Adriana Belmonte
·Senior Editor
Sat, 5 February 2022
The push for stricter regulation related to members of Congress trading individual stocks has been picking up momentum in 2022.
There are currently at least half a dozen bills that have been proposed in recent months to address the issue, which one senator said has gotten out of hand.
“Too many members of the Senate trade in stocks, and their spouses do,” Sen. Sherrod Brown (D-OH), the chair of the Senate Banking Committee, said on Yahoo Finance Live (video above). “I don’t accuse anybody individually of a conflict of interest and in betraying the public interest. But the temptation — if you own shares of stock, everything looks like a conflict of interest because we vote on everything in the Senate. We vote on banking rules. We vote on environmental rules. We vote on labor rules. We vote on minimum wages sometimes, so there are all kinds of conflicts.”
Sen. Sherrod Brown speaks during a Senate Banking Committee confirmation hearing on January 13, 2022. (Photo By Tom Williams/CQ-Roll Call, Inc via Getty Images)
Under the STOCK Act of 2012, lawmakers are required to report their stock trades within 45 days of the transactions. However, a report by Insider found that 54 members of Congress have failed to properly report their transactions.
“We need to write the strongest bill that we can get a majority of senators on,” Brown said. “It will be a challenge because a number of senators, especially Republicans, have complained about this. And there are a lot of people in the Senate that hold a lot of investments, and I’m concerned.”
'You're here for public service'
Several senators have come under scrutiny for insider trading practices since the pandemic first hit the U.S. In March 2020, the Justice Department announced that it would be investigating some senators to determine whether they traded ahead of the stock market crash triggered by the coronavirus pandemic.
An investigation by ProPublica and The Center for Responsive Politics revealed that Sen. Richard Burr (R-NC), who was chairman of the Senate Intelligence Committee at the time and received confidential briefings about the emerging threat of the coronavirus pandemic, and his wife sold numerous stock shares following those briefings.
Burr denied the allegations, and the Department of Justice ended its inquiry into his trading actions in January 2021, though the Securities and Exchanges Commission (SEC) is reportedly still investigating.
Senator Richard Burr delivers opening remarks during a Senate Health Committee hearing to examine the federal response to COVID, January 11, 2022. Shawn Thew/Pool via REUTERS
Kelly Loeffler (R-GA), who was a member of the Senate Health Committee, reportedly sold stock on January 24, 2020, which was the same day the committee was briefed by administration officials on the coronavirus.
Sens. Dianne Feinstein (D-CA) and Jim Inhofe (R-OK) were also scrutinized for their stock moves.
“You’re here for public service, not here to enrich your portfolio,” Brown said. “If you want to make more money, stay out of it. Don’t run for the Senate. Do something else. We have a public trust here.”
House Speaker Nancy Pelosi (D-CA) has been a vocal opponent of banning members of Congress from participating in the stock market. Her husband, Paul, is an active stock trader, according to reports.
"We are a free-market economy,” she said during a press conference in December, adding that lawmakers “should be able to participate in that."
Speaker of the House Nancy Pelosi arrives with her husband Paul Pelosi during the inauguration of Joe Biden as the 46th President of the United States in Washington DC on January 20, 2021. (Photo by JONATHAN ERNST/POOL/AFP via Getty Images)
Twenty seven lawmakers recently wrote a letter urging House leaders to act quickly to bring "commonsense, bipartisan" legislation to the floor banning members of Congress from owning or trading stocks.
In an interview with Yahoo Finance, progressive Congresswoman Alexandria Ocasio-Cortez (D-NY) detailed the fundamental issue as she sees it.
"I am a member of Congress: Members of Congress have access to very sensitive security clearances," Ocasio-Cortez said. "We have access to very detailed, tailored briefs. We, our job is to try to anticipate and legislate for what we see is coming. And we should not have the ability to both have access to that information and be able to hold and trade individual stock."
'They were doing stock trading'
Members of Congress from both political parties have proposed legislation to limit stock trading among their colleagues.
A proposal from Sens. Jon Ossoff (D-GA) and Mark Kelly (D-AZ) would prohibit members of Congress and their immediate family members from conducting any stock transactions while serving in office and confiscate the lawmaker’s entire salary if they break the rules. U.S. Representatives Abigail Spanberger (D-VA) and Chip Roy (R-TX) unveiled a similar proposal to be passed in the House.
