When Second District Rep. Angie Craig took office in 2018, she sold off all of the stock she held in St. Jude Medical, the company where she had worked for over a decade before taking office.
“I didn’t believe that I should come in as a sitting member of Congress owning individual stock because I didn’t want anyone to perceive that I was doing anything but looking out for their best interests,” Craig said. Craig does not currently own any individual stocks.
Now, Craig wants to expand this caution to the rest of Congress. She’s starting with the House by introducing the No Option for Stock Trading and Ownership as a Check to Keep Congress Clean Resolution. That’s a mouthful, so it’s colloquially referred to as the NO STOCK Resolution.
Craig’s resolution would prohibit members of the House of Representatives from owning common stock of any individual public corporation.
An already existing law, the Stop Trading on Congressional Knowledge (STOCK) Act, which was signed into law by President Barack Obama in 2012, was designed to combat insider trading. It prohibits the use of non-public information for private profit, and includes members of Congress and other government employees who might have access to insider information. The bill passed the Senate on a 96-3 vote.
But Craig believes that the STOCK Act doesn’t go far enough.
Why Craig introduced the NO STOCK Resolution
Craig first introduced the NO STOCK Resolution in the 116th Congress under former President Donald Trump. She said that a major turning point for her was when she was sitting on a Transportation and Infrastructure aviation subcommittee meeting where members were being briefed on the Boeing 737 MAX airplane that had multiple deadly crashes and was later taken out of commission.
“I actually sat in that subcommittee hearing, and I thought to myself, ‘My God, like, everybody in this meeting could walk out and short Boeing right now if they wanted to, why are we allowed to trade stocks?’ It just seemed so wrong to me,” Craig said.
Although the Boeing event was the real catalyst for Craig, she said that some questionable trades made by lawmakers at the beginning of the COVID-19 crisis cemented her desire to pass the NO STOCK Resolution.
In Mid-February 2020, before the virus spiked in the U.S. or the situation was officially declared a pandemic, Republican Sen. Richard Burr of North Carolina, then chairman of the Senate Intelligence Committee, sold hundreds of thousands of dollars in stocks. The sale occurred shortly before the U.S. stock market tanked as the pandemic became widespread in the states. Due to his position on the Intelligence Committee, Burr had access to private coronavirus briefings before many members of Congress and long before members of the American public.
Democratic Sen. Diane Feinstein of California and Republican Sen. James Inhofe of Oklahoma also fell under scrutiny over stock sales that they or their spouses made right before the global market took a huge hit due to the pandemic. Former Republican Georgia senators Kelly Loeffler and David Perdue were also investigated.
All of the accused lawmakers denied any wrongdoing, and the Justice Department dropped its probe of all of them. However, the Securities and Exchange Commission is still investigating Burr’s sales.
It’s times like these — when members of Congress have access to information that could mean a huge hit to the stock market — that Craig argues that the temptation or ability to trade individual stocks with that knowledge simply should not exist.
“I think that the American people deserve to know that we’re making our decisions solely based on our constituents best interests,” Craig said. “Even the appearance of wrongdoing or self interest, like owning stocks in a company affected by a congressional action, erodes faith in public policy and in our institutions as a whole.”
An investigation by Business Insider revealed that dozens of members of Congress violated the STOCK Act’s reporting requirements. (First District Rep. Jim Hagedorn made the list for being three months late disclosing the sale of a stock in a company that makes colon cancer screening products.) The STOCK Act requires members of Congress to disclose stock trades within 45 days of the transaction.
Craig’s NO STOCK Resolution would prohibit members of the House from “owning common stock of any individual public corporation.” To comply with the rule, members will have to sell any common stock shares as soon as they get into office. Members of the House would still be able to own stocks in a blind trust or in some mutual funds.
Craig said she decided to introduce her NO STOCK Resolution as a resolution instead of a bill because this way, it would change the House rules and avoid having to go through the filibuster process in the Senate (the bill would need the support of at least 60 senators instead of a simple majority). As a consequence, the rules would only apply to members of the House.
