Congress and Stocks: Notable Trades and an Ineffective Law

Ten years ago, Congress and the White House enacted a law to deter insider trading on Capitol Hill and increase public transparency, but controversies over congressional stock trades persist and the requirement to provide prompt public disclosures is often ignored by lawmakers.

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The Stop Trading on Congressional Knowledge Act, or STOCK Act, mandates that members of Congress, their immediate family and their senior staff disclose trades of anything over $1,000 within 45 days of the transaction. Although there are supposed to be consequences for doing so, there’s little transparency around whether the prescribed fines — typically $200 per infraction — are ever paid.

Although late filings are the most common STOCK Act infraction, multiple instances in recent years have given rise to allegations of outright insider trading, although no one has been charged.

In the meantime, the American public’s views on the matter are unambiguous, with poll after poll showing that 60% to 80% of respondents don’t think members of Congress should even be allowed to trade stocks at all while in office.

That level of support, which is both steady and bipartisan in nature, might typically result in swift action. There are a handful of bills on this topic working their way through Washington at the moment, though none has come to a vote as of early April 2022.

“Many private-sector occupations, such as lawyers, are subject to conflict-of-interest checks before they trade,” says Claire Hunsaker, financial advisor and founder of AskFlossie, an online financial community for women.

Remarking that many white-shoe law partners have to take potential trades to an internal committee to avoid conflicts of interest and insider trading, Hunsaker says she doesn’t think improving on the STOCK Act is rocket science. “It is completely feasible for senior government officials to be subject to insider-trading oversight without creating heavy bureaucracy,” Hunsaker says, suggesting that merely aping some of the private sector’s systems could be helpful.

The public might be surprised to discover how much money some members of Congress use to trade securities. So here’s a look at some of the most recent congressional stock trades of more than $100,000:

What Congress Members Are Trading

House of Representatives

Rep. Nancy Pelosi, D-Calif. It’s appropriate that House Speaker Nancy Pelosi would surface in a cursory look at recent large transactions, as she’s garnered major attention for her husband’s huge — and often lucrative — trades.

Pelosi at first opposed restricting Congress members from trading stocks, citing her support for the “free market.” After strong bipartisan criticism and pushback, Pelosi appears to have had a change of heart, and the Committee on House Administration is set to hold a hearing called “Examining Stock Trading Reforms for Congress.”

On March 17, Pelosi’s husband exercised 25 Tesla Inc. (ticker: TSLA) $500 call options for $1.25 million, buying 2,500 shares of the electric vehicle company. A call option gives the buyer the right, but not the obligation, to buy a stock at a certain price on a certain date. Shares have done quite well since; between the March 17 and April 5 closes, TSLA stock jumped more than 25% after the company announced plans for a stock split.

Rep. Mark Green, R-Tenn. One of the most frequent traders in Congress, Green often trades in and out of energy stocks. Early March was no different, as on March 2 and March 3, the representative bought between $350,000 and $750,000 in Energy Transfer LP (ET) stock, acquired between $250,000 and $500,000 of Equitrans Midstream Corp. (ETRN) stock, and sold between $500,000 and $1 million of EnLink Midstream (ENLC) stock.

Rep. Josh Gottheimer, D-N.J. In a filing that disclosed dozens of other February stock transactions between $1,000 and $15,000, Gottheimer also disclosed the sale of various call options on Microsoft Corp. (MSFT) stock, worth between $2 million and $7 million.

The same day, he purchased between $2 million and $7 million of Microsoft call options with different expiration dates.

Senate

Sen. Tommy Tuberville, R-Ala. On Feb. 10, Tuberville purchased between $100,000 and $250,000 worth of United States Steel Corp. (X) stock. The senator also reported dozens of other, smaller transactions in stocks, options, exchange-traded funds and commodities.

Sen. Richard Blumenthal, D-Conn. Blumenthal is reportedly one of the richest members of Congress, having married into a family with part ownership of the Empire State Building. A recent periodic disclosure of financial transactions report revealed eight transactions of more than $100,000 spanning January and February. Six of those transactions were for more than $250,000, while one, in what appears to be a private equity fund, was for between $500,000 and $1 million.

