Congressional Stock Trading Amid COVID-19

About the Author: Monica Nettles is a second year law student at American University- Washington College of Law. Monica graduated from Arizona State University and hopes to work in criminal defense or civil rights work after graduating law school.

 

For many Americans, the COVID-19 pandemic has not only been a health risk and emotional burden, but also caused significant financial strain. Research shows that since the beginning of the pandemic, forty-six percent of adults are struggling to pay basic bills, while one-in-six have borrowed money from friends or family or gone to a food bank for basic food necessities.[1]  Yet, for Congressional members, the pandemic provided a prime opportunity to invest in industries benefiting from the pandemic while selling stock in companies failing during the lockdown.[2]

The Department of Justice began investigating former Senators Bill Burr, Kelly Loeffler, and David Perdue for insider trading after purchasing and selling stocks following confidential congressional briefings.[3] The former Georgia Senators Loeffler and Perdue were found to have purchased stock in “remote-work technology, telemedicine companies, pharmaceutical makers currently developing potential vaccines, car manufacturers that have shifted to making ventilators for coronavirus patients and alcohol producers that started making hand sanitizer”.[4]  As head of the intelligence committee, Senator Burr had firsthand information regarding the initial status of the virus.[5]  Senate financial disclosures found Senator Burr sold between $628,000 and $1.72 million worth of stock holdings across thirty-three transactions on February 13, 2020 after a Senate Intelligence Committee meeting.[6] While the senators were found clear of any wrongdoing by the Department of Justice, their actions have resulted in increased scrutiny on the stock portfolios of Congressional members.[7]

This is not the first instance of questionable financial decisions by members of Congress. While laws have always existed to prevent congressional members from trading on nonpublic information, it was difficult for officials at the Securities and Exchange Commission to find particularized wrongdoing.[8]  To combat this issue, President Obama signed the “Stop Trading on Congressional Knowledge Act of 2012” (STOCK Act), which outlaws trading on nonpublic information by Congressional members and staff, expands financial disclosures of members and allows disclosure information to be publicly accessible.[9]  However, the law did not prevent members from buying and selling stock shares or provide specific authority for Congressional Ethics committees and the Securities and Exchange Commission to punish corruption.[10]

Attempting to combat these issues, Senator Elizabeth Warren intends to introduce a bill to Senate proposing a ban on stock trading by Congressional members.[11]  Titled the “Anti- Corruption and Public Integrity Act”, the bill intends to “prohibit all government officials from holding or trading stock where its value might be influenced by their agency, department, or actions”.[12]  While some party leaders argue a restriction on lawmakers is unwarranted and unfair, others argue that notices and restrictions help learn about and prevent potential abuses.[13] Supporters of the new proposal argue lawmakers should focus on producing efficient legislation, not improving individual financial interests.[14] Authors of the original STOCK Act resoundingly say Congressional members should be held responsible for their financial actions while in possession of “nonpublic information ‘derived’ from their positions…” and the current law is not strong enough.[15]  The authors urge more substantive restrictions on members’ stock trading, real estate and other forms of investments.[16]

While the COVID-19 pandemic has shown the potential for Congressional members to abuse the current system, Senator Warren’s bill presents the new Congress with an opportunity to substantively level the playing field and focus attention on central federal government work.

 

 

[1] Kim Parker, Rachel Minkin & Jesse Bennet, Economic Fallout From COVID-19 Continues To Hit Lower-Income Americans the Hardest, Pew Research Center (Sep. 24, 2020) https://www.pewsocialtrends.org/2020/09/24/economic-fallout-from-covid-19-continues-to-hit-lower-income-americans-the-hardest/.

[2] Alice Miranda Ollstein, Lawmakers Made Hundreds Of Stock Transactions During Pandemic, Watchdog Finds, Politico (04/29/2020 05:58 PM EST) https://www.politico.com/news/2020/04/29/congress-stocks-coronavirus-221742 (noting failing companies included the hotel industry and restaurants).

