This year, 52 members of the House and Senate violated the STOCK Act, a 2012 law that requires prompt and accurate reporting of stock trades by members of Congress, Insider reported. Apparently, they were too busy trading to focus on filing accurate reports in a timely manner.
The very people who make the laws — members of Congress, as well as the president and the vice president — are exempt from this law.
It seems like the simple solution would be to prohibit congressional members from trading individual stocks to avoid potential foul play. Yet House Speaker Nancy Pelosi, D-Calif., recently announced that she would oppose efforts to prohibit members of Congress and their spouses (her own husband being one of them) from trading individual stocks.
This is a dangerous move, for many reasons. Ordinarily, Pelosi’s stubborn defense of congressional stock trading would be an opportunity for House Republicans to take the high ground on ethics, put their assets in mutual funds or blind trusts and then promise that if they get control of the House in 2022, stock trading by all members will be prohibited. Good luck with that; Republicans in Congress are way too busy trading their own stocks to worry about ethics.
The hypocrisy of Congress is astonishing when you look at the fact that every other federal employee is subject to a criminal statute that prohibits financial conflicts of interest with official duties. It is a crime for a federal officer to participate in a particular government matter, including supporting or opposing a bill in Congress, that has a direct and predictable effect on the federal officer’s financial interest.
Of course, the very people who make the laws — members of Congress, as well as the president and the vice president — are exempt from this law. They are allowed to have financial conflicts of interest with their official duties that for other federal employees are a crime.
Then there is the insider trading problem. Members of Congress know a lot of information the rest of us don’t know, and some of this information can be useful for stock trading. Trading on the basis of nonpublic information misappropriated from Congress or any other employer, however, is a crime. Investment bankers and corporate officers routinely go to jail for insider trading, and the Securities and Exchange Commission, when it suspects insider trading, can commence an investigation and subpoena corporate emails, texts and other records showing what traders knew and when they knew it. It’s not so easy in the case of Congress because the speech and debate clause of the Constitution is interpreted to severely limit the ability of federal investigators to obtain records and find out who said what to whom in congressional offices and on the floor.
Investigating allegations of congressional insider trading is thus left to the House and Senate ethics committees, which have little experience with such investigations and furthermore report to the very members of Congress they are investigating.
Alexander Hamilton’s First Bank of the United States was mired in controversy because of leaks to speculators about Congress’ plan to use the bank to pay off the state’s Revolutionary War bonds at 100 cents on the dollar.
Congressional insider trading is as old as the republic. Alexander Hamilton’s First Bank of the United States was mired in controversy because of leaks to speculators about Congress’ plan to use the bank to pay off the state’s Revolutionary War bonds at 100 cents on the dollar. Before approving this plan in the Assumption Act of 1790, members of Congress themselves bought up the bonds at a fraction of their face value.
U.S. representatives and senators thus were already mimicking the corrupt practices of British members of Parliament who had spent much of the 18th century speculating wildly in stocks, including the infamous South Sea Company, whose stock price skyrocketed before it crashed in 1720.
Fast forward to today, and little has changed. In 2020, both of Georgia’s then-senators were accused of insider trading during fluctuations in stock prices in the early months of the Covid-19 pandemic. Even Fox News recognized that this was a political problem in Georgia. Not only did President Joe Biden win Georgia in the general election, but both stock trading senators were turned out of office in runoff elections in January. Regardless of party affiliation, voters know the difference between an honest public servant and someone who is in it for themselves.
One congressman, Rep. Chris Collins, R-N.Y., pleaded guilty to charges related to insider trading, albeit for misappropriating nonpublic information from a publicly traded company, not from Congress itself. In 2020, he was pardoned by President Donald Trump, a man who apparently relishes financial conflicts of interest.
The New York Times reported recently that “politicians and their immediate families bought $267 million and sold $364 million worth of assets this year,” pointing out that “Democrats are really into tech stocks, which accounted for some $35 million” and that “Republicans are more about energy, buying $32 million worth of stock in companies in the sector during the year.”
Predictably, in the partisan divide over investments, West Virginia Sen. Joe Manchin aligns with the Republicans more than the Democrats (his strong preference is for coal). There are so many stock trades that many congressional traders lose track and fail to meet their reporting obligations. A year ago, I joined Donna Nagy of Indiana University Maurer School of Law in Bloomington, an expert in insider trading law, in writing a letter to the House and Senate leadership urging that both chambers, by rule or statute, prohibit members from trading in individual stocks. Our letter was ignored, and to this day we have not received an answer. Nagy and I also co-wrote an op-ed arguing the same point, which was published by Bloomberg Law on Jan. 6, the only day this year on which members of Congress probably were not trading stocks because they feared for their lives more than for their portfolios. It’s time for new leadership in Congress. Giving control of either the Senate or the House to the Republicans won’t help; in fact, it would probably make things worse. Congressional Republicans refused to acknowledge Trump’s financial conflicts of interest throughout his presidency, making it impossible to believe that they would do anything about their own conflicts of interest. But Democrats need to promise voters that there will be new congressional leadership and that the financial conflicts of interest tolerated by Pelosi and other leaders will not be tolerated anymore. Congressional stock trading must come to an end; members should be required to place their assets in blind trusts or diversified mutual funds and focus their attention on the nation’s business, not their own. Anyone in Congress unwilling to make this commitment should find another job.
Richard W. Painter
Richard W. Painter was the chief White House ethics lawyer from 2005 to 2007 under President George W. Bush. He is the S. Walter Richey Professor of Corporate Law at the University of Minnesota and is a graduate of Harvard College and Yale Law School. 
