Bloomberg Law
April 6, 2022, 8:00 AM

Hard Lessons Learned After a Decade of the STOCK Act

Kedric Payne
Kedric Payne
Campaign Legal Center

On April 4, 2012, then-Vice President Joe Biden attended the signing ceremony to enact a bipartisan bill intended to help close the “deficit of trust” between the public and elected officials caused by controversial stock trading by members of Congress.

Ten years later, now President Biden is battling a global crisis in Europe and promising to provide weapons to Ukraine while members of Congress buy stock in weapons manufacturers.

The 10th anniversary of the Stop Trading on Congressional Knowledge (STOCK) Act should have been a day for reflection, not celebration. We see daily that those who cannot learn from history are doomed to repeat it, a necessary reminder to Congress while their stock trading is steady and STOCK Act reform is stalled.

Voters have a right to know that elected officials are looking out for the public interest and not their personal interests. And they should recognize five lessons learned from a decade of the STOCK Act.

Insider Trading Is the Tip of the Iceberg

The STOCK Act has been unsuccessful because it banned insider trading without restricting lawmakers from owning stock, including in companies that appear before their committees or are impacted by congressional votes.

Voters’ distrust of congressional stock trading spans beyond the perception of insider trading to genuine concern over the conflicts of interest that arise when lawmakers own stock in industries over which they hold influence.

Consequently, distrust increased when Congress began considering bailouts of industries during the early days of the pandemic while some members of Congress strategically bought stocks in companies that might see a boost during the crisis and sold stocks in industries likely to face losses.

Sunlight on Its Own Is Not the Best Disinfectant

The STOCK Act’s requirement of more frequent public disclosures of congressional stock trades has not deterred lawmakers from making suspicious trades.

Ironically, sunlight has increased voter distrust in lawmakers’ stock trades due to the volume of violations and more easily noted conflicts of interests. Voters want more than after-the-fact knowledge of stock trades

Two polls in 2021 found that most Americans across both major parties support banning lawmakers from trading individual stocks altogether.

Self-Policing Equals No Policing

Allegations of congressional insider trading and conflicts of interests have persisted over the past 10 years, but no member has been publicly disciplined for violating the STOCK Act under the self-policing enforcement mechanism.

Specifically, from 2020 to 2021, over 200 lawmakers and senior staff members have allegedly violated the reporting requirements of the STOCK Act without any indication from the House and Senate ethics committees of enforcement actions.

The conspicuous lack of enforcement of the STOCK Act highlights the congressional ethics committees’ well-earned reputation of not holding lawmakers accountable.

Perception Is Reality

The harm of the perceived conflicts of interests with congressional stock trading is evident in the rise of investors who copy the trades of members of Congress because they assume that members’ trades are based on inside information. In some instances, stocks owned by lawmakers increase in value after they are disclosed under the STOCK Act.

Consequently, the perceived corruption of lawmakers can cause positive returns for their stock purchases when the value increases from copycat traders. This turns the disclosure regime of the STOCK Act on its head.

Instead of disclosure serving as a deterrent for stock trading, disclosure incentivizes lawmakers to act as market movers who are guaranteed profits when their trades become public.

Congress Has No Shame in the Stock Game

Despite overwhelming, cross-partisan public support, STOCK Act reform is stalled thanks to a majority of Congress preferring the status quo. The majority (53%) of members own stock. A minority of members have proposed multiple reform bills, but there is no consensus on a path forward and the issue has not been prioritized.

The absence of any sense of collective shame among lawmakers of the public’s negative opinion of their stock trading suggests that deficit of trust in government will only grow.

If the effort of STOCK Act reform is genuinely revived, remembering these five takeaways can protect any new law from having fatal flaws, like exceptions for stocks owned by the spouses, dependents, and staff of members; insignificant penalties; and weak enforcement mechanisms.

Only if the 10th anniversary of the STOCK Act is its last anniversary of the law in its current form can this be a time to celebrate.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Kedric Payne is vice president, general counsel, and senior director of ethics at Campaign Legal Center. Prior to joining CLC, he advised on executive branch ethics laws as a deputy general counsel at the Department of Energy and was deputy chief counsel of the Office of Congressional Ethics.

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