Banning trading by members and their spouses
Craig’s isn’t the only congressional effort to curtail congressional stock trading. Democratic Sens. John Ossoff of Georgia and Mark Kelly of Arizona introduced a bill in the Senate last week called the Ban Congressional Stock Trading Act, which would require not only lawmakers but also their spouses and dependent children to place their stock portfolios into blind trusts for the duration of the lawmaker’s time in office.
This bill differs from Craig’s in a couple of key ways: First, it’s a bill, not a resolution, meaning that in order to become law it will have to get past the filibuster in the Senate and also be approved by the House. It also applies to lawmakers’ spouses and children, which Craig’s bill does not do.
Only 10 active members of Congress have currently reported using a qualified blind trust, or a formal arrangement requiring congressional approval in which the lawmaker transfers management of their financial assets to an independent trustee. Third District Rep. Dean Phillips is one of those 10 lawmakers. None of Minnesota’s other representatives or senators have reported using a qualified blind trust. This approach differs from Craig’s — she decided to sell off her individual stocks when she took office instead of handing them over to an independent trustee.
Meanwhile, Republican Sen. Josh Hawley of Missouri introduced a very similar bill called the Banning Insider Trading in Congress Act, which would also ban lawmakers from trading stocks while in office. However, Hawley’s bill would not ban spouses and dependent children of lawmakers from trading stocks. Hawley’s bill would have the Government Accountability Office oversee the issue, while Ossoff’s bill would have the congressional Ethics Committee perform any audits.
Perhaps the biggest difference between the two bills: Ossoff’s bill would fine lawmakers from their salaries if they broke the new law, but Hawley’s would require lawmakers to return their profits to the general public through the Treasury Department.
Pelosi defends stock ownership
Despite the activity around the issue, it might not even see a vote in the House while House Speaker Nancy Pelosi is in charge. Pelosi has repeatedly defended members’ right to trade in the open market while in office, especially when they are already mandated to report their trades under the STOCK Act.
In a press conference last week, reporters asked Pelosi why members of Congress should be able to trade stocks, she said “we have a free-market economy, they should be able to participate in that.”
Though Pelosi has her misgivings about legislation like Craig’s NO STOCK Resolution, House Minority Leader Kevin McCarthy has reportedly expressed interest in limiting or banning members from trading stocks. And there’s support from the White House: Biden’s top economic adviser, Brian Deese, called it a “sensible” proposal in an interview Friday with CNBC.
Craig said this type of bipartisan support is a very good sign for her resolution.
“You get lots of information when you’re a member of Congress, Craig said. “And yes, the [current] rules prohibit you from insider trading, but we’ve seen examples that really are in a super gray area. And all that does, is it really just diminishes Americans’ and Minnesotans’ confidence that members of Congress are here for the right reason.”
Members of congress who write laws affecting taxes and regulations should not be allowed to buy stocks while in office. Nancy Pelosi, Diane Feinstein and others have been accused of sketchy and timely stock transactions based on their knowledge of new laws that affected the companies they purchased, for example. Nothing was ever done about this insider trading because of who they are.
Members, spouses and children. Probably a good idea. But then term limits is a good idea too.
Pelosi will be a hard sell. Many financial websites post the activity of her husband’s trades and options as stocks to look into for investment.
Welp, this is the first time I’ve every thought Hawley might have a kernel of a good idea. And Pelosi is just plain wrong. All elected officials (federal, state, and local) that have access to information that, to the general public, would be considered insider knowledge, should be prohibited from trading during their terms (and probably for a “blackout period” following their terms). Their immediate family should also be prohibited from trading. If they hold generically managed portfolios that they don’t control–fine. Clearly, the STOCK act wasn’t enough. If I did the same thing, it would be considered illegal, and at the very least, I would be fired. If Martha Stewart can go to jail for the things that Congresscritters do, they should also go to jail. And lose their seats in Congress.
