Nancy Pelosi likely did not expect to set off such a firestorm with her use of three words: free market economy.
When the House speaker was asked in December whether she supports proposals to ban members and their spouses from trading individual stocks, she said no. “We’re a free market economy,” Pelosi said. “They should be able to participate in that.”
But Pelosi’s comment sparked ire among government ethics experts and editorial boards, who argued that lawmakers’ ability to glean information from classified briefings and stakeholder meetings raised the possibility of insider trading.
Some critics also noted that Pelosi’s husband, Paul, recently netted a gain of more than $5m from trading stocks of Alphabet, Google’s parent company.
In the face of backlash, Pelosi has changed her tune on the stock-trading issue, but her hesitation highlighted an uncomfortable truth about how Congresshas responded to the proposal.
Despite wide public support for banning lawmakers from trading stocks, members of both parties have expressed anxiety about the idea: a rare moment of bipartisanship in a divided America, but one whose subject – stock-trading politicians – is unlikely to please many voters.
Government watchdog groups warn that if Congress fails to act on this issue, it will only intensify many Americans’ concern over how money has tainted their country’s political institutions.
The debate over banning members’ stock-trading has been reinvigorated in recent months, after a string of high-profile controversies at the start of the coronavirus pandemic. In February 2020, Republican senator Richard Burr sold hundreds of thousands of dollars’ worth of stock before the market suffered a severe setback the next month. While he was overseeing those valuable stock trades, Burr was also publicly downplaying the threat of the virus. The justice department investigated Burr and three of his Senate colleagues – Republicans Kelly Loeffler and James Inhofe and Democrat Dianne Feinstein – for potential insider trading, but ultimately no charges were filed.
In response to the outcry over those controversies, both Democrats and Republicans have proposed bills to crack down on members’ stock-trading. One bill, introduced by Democratic senators Jon Ossoff and Mark Kelly, would require members, their spouses and their dependent children to place their stock portfolios in a blind trust controlled by an outside party. Republican senator Josh Hawley has proposed a similar bill, although his legislation does not cover dependent children and would not fine members’ salaries for violations, as the Ossoff-Kelly bill would.
Over in the House, Democrat Abigail Spanberger and Republican Chip Roy have introduced a similar bill to the Ossoff-Kelly proposal, and more than 50 members have signed on as co-sponsors to the separate Ban Conflicted Trading Act. That bill, which was first introduced by Democrat Raja Krishnamoorthi, would ban members and senior congressional staffers from trading individual stocks.
“It has really gotten to a point where it’s getting a little bit too difficult for the rest of Congress to ignore,” Alexandria Ocasio-Cortez, a co-sponsor of Krishnamoorthi’s bill, said at a town hall on Tuesday. “The fact of the matter is, we shouldn’t be able to day-trade the companies whose regulation and whose hearings and whose industries and business is before Congress.”
A majority of Americans agree with her. According to a January poll from the progressive firm Data for Progress, 67% percent of US voters say lawmakers should be banned from trading stocks. Another recent survey, conducted by the conservative advocacy group Convention of States Action, found that 76% of voters believe lawmakers and their spouses have an “unfair advantage” in the stock market.
It is illegal for members of Congress, or any American, to engage in insider trading. However, insider trading is very difficult to prove, so in 2012, Congress passed the Stop Trading on Congressional Knowledge (Stock) Act to address concerns about lawmakers’ financial activities. The law prohibits members from using information gained through work for their own personal profit, and it requires them to disclose stock trades within 45 days.
Both Democratic and Republican lawmakers have pointed to the existing legislation to argue against banning members from trading stocks. Republican congressman Pete Sessions has described a ban as unnecessary, while one of his Democratic colleagues, Elaine Luria, attacked the proposal as “bullshit”.
“Why would you assume that members of Congress are going to be inherently bad or corrupt? We already have the Stock Act that requires people to report stock trades,” Luria told Punchbowl News earlier this month. “So I’m very strongly opposed to any legislation like that.”
Advocates for a stock-trading ban were quick to note that Luria and her husband own millions of dollars worth of stocks in Facebook, Netflix and Apple, among other companies.
“Honestly, the stock trades by members of Congress just smell bad … Regardless of which party is doing it, it just doesn’t look good,” said RL Miller, the political director of Climate Hawks Vote. Responding to Luria’s comments specifically, Miller added: “Members of Congress expecting that they don’t prioritize companies in which they’re invested is bullshit.”
Miller’s group was one of 18 progressive organizations that signed on to a letter urging Congress to hold a hearing on banning stock trades, arguing that the Stock Act and other existing laws “have not served as a sufficient deterrent to this problem”.
Enforcement of the Stock Act also appears to have been spotty at best over the past 10 years. No one has ever been prosecuted under the law, and an investigation by Business Insider found that at least 55 members of Congress and 182 senior congressional staffers were late in filing their stock trades in 2020 and 2021. A late filing is supposed to be punished with a $200 fine that increases with subsequent offenses, but Congress does not keep any public record of such fines, and it’s unclear how often they are collected.
“The teeth behind the Stock Act are basically non-existent,” said Dylan Hedtler-Gaudette, government affairs manager at the Project On Government Oversight. “We’re seeing that reporting and disclosure do not actually act as any kind of a deterrent to doing things that look, at the very least, pretty sketchy.”
Government watchdog groups also argue that the Stock Act is now somewhat outdated. They say the legislation does not properly account for how lawmakers can use the 24-hour news cycle and social media platforms to impact markets and specific companies’ share prices.
“We have seen countless examples of how members – not just as a body but individual members – can influence the stock market with a range of tools at their disposal,” said Donald Sherman, chief counsel for Citizens for Responsibility and Ethics in Washington. “Now we’re at a place in history and on the Hill where an individual member of Congress can influence the stock price with a tweet.”
Groups like Crew are hopeful that the momentum for passing a stock-trading ban will soon translate into congressional action. Despite her initial reluctance, Pelosi has now adopted a more open-minded tone about the proposals, and the Senate majority leader, Chuck Schumer, has said the upper chamber should address the issue.
“I think this is sort of an easy win that will have a very positive impact on policy-making and on public-facing democracy,” Sherman said.
The enactment of a stock-trading ban could have the additional benefit of boosting the public’s opinion of Congress, which has suffered in recent years. According to Gallup’s January polling, only 18% of Americans approve of how Congress is handling its job. Advocates for the proposed stock-trading ban say the policy would bolster public confidence in one of America’s most important political institutions.
“Anything that can restore Americans’ trust in Congress is a good thing,” Miller said. “This would help rebut that appearance of double-dealing and go a long way toward restoring Americans’ trust in their leadership.”
For those members who are hesitant to give up their stocks, Hedtler-Gaudette suggested they should reconsider their chosen career.
“To become a member of Congress is an extraordinarily prestigious thing. But it is not compulsory,” Hedtler-Gaudette said. “There are a number of sacrifices that you have to make to run for office … If this is a problem, then you are not required to run for Congress.”