Sen. Jon Ossoff questions Treasury Secretary Yellen and Fed Chairman Powell during a Senate Banking Committee hearing on the CARES Act September 28, 2021. Kevin Dietsch/REUTERS
Republican Senator Josh Hawley has also proposed a bill that would prohibit lawmakers and their spouses from owning or trading individual stocks.
Amid these discussions, however, Brown stressed: “Don’t forget about the Federal Reserve.”
Last October, Brown co-sponsored a bill — the Ban Conflicted Trading at the Fed Act — that would prohibit officials at the Federal Reserve from trading individual stocks. This came as a result of ethics concerns surrounding stock trades made by former Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren, who both left their roles after scrutiny increased on the Fed.
“We know about some compromise, if you will,” Brown said. “We’ve had Fed presidents around the country — a couple resigned probably because of this. They were doing stock trading.”
In January, Federal Reserve Vice Chair Richard Clarida resigned earlier than initially planned after it was revealed that he had failed to properly disclose his trading activities in 2020, raising the question of whether or not he benefited from Fed actions.
Brown said he would be meeting with fellow lawmakers to “get something significant through the Senate.”
“It won’t be exactly the bill the way that I introduce it or Senator Ossoff or Senator Merkley,” he said. “But we need to move and we need to include the Federal Reserve in it. We need to include — not all family members, not grown children — but we need to include spouses in these rules.”
Adriana Belmonte is a reporter and editor covering politics and health care policy for Yahoo Finance. You can follow her on Twitter @adrianambells and reach her at adriana@yahoofinance.com
AOC: 'No mystery' why it's hard to ban lawmaker stock trading
Last week, 27 lawmakers wrote a letter urging leaders of the U.S. House of Representatives to act quickly to bring "commonsense, bipartisan" legislation to the floor banning members of Congress from owning or trading stocks.
That letter called lawmakers' stock trading a "glaring problem" that won't go away until Congress fixes it. While federal lawmakers have unveiled a range of bills aiming to stop lawmakers' from trading stocks, the legislation may face opposition from lawmakers engaged in the behavior it's trying to rein in.
In a new interview with Yahoo Finance taped on Jan. 27, progressive Congresswoman Alexandria Ocasio-Cortez (D-NY) alluded to the difficulty of persuading members of Congress to police their own behavior.
"It's not really a mystery to me why it's difficult to pass," Ocasio-Cortez, widely known as AOC, told Yahoo Finance's editor-in-chief, Andy Serwer, in a wide-ranging interview. "I wouldn't be surprised if it was a majority of members of Congress who hold and trade individual stock."
The practice of so-called insider trading in Congress has faced widespread criticism in recent years because lawmakers have access to non-public information. Perhaps most notoriously, the Justice Department investigated four senators who sold significant amounts of stock in January and February 2020 as they were being briefed on the looming threat of COVID-19.
While those senators didn't face criminal charges, the investigation highlighted the reality that Congress often has access to inside information that could have a material effect on public companies.
"I am a member of Congress: Members of Congress have access to very sensitive security clearances," Ocasio-Cortez told Yahoo Finance. "We have access to very detailed, tailored briefs. We, our job is to try to anticipate and legislate for what we see is coming. And we should not have the ability to both have access to that information and be able to hold and trade individual stock."
While House members can trade stock freely, a 2012 law called the Stop Trading on Congressional Knowledge (STOCK) Act bans them from trading on "material, nonpublic information" and requires them to disclose trades within 45 days. More than a few lawmakers have violated the STOCK Act, though: A recent investigation by Insider identified 54 lawmakers who failed to comply with the law's reporting requirements.
And in 2020, 75 federal lawmakers held stock in Moderna (MRNA), Pfizer (PFE), or Johnson & Johnson (JNJ) as Congress authorized billions to develop and distribute COVID-19 vaccines made by these very companies, Insider also reported.
One bill recently introduced to further curb insider trading in Congress would aim to strengthen the STOCK Act's disclosure rules. Meanwhile, a bill introduced last month by Democratic Senators Mark Kelly of Arizona and Jon Ossoff of Georgia would prohibit lawmakers and their immediate family members from owning or trading stocks.
For her part, Ocasio-Cortez favors banning trading altogether, though she stresses that wouldn't prevent Congress members from having a broader stake in the stock market. "The key here, is that it's not to say that you can't have a retirement account or a college savings account ... a blind trust ... a mutual fund, an index fund," she said. "These are vehicles of investments that are broad, that individual members of Congress don't have direct control over."
Erin Fuchs is deputy managing editor at Yahoo Finance.
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