Of course the answer is no, lawmakers should not be able to buy and sell stocks. It is a major conflict of interest and reeks of insider information. Somehow many lawmakers, on both sides of isle, have made generational wealth off of being a public servant with a 150k salary….. That alone should raise suspicion.
This is crazy. The logical next step is that City Council members shouldn’t be allowed to own houses, because it would create a conflict of interest when they pass property tax assessments, vote to improve streets, etc…..
Our biggest problem in this country is that we no longer have normal people in office at all levels. The country has been taken over by professional politicians. Banning the ownership of stock just solidifies this and creates another barrier to average persons running for office.
And then what about the families of politicians. A spouse or child might not be a big fan that Dad is running for office, or might even be voting against Dad in the election. But if Dad is elected, you automatically loose your right to own stock because of your family association? How is that right?
A better approach is to make all stock ownership and trading of politicians public in real time. That would let people see if they are self dealing and fix that at the next election.
The average person does not own stock. Any person who does can sell it before taking office, liker Congressperson Craig did.
“The average person does not own stock.” You are correct. Also, the average shareholder does not have access to the special inside information any member of Congress will have.
My first question with respect to Ms. Craig was what did she do with the money she got from the sale of stock?
My own proposal is that we should create a “safe place” for stock ownership. We should put together a model portfolio consisting of index funds with diverse portfolios of th stocks and bonds. Each elected officials position in these funds would be disclosed and a matter of public record. Individuals could trade freely within the funds as long as their trades were immediately disclosed. In return, the officials would be exempt from insider trading laws and rules which might otherwise apply, and more informally, we would all agree that such trading would not be the target of political criticism.
In my view, the real political corruption we should be concerned about is secondary sources of income, and more importantly, income opportinies that become available once a politician leaves office. I just don’t like it when a politician after leaving office gets a job either directly or indirectly with a company or interest that was the subject of legislation while he or she was in office.
Don’t we call such safe places: “blind trusts”?
I tend to agree with Representative Craig. Look, normal government employees like my wife have legal and enforceable regulations prohibiting the mere appearance of impropriety and conflicts of interest. It’s always been fundamentally daft that the people these employees report to have NO such regulation or oversight at all. The executive and legislative branches are riddled with conflicts of interest that would be career breakers for almost anyone else in OR out of the government.
The only thing that separates the US from dictatorships and complete oligarchy is the level corruption within our government. You allow that corruption to grow and fester at your own peril.
Some.poor GS 5 can’t own indvisual stocks, why should a congressman
I can’t remember ever coming across an issue about which Dennis Tester, Rachel Kahler, Joe Smith and I all agreed, but this is a noteworthy exception. If you’re going to claim various perks and privileges because what you’re doing is “public service,” then you ought to be serving the public, not yourself. Nothing about stock-trading suggests that it’s a public service, and with the access to information that Congressional representatives and Senators have, “Conflict of Interest” should be in very large, flashing red neon lights around the notion of stock trading by those same Representatives and Senators. No one should make, or be able to make, a fortune from what’s supposed to be “public service” in elected office. “Conflict of interest” appears to be a concept that Mike Schumann doesn’t understand, and “profit” should not be a defining characteristic of a public office. As a municipal planning commissioner, with presumed knowledge of development projects in the pipeline, and the ability to advocate as well as criticize such projects – not to mention voting to approve them or not – I was routinely prohibited from even the appearance of a conflict of interest. There’s nothing wrong with requiring elected officials do do the same.
It’s nice to have something that makes sense for everyone. The big thing is that it shows you how out of touch many of those elected are and many of them have no qualms about the access they provide for their family members and themselves. And when it has to deal with things that none of us normal people have access to, that’s a problem. Just using Pelosi as an example, she helped write many of the laws that doled out to companies in the bailout a decade ago. One of those benefactors was the company her husband was an executive of. There are shenanigans no matter what the letter is behind the name. But this is real and none of it is fair.
