Lawmakers take another swing at congressional stock trading as some trample the market

WASHINGTON (TND) — Another bipartisan push to ban lawmakers from trading stocks is making its way through Congress in an issue that has broad support among voters but may face hurdles on a path toward becoming law.

The bill introduced by the group on Wednesday would ban members of Congress from buying and selling stocks and other specific investments and also create similar restraints on their spouses and dependent children by 2027. Lawmakers, the president and vice president would also have to divest from some investments by that year.

The bill will be put up for a vote in the Senate Homeland Security and Governmental Affairs Committee on July 24, according to Sen. Gary Peters, D-Mich., and one of the leaders of the legislative push.

A poll conducted last year by the University of Maryland found overwhelming majorities of voters of every political makeup are supportive of prohibiting stock trading by members of Congress with 86% of people saying they supported the idea. That included 86% of Republicans, 87% of Democrats and 81% of independents.

Wide support for banning stock trading for lawmakers is not a new trend but momentum for it has picked up in Congress over the last several years with members in different factions supporting the policy, introducing or co-sponsoring bills adding restrictions and beefing up punishments for people who violate them.

Members of Congress are already prohibited from using information they obtain through confidential briefings and are required to report stocks they buy and sell within 45 days of the transaction, but ethics groups and some lawmakers have said those restrictions don’t go far enough to address the appearance of impropriety and conflicts of interest. Dozens of lawmakers have also been found to conducted trades in fields connected to committees they served on.

“Reforms of Congress, and reforms that are intended to limit corruption often come about not because the problems are extensive, but because they are high-profile,” said Matthew Green, a political science professor at Catholic University. “How many people got to have a secret, behind-the-scenes, private meeting with folks from (the National Institute of Health) about an epidemiological problem and then immediately go and buy stocks? That is especially troubling for people and would explain why there’s a push to reform or change what members of Congress can do with their stocks or the extent they can even trade on the market.”

Despite the existing rules around Congress and stock trading, there have been several high-profile instances of trades that gave the appearance of using privileged information to rake in profits and some members have been so active that several apps and websites have been created that allow regular investors to mimic what lawmakers are doing and have regularly beat the market.

Former House Speaker Nancy Pelosi, D-Calif., is among the most frequently targeted lawmakers that advocates of banning trading point to despite all of the disclosures on her required forms being listed under her husband, Paul Pelosi. There are multiple services that offer portfolios for regular people to follow Pelosi’s investments listed on her disclosure forms and social media accounts that report new entries.

Pelosi has long insisted that she does not own stocks personally and doesn’t have knowledge of what her venture capitalist husband is investing in. But the high returns featured in her disclosure forms raised questions from some when she previously spoke out against a 2022 effort to restrict stock trading and declined to bring a bill up for a vote in the House.

“We’re a free-market economy,” Pelosi said in 2022. “They (lawmakers) should be able to participate in that.”

While Pelosi gets a significant share of the attention for trades, she is far from the only member who has a spouse or is personally involved in trading and isn’t always the most profitable. A report earlier this year from stock and options news service Unusual Whales found some lawmakers had even higher returns in 2023 than Pelosi’s 65.5%.

Rep. Brian Higgins, a New York Democrat, had an eye-popping 238.9% return on his investments that were disclosed through the STOCK Act. Rep. Mark Green, R-Tenn., saw a 122% return and Republican Reps. Garret Graves of Louisiana and David Rouzer of North Carolina also saw returns of over 100%.

“Let’s just call a spade a spade,” Sen. Josh Hawley, R-Mo. and a co-sponsor of the new bill, told reporters Wednesday. “There are a lot of members who do not want to ban stock trading.”

An analysis by the Campaign Legal Center of the 117th Congress found that 53% of lawmakers owned stock. Forty percent only owned widely held investment funds that would not benefit from insider information, and 7% did not hold any stock at all. About 58% of U.S. households owned stocks in some capacity in 2022, according to a survey of consumer finances released by the Federal Reserve last year.

Along with high returns on investments, several lawmakers over the years have also come under scrutiny for suspiciously timed trades made in the early days of the pandemic, failing to disclose transactions in a timely manner and regularly flouting of the guidelines under the STOCK Act.

Rep. Pat Fallon, R-Texas, failed to disclose 122 trades worth between $9 million and $21 million in a timely manner in 2021. The consequences were a $600 fine and correcting the record despite a refusal to cooperate with a review by the Office of Congressional Ethics.

In the Senate, its committee on ethics hasn’t issued a disciplinary sanction on a senator in over 15 years. Former Sens. Richard Burr, R-N.C., Dianne Feinstein, D-Calif., James Inhofe, R-Okla., and Kelly Loeffler, R-Ga., ignited a trading scandal in the early days of the pandemic after dumping huge stock holdings prior to the market collapsing due to the virus. The Senate Ethics Committee and Justice Department both launched investigations into the sales, but no sanctions were ordered and the DOJ didn’t pursue charges.

A relative lack of consequences and a reliance on self-reporting is one of the reasons lawmakers and ethics groups have pushed to enact a more encompassing ban or restriction. Under the Senate proposal, failing to divest would bring penalties of a lawmaker’s monthly salary of 10% of the values of each asset in violation of the law, whichever figure is higher. The penalty for failing to report transactions would also be increased to $500 and all disclosures would be in a searchable public database.

Some advocates of banning stock trading have argued that it could help restore some public faith in government, which has plummeted for the federal level over the last several years. Congress has some of the lowest approval ratings for voters among the major U.S. institutions.

“I’d like to think that it will restore some trust, but people have such a low faith in and trust in the national government that it’s hard to believe one reform would change that,” Green said. “This is becoming, in my opinion, really a chronic problem that goes way beyond lawmakers doing insider trading.”