The transactions are all marked as being conducted by his spouse.

Sen. Mark Warner, D-Va. Another of the wealthiest members of Congress — OpenSecrets pegged him as the richest member in 2018, with an estimated net worth of more than $200 million — Warner sold between $100,000 and $250,000 of Construction Partners Inc. (ROAD) stock on Jan. 31.

[See: Artificial Intelligence Stocks: The 10 Best AI Companies.]

Chronic Late Filings

While illustrative of how the country’s most powerful politicians operate in a very different financial stratosphere from everyday Americans, the above large transactions aren’t flouting any laws, and it’s not illegal to be both wealthy and trading stocks.

But many members of Congress don’t follow the letter of the STOCK Act, with a recent investigation by Insider, drawing on reporting from several other news outlets, finding that 59 members, or 11%, of Congress have missed filing deadlines.

“Those in Congress, their families and their senior staffers should not be able to engage in insider trading or profit off of their influence and access to information on Capitol Hill,” says Democratic pollster Carly Cooperman, CEO of Schoen Cooperman Research. Insider found that more than 180 top staffers had violated the STOCK Act’s disclosure deadlines, as well.

Although no charges of insider trading have been levied, the lack of transparency and accountability surrounding whether STOCK Act violators are even punished concerns ethics watchdogs. That said, the STOCK Act doesn’t mandate stiff penalties to begin with.

The law “is just in fact a symbolic gesture of accountability with minimal teeth,” says Rita Mkrtchyan, senior defense attorney at Oak View Law Group.

“For instance, the penalty for violating the STOCK Act is a very small fine, at $200. In fact, the act gives the House or Senate ethics officials the power to waive the fines completely,” Mkrtchyan says.

As is probably clear by now, one doesn’t have to look back very far to find sitting Congress members seemingly in violation of disclosure laws.

On March 3, Rep. Thomas Suozzi, D-N.Y., disclosed 31 transactions. One of the transactions was from mid-2021, disclosed more than six months late; the other 30 were all filed more than two years after the 45-day reporting window allowed by law, including transactions from 2017, 2018 and 2019.

When reached for comment, a spokesperson for Suozzi said: “The congressman’s investments are managed through independent advisors with discretion over all transactions. The congressman would support legislation to ban lawmakers trading stocks.”

More recently, a March 17 filing from Rep. Brad Schneider, D-Ill., revealed two transactions on Dec. 10, 2021, each for between $50,000 and $100,000. One transaction was a donation of Trupanion Inc. (TRUP) stock to an undisclosed charity. Both transactions were reported more than seven weeks late. A spokesperson for Schneider’s office told Insider that the congressman simply failed to hit “submit” on a disclosure and paid the fine.

These examples are just several of the most recent by members of Congress.

Defense, Energy Trades the Latest to Raise Eyebrows

Several recent filings revealed transactions in defense stocks right around the time of the Russian invasion of Ukraine.

Filings show that Rep. Marjorie Taylor Greene, R-Ga., bought shares of defense giant Lockheed Martin Corp. (LMT) on Feb. 22. On Feb. 23, Greene tweeted that “War and rumors of war is incredibly profitable and convenient.” The next day, Russia invaded Ukraine.

A call to the congresswoman’s office for comment was not returned by the time this story was published.

Rep. John Rutherford, R-Fla., bought Raytheon Technologies Corp. (RTX) stock on Feb. 24, the day of the Russian invasion.

The same day, Rutherford tweeted that Putin “must be held accountable,” adding: “The U.S. and our allies must impose the maximum possible sanctions & leave nothing off the table.”

An email seeking comment from Rutherford’s office was not answered before this story was published.

It was publicly known that Russia was likely to invade Ukraine, and these trades aren’t necessarily evidence of insider information.

But ever since suspicious congressional trades came to light in 2020, revealing a handful of well-timed financial transactions before COVID-19 began wreaking real chaos, the ethics of allowing Congress, their families and their staff to trade stocks at all has been in the limelight.

“Polling shows that a majority of voters of all parties favor a ban on stock trading for lawmakers,” Cooperman says.

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Congress and Stocks: Notable Trades and an Ineffective Law originally appeared on usnews.com

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