For the most part, I am just not that concerned about congress people trading stocks. For one thing, I suspect like the rest of us, they aren’t very good at it. For another, I think it’s very rare that they come across genuinely inside information from their jobs that would have a dramatic impact on a particular stock’s price. And on the other hand, I kind of like it that congress people have the same interest in a growing economy that the rest of us do. I think one reason Republicans don’t damage the country as much as they would like to when Democrats are in power is that it would hurt their stock portfolios.
The real corrupting issue is the money that’s available to elective officials after they leave office. All people in Congress know, that there are great lucrative jobs waiting for them as long as they toe the line while office. And they know with equal certainty that if they step even just a bit out of line, good jobs in the private sector will be closed off to them, and that they will have to return to their districts and see if their old job at the air conditioning plant has moved to the third world or not.
There have been reports of congressmembers beating the S&P, suggesting they are pretty good at it. It’s not like they don’t have financial advisers to help them.
There is also the mystery of how people get elected to office without being rich but wind up that way pretty quickly after being in office (and before leaving). Trading on secrets is one of the ways that happens.
I think they actually come into contact with material non-public information about public companies all the time. A stock’s price doesn’t need to move all that much make a lot of money on options, as Pelosi’s husband does.
There is also the mystery of how people get elected to office without being rich but wind up that way pretty quickly after being in office (and before leaving). Trading on secrets is one of the ways that happens.
In the old days, there was a lot of self dealing. Lady Bird JohnTson owned a lot of tv stations somehow. There is a lot of money floating around politics and people find ways to get a piece of it, I suppose. But many of those cash flows are protected by the Supreme Court in the various rulings involving first amendment claims. That’s a much more effective way of moving money to elected officials because there isn’t market risk. Those hot tips one gets from insider trading often don’t work out that well.
The fact is, we have chosen an inherently corrupting way of financing our politics. It’s pervasive and it stains all of us. It’s why charges of hypocrisy are so easily levelled at us and the people we elect. It is one of the most important ways in which our system is failing us.
I highly doubt that they’re literally going to their portfolios and making trades. But the knowledge they have is insider knowledge, and they have the ability to share that knowledge with whoever manages their funds. So, no, they don’t have to be good at it to take unfair advantage of their insider knowledge. There’s a reason that lots of them come out richer than they went in…and this is part of it. It’s illegal for the rest of us, it should be illegal for them. And it doesn’t grow the economy simply to own stocks. It’s actually bad for the economy when stocks are traded on insider knowledge–they money goes where the money is made rather than investing in potential of growth. So, since Congresscritters have shown that they can’t be bothered with ethics, they’ve proven that they can’t be trusted to use investment to grow the economy. Personally, I think they could still own stocks in blind trusts or in generically managed portfolios. That way, they have the incentive to grow the economy more broadly rather than simply lining their own pockets.
Yes, the money they make after they leave Congress is also a problem, but there’s a reason why some of them want to stay in office so long. The money after the fact is the consolation prize.
I am not sure exactly what is illegal for the rest of us is what we are talking when we are discussing what should be legal for legislators. Investors have differing levels of information. That doesn’t mean that any particular piece of information is insider information. It’s been asked here how Congress people get so rich. That’s a good question, for which I don’t have an answer. I can tell you from some personal experience, not too many people get rich taking advantage of stock tips.
The financial advisors who are 100% fiduciaries 100% of the time all advise investors not to put more than 4% their assets into any one stock. This bill would be a big favor to Congress critters.
The Thrift Savings Program operated for federal employees us highly regarded by financial professionals. Elected officials could choose among the mutual funds offered therein, get solid returns, and act ethically.
