Democrats can make reform a winning issue
Never mind that it is the right thing to do. Or that the last thing politicians should be doing is coming up with ways to erode public confidence. Congress members for their own good should pass a proposed law that would end their ability to trade individual stocks while in office.
Senators and members of the House of Representatives, and often their top aides, know stuff the rest of us don’t, or at least know it sooner. They get private briefings on national security threats, on economic data that can signal trouble ahead, and about foreign hot spots.
They need this to do their jobs, guide their policy decisions and act in the best interests of the people who elected them. But these reports can also indicate that they can make some big money by buying particular stocks or avoid big losses by dumping others.
Until 2012 there was nothing illegal about that. But there were calls for reform after the last market collapse in 2008 and 2009, and reports that many congresspeople weathered the subsequent Great Recession a whole lot better than the rest of us, based on investment decisions guided by the briefings they were receiving. President Barack Obama and the Democrats, then in control of both chambers, and with strong bipartisan support from the Republican minority, passed in 2012 the STOCK Act — Stop Trading on Congressional Knowledge.
It prohibits lawmakers from “using nonpublic information derived from their official positions for personal benefit.” It also requires every member of Congress to publicly file and disclose any financial transaction of stocks, bonds, commodities futures, and other securities within 45 days. Unfortunately, in 2013 Congress passed an amendment that eliminated a requirement for the creation of a searchable, sortable database.
Disclosures must be filed, but only on paper, making access to and interpretation of the data significantly more difficult. Congress wanted to claim transparency, while making it difficult.
Back in the news
The STOCK Act is back in the news as the country confronts another market drop and an economic downturn, this time tied to the COVID-19 pandemic. And, again, some congresspeople may be benefitting from insider information.
As noted in our editorial earlier last week, Sen. Richard Burr, R-N.C., chair of the Senate Intelligence Committee, dumped stocks valued at up to $1.7 million after attending multiple briefings in which he learned how serious a health and economic threat the virus posed, even though at the time both he and President Trump were offering assurances that threat could be managed.
Burr was not alone. Disclosure records show three other senators sold major holdings before the market collapse: James M. Inhofe, Republican of Oklahoma; Kelly Loeffler, a Georgia Republican; and Dianne Feinstein, Democrat of California, also a member of Intelligence. Yet none of their financial moves have the same direct connection to the crisis as Burr’s wholesale stock dump.
Inhofe, for example, sold off Paypal and Apple stock, which didn’t seem to be in the crosshairs of the shutdown tied to the pandemic, nor did the $1.5 million to $6 million in stock Feinstein and her husband sold in the cancer-focused California biotech company Allogene Therapeutics. Feinstein said the decision was made by her husband and had nothing to do with the crisis. In fact, the stock subsequently rose.
Loeffler is the wife of Jeffrey C. Sprecher, chairman of the New York Stock Exchange. Her filings, according to the New York Times, show 27 stock sales worth millions of dollars starting Jan. 24, beating the market downturn.
Loeffler, denying contentions of insider trading, said investment decisions are made by third-party advisers without her or her husband’s knowledge or involvement.
That sounds a lot like the explanation I got from Sen. Richard Blumenthal’s office when I asked how he avoids appearances of conflict of interest or insider trading.
Our elected leaders
“Senator Blumenthal’s investments are made by an outside professional, independently of him, and without any input or involvement by Senator Blumenthal in those decisions,” read the statement from his office.
Blumenthal is one of the richest senators. He and his wife’s personal fortune is around $70 million. His wife, Cynthia Malkin, is a real estate investor and heiress to the New York City-based Malkin property empire.
If Blumenthal’s “outside professional” had decided to unload some stock circa late January, and it showed up in his STOCK Act filing, his name might be tossed around in news reports as well.
On the other end of the Senate wealth spectrum is Sen. Chris Murphy, the state’s junior senator, also a Democrat. The watch-dog group Roll Call estimates Murphy has negative net worth, his liabilities outstripping his assets.
Murphy’s office told me he has college funds for his two children and a broad-index mutual fund. He does not trade in individual stocks.
Rep. Joe Courtney, the Democrat who has represented eastern Connecticut’s Second District since 2007, told me in a phone interview he invests in a 401(k) mutual fund and does not control individual stocks. His net worth has been placed at $200,000.
Courtney voted for the STOCK Act. He says he supports further reforms.
“The disclosure is good, but I don’t think it is enough,” Courtney said.
Courtney backs legislation that would prohibit any trading in individual stocks by members of Congress. It is being pushed by Democrats, but Republicans have shown no appetite for these tighter controls. The legislation is unlikely to move forward with Republicans holding the Senate.
Under the legislation, members of the Senate and House would either have to have their holdings in a blind trust, with strict controls so that the investor cannot benefit from any insider information the lawmaker may have, or could put holdings in broad-based investments, such as diversified mutual funds.
This would not be foolproof — Sen. Loeffler says she effectively uses a blind trust but is still under suspicion — but it would be a big improvement. And the rules of what constituted a truly blind trust would be clear, rather than interpreted by the individual lawmaker.
Craig Holman, a government affairs specialist with the clean government advocacy group Public Citizen, said only about one-third of the members of Congress still trade in individual stocks in the wake of the STOCK Act.
Those who still do risk suspicions of benefitting from insider trading, as much as they may insist — as Sen. Burr does — that they were acting on public information. Tighter measures, with strict blind trusts, would both keep everybody honest and significantly reduce appearances of conflict of interest. If Republicans resist, it is another issue Democrats can run on in trying to win the Senate in 2020.
Paul Choiniere is the editorial page editor.
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