A grossly overlooked problem in Congress, the executive branch, and the courts has recently bubbled to the surface: Officials in all three branches of government are trading stocks at the expense of the public’s trust.
This recent trend is at odds with what Americans, regardless of political affiliation, want: more laws and transparency to prevent conflicts of interests when public officials trade stocks.
According to a bipartisan poll commissioned by Campaign Legal Center and conducted by Democratic research firm ALG Research and Republican research firm GS Strategy Group, 85% of voters support requiring members of Congress to make their financial holdings publicly available and 67% favor banning Congress members from owning stock in specific companies.
The same poll showed that 78% of Americans—including 85% of Independents—expressed “extremely serious concerns” with members of Congress profiting off stock trades made based on knowledge gained in classified briefings.
Despite widespread public concern, many lawmakers, policymakers, and judges ignore the ethical issues of their stock trades. In the beginning weeks of the pandemic, lawmakers engaged in a flurry of trading, including the selling of hospitality and travel-related stocks and the purchasing of stock in remote work technology and companies making PPE.
The fallout included four senators investigated by the Department of Justice for trading on inside information related to the pandemic; 46 members of Congress reported for violating the Stop Trading on Congressional Knowledge Act (STOCK Act); and at least 13 lawmakers subject to complaints filed with congressional ethics committees for violations of the STOCK Act.
Public attention in recent months moved to the independent agency of the Federal Reserve Board after two Federal Reserve Bank officials resigned amid controversy for trading securities connected to their official duties. On a positive note, On Oct. 21, the Federal Reserve announced it would ban top officials from buying individual stocks and bonds as well as limit active trading.
And now even the judiciary seems compromised by conflicted stock trading, with the revelation that 61 judges traded stocks of companies that were appearing before them without complying with recusal requirements.
Ethics Rules Are Ineffective
The best way to understand the significance of this alarming trend of blatant violations is to consider the purpose—and ineffectiveness—of government ethics rules for stock transactions.
A little over 40 years ago, Congress passed the first law requiring officials across all three branches of government to publicly disclose stock ownership and other financial interests, the Ethics in Government Act of 1978. The purpose was, “to increase public confidence in all three branches of the federal government, demonstrate the high level of integrity of the vast majority of government officials, deter conflicts of interest from arising, deter some persons who should not be entering public service from doing so, and better enable the public to judge the performance of public officials.”
The law was a significant accomplishment for transparency.
Ten years ago, the limits of the law became clear when the public learned that members of Congress appeared to trade stock using inside information gained from their official duties, including private briefings held immediately before the 2008 economic crisis.
The public outcry resulted in bipartisan support for a law that amended the Ethics in Government Act to require more frequent disclosure of stock trades. That law, signed by President Barack Obama in April 2012, is known as the Stop Trading on Congressional Knowledge (STOCK) Act.
The more frequent disclosure required by the STOCK Act has not increased the public’s trust as intended. One of the most telling examples of how the stock trades have decreased public confidence is the trend of TikTok users buying stocks based on congressional stock trading under the assumption that lawmakers are using inside information for profitable stock picks.
Possible Solutions Exist
Without a serious response to this problematic trend, voters will continually question whether officials are acting to serve the people or their own wallets.
First, we need to have more restrictive rules regarding when and if officials can trade stocks. For example, the Federal Reserve Board of Governors announced new rules after their recent controversy, as noted above. In addition, some members of Congress introduced a bill, H.R. 5720, the Courthouse Ethics and Transparency Act of 2021, on Oct. 25 to require judges to report stock transactions more frequently and face civil penalties for failure to comply with recusal requirements. Congress should pass this bill for judges and one of the several proposed bills that restricts stock trading for members of Congress.
Second, we need stronger enforcement of existing rules. The Office of Congressional Ethics, an independent investigative body, released the first public investigation of a government official or elected official—under the STOCK Act on Oct. 21, but it is doubtful that the House Committee on Ethics will pursue any consequences for the official because of its historyof inaction.
Moreover, the Senate does not have an independent investigative body, and there is no indication that it has truly investigated any of the alleged STOCK Act violations it received.
The government is on the cusp of normalizing officials trading stocks despite conflicts of interest, which could return us to low public confidence in government similar to the Watergate era 40 years ago that led to the initial financial disclosure laws. Now is the time to reverse the tide by taking meaningful steps to update ethics laws and promote effective enforcement.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
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.