Nancy Pelosi is worth $120 million. Think about that. i
And Republicans claim she is a socialist. Our political system is incredibly corrupt. But that’s because it was created by people who wanted it to be corrupt and who benefited from the corruption.. The problems go much deeper than the odd back bencher who gets a hot tip and rushes to a broker to trade on it. I am a supporter of Angie, but even I am not interested in asking where she got her campaign money. I don’t inquire too closely with any politician about that.
Yep, a basket of mutual index funds would do the trick! They can change the allocations but not the funds.
Nancy Pelosi is worth $120 million. Think about that.
Done. Now what?
Reps. Craig and Phillips already had their millions before taking office. And, don’t we already have laws about “insider trading”? If the information that the Representatives receive is public information, as it should be, why should it be illegal for them to own individual stocks?
“Reps. Craig and Phillips already had their millions before taking office.”
And? Doesn’t that minimize any incentive they might have to profit from inside information?
“And, don’t we already have laws about ‘insider trading’?”
Members of Congress have been included within the definition of “insider” only for the last ten years. The problem with the law is that it is left up to Congress to enforce it, based largely on the self-reporting by members. The lack of outside enforcement is one of the main problems with the law.
“If the information that the Representatives receive is public information, as it should be, why should it be illegal for them to own individual stocks?”
The so-called public information often isn’t, or it isn’t available to the public at the same time as it is to members. Congresscritters are also in a position for major conflicts of interest.
“And” they don’t need to make money in the stock market while in office since they already have a ton of it.
“And” insider trading laws apply to all citizens so even a Congressperson could be charged and convicted.
“And” if public information isn’t made available, then someone isn’t doing their job and should be replaced.
A researcher, Serkan Karadas, has done a number of studies to show that, in fact, Congresscritters overperform the public by quite a bit. Statistically, this isn’t a random event. Either they’re unnaturally good at trading, in which case, they’re in the wrong profession, or they’re using non-public knowledge to gain an unfair advantage over the public, in which case they’re in the right profession for dirty dealing. Professor Karadas has several papers on the topic, but a recent one, published in 2019 (7 years after the STOCK Act was adopted), includes the following abstract:
“I examine the stock trades of members of Congress and find that over 2004–2010 the buy‐minus‐sell portfolios of powerful Republicans have the highest abnormal returns, exceeding 35% on an annual basis under a one‐week holding period. Among powerful Republicans, the abnormal returns are mostly concentrated in the portfolios of those with less trading experience. I also find that the positive abnormal returns disappear after the Stop Trading on Congressional Knowledge (STOCK) Act was passed in 2012. My results imply that the STOCK Act affected politicians’ incentives to trade on private information, which they acquired through their power and party membership.”
The paper suggests that the STOCK Act had a real impact. HOWEVER, as the New York Times pointed out today, some Congresscritters still make trades that seem to defy the STOCK Act. It’s not clear whether the post-STOCK effect seen by Professor Karadas was a moment of laying low (there’s only 2 years of post-STOCK data analyzed) by our beloved politicians, in which case, it would seem that the trades /that we know/ of that appear to be in violation are just a renewal of past practices. After all, the penalties for violating the STOCK Act are couch cushion change level (heck, I’d take a $200 fine for the ability to make millions, too!), and it’s difficult to prove that any given trade was reliant on non-public information, so there have been no prosecutions. In fact, in a more recent paper (found here: https://econpapers.repec.org/article/gamjjrfmx/v_3a14_3ay_3a2021_3ai_3a6_3ap_3a256-_3ad_3a570702.htm), Professor Karadas found that politicians STILL have a disproportionate advantage (again, only on 2 years’ worth of data) on small stocks, similar to corporate insiders. Importantly, it’s illegal for corporate insiders to trade on inside knowledge. Since the STOCK Act was intended to put a halt of politicians’ insider trading in the same manner as laws that apply to corporate insider trading, it seems necessary to put further restrictions on them.
