Congress’s newest attempt to ban itself from trading stocks, explained.
The vast majority of voters do not want members of Congress to trade stocks. Plenty of members of Congress say they don’t think they and their colleagues should be playing the stock market either.
And so a piece of bipartisan legislation has just landed that would accomplish just that. How this bill will fare, like multiple others before it, is unclear.
On Wednesday, Sens. Kirsten Gillibrand (D-NY) and Josh Hawley (R-MO) introduced the Ban Stock Trading for Government Officials Act, which would overhaul how members of Congress, the president, the vice president, senior executive branch officials, and their spouses and dependents would be able to invest.
It would bar them from holding and trading individual stocks. It also makes no exception for blind trusts, meaning they can’t put their investments in a little black box controlled by someone else who can make trades on their behalf, just without their knowledge. They would still be able to own mutual funds and index funds.
If they break the rules, they would be penalized at least 10 percent of the value of the prohibited investments.
“Politicians and civil servants shouldn’t spend their time day-trading and trying to make a profit at the expense of the American public, but that’s exactly what so many are doing,” Sen. Hawley said in a statement announcing the bill. Sen. Gillibrand said “it is critical that the American people know that their elected leaders are putting the public first — not looking for ways to line their own pockets.”
The proposed legislation would also require Congress members, senior congressional staff, the president, the vice president, and senior executive branch employees to report any time they or their family members apply for or get a loan, contract, grant, or some other benefit of value from the federal government. And it would create a public, searchable database of personal financial disclosure reports and filings required by the STOCK Act, a 2012 law intended to curtail the use of insider information by Congress to trade stocks.
Momentum to bar stock trading in Congress has been building for a while. Multiple legislative proposals have been put forward along those lines, though not everyone on Capitol Hill has always been jumping over themselves to make sure they can’t play the markets. In 2021, then-House Speaker Nancy Pelosi (D-CA) defended lawmakers’ stock trading. “We’re a free market economy,” she said at the time. “They should be able to participate in that.”
Whether one of these bills will finally make it into law remains to be seen. There appears to be disagreement on how to go about a stock trading ban — for example, whether blind trusts should be allowed. It’s also not clear whether such a ban will have the votes. Last fall, Pelosi said one buzzed-about stock-trading bill didn’t come to the floor because it didn’t have the votes.
“We’ve seen a lot of bills — a lot of them are very good, a lot of them are not perfect, and I think there are certainly things that could be better and could be way worse,” said Delaney Marsco, senior legal counsel on ethics at the Campaign Legal Center (CLC), an ethics watchdog. “It’s great that we have bipartisan support for limiting stock trading for members of Congress. That’s the topline takeaway.”
Lawmakers like stock trading (in a way the public really doesn’t love)
The amount of stock trading going on by congressional lawmakers and other political high-ups and their families can really give you the icks.
A 2022 CLC report on the last Congress found that over half of members owned stock. A 2022 analysis by the New York Times found that 97 Congress members or their family members had reported trades that could have overlapped with their legislative committee work. In 2021, an Insider investigation identified 78 lawmakers who had failed to properly report stock trades as mandated by the STOCK Act.
When the Covid-19 pandemic hit, the stock-trading activities of multiple lawmakers raised eyebrows. Former Sen. Richard Burr (R-NC) and his brother-in-law dumped stocks before the market tanked in reaction to the health emergency after being briefed on the outbreak. The Securities and Exchange Commission and Department of Justice launched a probe into the matter, both of which ended without charges or other action.
Former Sen. Kelly Loeffler (R-GA) sold off millions of dollars in stock as the pandemic threat set in. The DOJ took up and eventually dropped insider trading investigations into her activities around the Covid-19 market downturn as well as those of Sens. Dianne Feinstein (D-CA) and Jim Inhofe (R-OK).
As Robert Long, a former senior attorney at the Securities and Exchange Commission, told Vox at the time, insider trading is often hard to prove. “The line between illegal trading and innocuous trading is not bright — it’s often a murky line,” he said. “Subtle facts and legal issues can make the difference between having an insider trading investigation closed and being prosecuted and going to jail.”
In 2020, former New York Rep. Chris Collins (R-NY) was sentenced to 26 months in prison for insider trading after tipping off his son. But even if members of Congress aren’t breaking the law specifically — or if there’s not enough evidence to prove they are — at the very least, that they’re playing the markets raises ethical questions and weighs on public perception.
It’s not a great look that former Sen. David Perdue (R-GA) made over 2,500 stock trades in one term, or that Pelosi’s husband has done so much trading that some TikTokers look to her disclosures, where they show up, for stock tips.
“It creates public distrust about the system. That’s why individual stocks are the flashpoint, because they present more of a problem with conflicts,” Marsco said.
There is overwhelming evidence the public would like their representatives to cool it on the stock trading. A survey by the Program for Public Consultation at the University of Maryland’s School of Public Policy released this week found that 86 percent of Americans favor prohibiting stock trading of individual companies by members of Congress. There was almost no daylight between Republicans and Democrats on the issue.
“This is something that voters care about, and voters have an absolute right to know that their lawmakers and their elected officials are acting in the interests of the public,” Marsco said. “The sooner that we come to ground on a consensus bill like this, the better.”
The Gillibrand-Hawley bill is hardly the only proposal out there. In April, a bipartisan group of senators and representatives put forth the ETHICS Act, which would bar Congress members and their families from owning and trading individual stocks, securities, commodities, and futures, but would allow them to put investments into blind trusts with enhanced provisions to try to make them extra aboveboard.
There have been multiple other proposals before that, many of them also bipartisan. Still, lawmakers haven’t been able to come to an agreement on exactly what an ideal bill should look like, and it’s not clear how motivated they are, as a whole, to make a change.
Many members of Congress appear to believe they should do something on stock trading. The issue now appears to be figuring out exactly what, land on a bill, and maybe someday, actually act on it.