowa), said he is not ready to ban trading, noting that lawmakers are already required to publicly report their stock trades and face prosecution or censure if they break insider-trading law. Grassley and his wife have some mutual funds, which would be allowed, and draw income from farmland in Iowa.
Indeed, there have been occasional prosecutions for doing so, including former Rep. Chris Collins (R-NY), who was convicted and jailed before being pardoned by Trump. And the Security and Exchange Commission investigated stock trades made by Sen. Richard Burr (R-N.C.) and his brother-in-law at the start of the pandemic in early 2020.
Of course, Republicans always have the standby argument that Democrats are promoting a stock trade ban to divert attention from the Biden administration’s push for big spending bills to have stalled.
On the Democratic side, it is Speaker Nancy Pelosi (D-Calif.) who garners the most attention. She flipped her opposition to the proposals after there was attention on active trading by her financier husband. Her position now is that a ban ought to be extended to Supreme Court justices because “the third branch of government, the judiciary, has no reporting.”
Skeptics see the widening as a move that might end up weaking political support rather than strengthening ethics rules.
Sponsors of the leading bill in the House include Representatives Abigail Spanberger (D-Va.) and Chip Roy (R-Texas), in the Senate, Elizabeth Warren (D-Mass.) and Steve Daines (R-Mont.).
There are alternative bills pending as well, including one that would also bar members of Congress from taking lobbying jobs after they leave.
Basically, the proposals would require all members of Congress, their spouses and dependent children to put stocks in a qualified blind trust within 90 days of the bill’s enactment and ban trades of individual stocks, bonds, commodities, futures and other securities, including interest in a hedge fund. It allows lawmakers to trade mutual funds if they do not pose a conflict of interest.
It allows a transition period for lawmakers to divest their holdings and allows a deferral of capital gains taxes for lawmakers and spouses who are forced to divest. There would be a civil penalty of up to $50,000 per violation and the Department of Justice and the U.S. Office of Special Counsel would be tasked with enforcing the law.
The intracacies include how to identify both the specific investments of family members who have inherited ownership or financial interests of companies.
What’s not pointed out immediately is that most of Congress is pretty wealthy. More than half of those in Congress are millionaires, data from lawmakers’ most recent personal financial disclosures shows. The median net worth of members of Congress who filed disclosures last year is just over $1 million.
Still, it is both heartening to see a bill bridging party and disheartening to see self-interest so prominent an excuse for immediate action.