Sounds like all of this evidence should be presented to the authorities so that the perpetrators can be charged and prosecuted. Were any Democrats implicated at all in the studies or is it a purely GOP issue? That would certainly narrow the field of perpetrators by more than half.
“Were any Democrats implicated at all in the studies or is it a purely GOP issue? ”
Because that has what to do with what, exactly?
If it makes you feel any better, it seems as though the issue implicates lawmakers from both parties.
If no Democrats were involved then it is easier to find and charge the perpetrators since there are less of GOP members. And, since the quotes specifically mention the GOP, it would be interesting to note the conservative/liberal bent of the author.
I looked at the report in the Times. Some people traded well over a short term. There were congress people who had briefings on Covid and invested in stocks that might benefit from a pandemic. They did above average, at least in the short term. Sometimes. But averages are like that. Some people will always do better than average while others will always do worse. That will be true whether inside information is out there or not. And bear in mind, successful investing doesn’t have to be about the short term or a single trade or group of trades. People trading on inside information before the decline of the stock market due to the pandemic might very well have missed the subsequent rally in stock prices.
I am skeptical about extreme restrictions on trading by Congress folk. I like it when they are in the same boat as the rest of us. I suspect way too often they are not.
I just looked at Netflix stock, one of the companies cited in the Times article as a beneficiary of insider trading. On January 1, 2020, it was trading around 345. Yesterday it was trading around 387. It was of course volatile during that time, but nobody who bought it on supposed inside information that pandemics are bad got wealthy on the tip. I love Netflix, but there are lots of good reasons not to buy it’s shares, and the fact of the pandemic didn’t address any of them. Pfizer is another example. It had the vaccine, and it’s shares have been okay, but nobody has gotten rich because they owned them.
You can’t look at 2 individual days and say there wasn’t money to be made.
Netflix was around 390 pre pandemic crashed and dipped down to about 310. Easily could have shorted that and made a lot money, especially with options trading – I’m sure puts were very cheap at that point. As recently as December, NFLX was around $700 per share. The only reason why it was down to 387 is because of a spectacular crash in the price.
I’ve worked for an investment bank before. You have to have every trade pre-approved. They have restricted lists, which as employees you can’t trade on, (even if you work in the mail room) and then a secret restricted list. If you try to make a trade on the secret restricted list (it’s secret so you wouldn’t know that you’re prohibited from trading on that security) you will get denied when try to get approval. In addition, not only is it illegal to talk about any security on the restricted list, in any manner, to anyone. If you get denied a trade on a secretly restricted security – that same rule applies, even if you have no idea what business the bank may have or be discussing with that company. Even just knowing it’s on the restricted list is material, non-public knowledge and illegal to trade on or to inform anyone about.
To give you an idea of how insider trading laws for people in the banking world work – there was a man who worked as an investment banker and he would come home and tell his wife about work before going to bed. She, without his knowing, told a few friends and those friends traded based on that information. The man who merely told his wife about his work at the end of the day ended up getting convicted and I believe was sentenced to jail, though I would have to go back and check.
If people in the banking industry, even if they are support staff like facilities, HR or IT can be subject to that kind of scrutiny, it makes no sense why congress shouldn’t be. In fact, I support the blind trust model in part because even with a Compliance department to monitor trades, they have so much material, non-public information, they wouldn’t be able to trade any securities anyway.
In the 2016 election cycle, one of the most irritating things for me was the fact that Hillary had accepted exorbitant speaking fees from bankers while technically out of politics. Unless the politician is Al Franken, business groups do not pay huge fees to politicians to give after dinner remarks unless they expect something in return. I am not sure anyone does. Knowing that, until someone is out of politics for goods, politicians should accept only expenses for those speeches. Anything more than that can be donated to charities that don’t have close links to the speaker.
I always wonder about politician foundations. There world is full of world of great charities. Why would a politician feel a need to create another one? Why not go to work for one instead, and avoid all the start up costs? Why would anyone ever contribute to such a charity? All these things are mysteries to me.