[3] Id.

[4] Katie Benner, Adam Goldman, Nicholas Fandos and Kate Kelly, Stock Trades by Senator Perdue Said to Have Prompted Justice Dept. Inquiry, N.Y. Times (Nov. 25, 2020) https://www.nytimes.com/2020/11/25/us/politics/david-perdue-cardlytics.html. See Oma Seddiq, Republican Sen. David Perdue’s Stock Portfolio Shows He’d Occasionally Make At Least 20 Trades In One Day, Per A New York Times Investigation, Bus. Insider (Dec. 2, 2020, 7 :54 PM) https://www.businessinsider.com/gop-senator-david-perdue-stock-trades-in-one-day-nyt-2020-12 (stating Senator Perdue purchased stock in companies producing personal protective equipment after receiving classified briefings on January 24, 2020).

[5] Robert Faturechi and Dereck Willis, Senator Dumped Up to $1.7 Million of Stock After Reassuring Public About Coronavirus Preparedness, ProPublica (March 19, 2020, 5:01 p.m. EDT) https://www.propublica.org/article/senator-dumped-up-to-1-7-million-of-stock-after-reassuring-public-about-coronavirus-preparedness.

[6] Id.

[7] See Ollstein, supra note 2.

[8]  Deirdre Walsh and Dana Bash, CNN exclusive: Congressional Insider Trading Ban Might Not Apply to Families, CNN (July 19, 2012 10:09 PM EST) https://www.cnn.com/2012/07/19/politics/stock-act-loophole/index.html.

[9] See S.2038, 112th. Cong. (2012); see also Tamara Keith, How Congress Quietly Overhauled its Insider- Trading Law, NPR (Apr. 16, 2013 5:12 PM EST) https://www.npr.org/sections/itsallpolitics/2013/04/16/177496734/how-congress-quietly-overhauled-its-insider-trading-law.

[10] Anneken Tappe and Scott Bronstein, When Lawmakers Buy and Sell Stocks, They’re Playing with Fire, CNN ( Dec. 16, 2020 8:48 PM EST) https://www.cnn.com/2020/12/16/investing/congress-stock-trading-ethics-perdue/index.html; Jeanne L. Schroeder, Taking Stock: Insider and Outsider Trading by Congress, 5 WM. & MARY Bus. L. Rev. 159, 163 (2014).

[11] Maggie Severns, Warren Re-Ups Bill To Ban Stock Trading By Lawmakers, Politico (12/18/2020 04:11 PM EST) https://www.politico.com/news/2020/12/18/elizabeth-warren-stock-trading-ban-448390.

[12] Elizabeth Warren, Anti- Corruption and Public Integrity Act, https://www.warren.senate.gov/imo/media/doc/Master%20Summary%20of%20Anti%20Corruption%20Act%20-%20FINAL.pdf.

[13] Tyle Gellasch, I Helped Write the STOCK Act. It Didn’t Go Far Enough. Politico (03/25/2020 03:50 PM EDT) https://www.politico.com/news/magazine/2020/03/25/congress-stock-trade-148678; Nicholas Fandos, To Gain Public’s Trust, Should Members of Congress Stop Trading Stock? N.Y. Times (June 15, 2020) https://www.nytimes.com/2020/06/15/us/politics/congress-trading-stock-loeffler-burr.html.

[14] See Tappe and Bronstein, supra note 10 (noting comments from a lobbyist from Public Citizen that “insider trading in Washington never stopped”); see also Jane J. Kim, U.S. Senators’ Stock Picks Outperform the Pros’, Wall Street J. (Oct. 26, 2004 12:01 am EST) https://www.wsj.com/articles/SB109874916042455390 (highlighting political science research has shown that senators who have made stock trades outperformed the market by twelve percent).

[15] See Gellasch, supra note 13.

[16] See Gellasch, supra note 13 (explaining potential restrictions on outside business activities, requiring preclearance of stock trades by a Congressional ethics committees or compliance offices).

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