In a recently published report, The New York Times highlighted situations in which Congress members had engaged in stock trades where a conflict of interest existed. Using data from Capitol Trades, the Times found that between 2019 and 2021, nearly 100 lawmakers or their families had traded stocks in sectors under their legislative oversight. The revelations from the report have brought into focus the long-standing issue of whether lawmakers should be able to buy and sell company shares.
Congressional stock trading is a controversial issue
The STOCK Act of 2012 stipulates that Congress members can buy or sell stocks and other financial instruments provided they are not trading on material, non-public information. They are required to disclose their trades, within 45 days, if they are worth $1,000 or more. Trades made by spouses and immediate family members must also be reported.
Politician stock trading is a controversial topic – the most prolific examples of insider trading within Congress are best highlighted by the prosecution of New York Representative Chris Collins several years ago. In 2019, the lawmaker resigned after agreeing to charges over the disclosure of non-public information to a family member. The disclosure related to an unsuccessful drug trial of an Australian biotech company where Collins was on the board. Collins served time in prison, until he received a presidential pardon.
Another issue raised by critics of congressional trading is non-compliance with the STOCK Act. Recently, an analysis of politician stock trading showed that 72 members of Congress had failed to comply with the Act in 2021. Some members had made disclosures late or inaccurately, while others hadn’t disclosed their trades at all. Analysts point to the lax penalty system in place for politicians who fail to disclose their trades correctly.
It’s worth noting that House Speaker Nancy Pelosi has largely escaped trading controversy to date due to her absence from legislative committees. However, her immense power in legislation has led to scrutiny of her husband's stock dealings.
Which way will Congress go?
In the wake of the growing level of controversy surrounding Congress members’ stock trading, new legislative measures are being proposed. In September, US House Democrats released a framework that would prevent lawmakers and other senior government officials, and their immediate families, from trading stocks, cryptocurrencies, bonds, and securities of certain entities. This framework would require public officials to dispose of their holdings or hold them within a blind trust.
The proposal from the House Democrats has reportedly earned the support of House Speaker Nancy Pelosi – who previously opposed strict measures on financial trading by Congress members – and Senate majority leader Chuck Schumer. However, a bill is yet to garner the requisite 60 votes to advance the legislation.
An alternative proposal by Texas Republican Representative Chip Roy would see members place their securities in a blind trust. Roy believes that there is “considerable merit” to passing reforms to Congress stock trading. However, he notes that it is a complex issue requiring thought and debate.
Some members of Congress are not happy with the proposed trading legislation. Tennessee Democratic Representative Steve Cohen, for example, believes that there is nothing wrong with members investing in individual firms. Cohen says he bought some banking and Big Pharma stocks some decades ago despite not supporting the sectors.
Given our expertise as a data provider and the regulatory changes we have seen across multiple legal systems, 2iQ Research (creator of Capitol Trades) typically views short reporting windows implemented as a part of a strategy to reduce the abuse of potential information asymmetry. This would also improve transparency and open information flow. Another solution could be a higher penalty for noncompliance, with a scalable fine in relation to the scale of the trade.
It’s worth noting that many Americans want congressional stock trading banned completely. According to a January Morning Consult survey, two-thirds of Americans want a ban on trading by lawmakers.
Capitol Trades empowers reporting on congressional trading
At Capitol Trades, our goal is to provide full transparency into politician stock trading. We want to provide all market participants with access to unbiased, accurate data, and be a reliable, trusted source of information, analytics, and research.
The report by The New York Times is a great example of how our data can be used for the analysis of trading activity on Capitol Hill.
See more media coverage featuring Capitol Trades and 2iQ data here.