At a press conference earlier this week, a reporter asked Speaker Nancy Pelosi about an Insider report that 49 lawmakers and nearly 200 staffers had violated the Stop Trading on Congressional Knowledge, or STOCK, Act’s disclosure requirements since last year. Should lawmakers be banned from buying and selling stocks, the reporter asked her? “No,” Pelosi replied. “We’re a free-market economy. They should be able to participate in that.”
Should they? Federal law, in its infinite majesty, allows lawmakers and non-lawmakers alike to trade individual stocks. Lawmakers have one big advantage over the rest of us, though: They are privy to all sorts of material nonpublic information by virtue of Congress’s legislative and oversight powers. And since their access to that information isn’t always readily apparent to outsiders, it’s also a lot harder to prosecute them for insider-trading violations.
Banning lawmakers, their top staffers, and their spouses from buying and selling individual stocks should be as noncontroversial as crop rotation or pulling to the side of the street when an ambulance goes by. But no matter how often a lawmaker’s investments make the news—or how much controversy these revelations subsequently court—the status quo remains intact, and excuses that sound very similar to Pelosi’s recent remark sound a shrugging refrain. Following the Trump era, when government corruption and the ethics of the president and his inner circle often took center stage, you would think lawmakers would be more cognizant of the ways that even an appearance of self-dealing or conflicts of interest can breed cynicism in the electorate. And in an era when the very bedrock of our democracy is under attack, that cynicism can be doubly damaging.
Congress has run into this problem before. In 2012, lawmakers responded by passing the STOCK Act. It purports to ban members and staffers from insider trading by explicitly saying that insider-trading laws apply to them. More importantly, the law expanded the disclosure requirements for lawmakers, staffers, and their spouses. Those covered by the act must report relevant trades within 45 days of making them, and those reports are made public online through electronic record-keeping.
Since the law’s passage, just one member of Congress has been convicted of insider trading. While at a White House picnic, New York Representative Chris Collins received word from a pharmaceutical executive that their latest drug had failed clinical trials. Collins then immediately contacted his son and told him to dump the stock before that information had become public. It was a fairly textbook case of insider trading, which might explain why he simply pleaded guilty and resigned from Congress after being indicted for it.
But the law appears unable—or its enforcers appear unwilling—to cover less blatant cases. Take, for instance, the plight of North Carolina Senator Richard Burr. In February 2020, just one month before the Covid-19 pandemic upended American life, Burr sold more than $1.6 million in stocks. That same day, ProPublica reported in October, he also called his brother-in-law and spoke with him for 50 seconds. Within the next minute, Burr’s brother-in-law called his own stock broker to take action. As chairman of the Senate Intelligence Committee at the time, ProPublica noted, Burr had access to all sorts of nonpublic information about national security and public health threats to it.
Federal prosecutors reportedly declined to bring charges against Burr after an investigation, though he stepped aside as the Intelligence Committee’s chairman and won’t be running for reelection. Other lawmakers whose trades came under scrutiny last year also escaped any criminal sanctions. Former Georgia Senator Kelly Loeffler sold $16 million worth of stocks right before the market collapsed in the spring of 2020, while California Senator Dianne Feinstein was questioned by the FBI over her husband’s stock trades during that time period. Inquiries by federal investigators and the Senate Ethics Committee in both circumstances wound down without greater consequences.
Many other stock trades by lawmakers appear to be relatively mundane, or are made by third parties for ethical reasons, or don’t involve particularly large sums. But among some lawmakers and their spouses, stock trading appears to be more of a passion than a mere investment strategy. According to a report from The New York Times, former Georgia Senator David Purdue, for example, reported a whopping 2,596 trades during his six years in office—roughly one-third of all stock trades made by lawmakers in that time period. Purdue claimed that his trades were performed by a third party without his input, but the Times found instances where he had personally directed trades and had bet on companies that would fall under his committees’ jurisdictions.
And then there’s Pelosi herself. As speaker, she wields tremendous influence over the shape of legislation and its chances for reaching the floor. Her husband, Paul, who operates an investment firm in San Francisco, has had some fairly healthy success with investing in tech firms in nearby Silicon Valley. One of his call-option trades over the summer in Alphabet, Google’s parent company, even reaped a $5.3 million profit. The Pelosis’ trading acumen became something of a meme among retail investors on TikTok and Reddit over the last two years, with some analysts trying to mimic their trades to match their success.
Congress isn’t the only government branch with stock-related woes over the years, but it is uniquely ill equipped to self-correct. Executive branch officials have similar financial-disclosure requirements as lawmakers and can be sanctioned by internal ethics watchdogs. While it’s legal for Supreme Court justices to own individual stocks, they typically recuse themselves from cases where it could be an ethical problem. And after its own stock-trading scandal felled some top figures in the Federal Reserve, Chairman Jerome Powell issued new rules to broadly restrict its upper ranks from trading in anything but mutual funds, which pose fewer ethical risks.
“It is absolutely wild that members of Congress are still allowed to buy and sell individual stock. It shouldn’t be legal,” New York Representative Alexandria Ocasio-Cortez noted in August on Twitter. “We’ve introduced legislation to end the practice, but as one can imagine it’s a very uphill battle to pass. This shouldn’t even be controversial though!” Beyond Capitol Hill, it’s not that controversial at all: A Data for Progress poll in March 2020 found that only 24 percent of Americans opposed banning lawmakers from owning individual stocks, with 52 percent saying they supported the idea, and another 24 percent undecided.
To be fair, banning individual stock trading would affect some legitimate activity as well. Such is the nature of ethics rules and laws. But these exist because the appearance of corruption can be almost as corrosive for public faith in our institutions as corruption itself. In recent years, some lawmakers have introduced bills to bar their colleagues from owning individual stocks. None have made any progress through Congress, though. It’s still legal for lawmakers to trade stocks for one simple, unavoidable reason: Lawmakers are the only ones with the power to stop it.