Congress’s Financial Conflicts Go Beyond Rand Paul’s Wife

(Bloomberg Opinion) -- Rand Paul, a Kentucky Republican, took the Senate floor almost 10 years ago to condemn financial conflicts of interest plaguing Washington. “People should not profit off of their involvement in government,” he said. “They shouldn’t profit off of special relationships. They shouldn’t profit off of special knowledge they gain in the function of serving the people.”

Paul shared his thoughts as the Senate debated legislation that became the Stock Act of 2012, which barred most federal officeholders and employees from “making a private profit, of any nonpublic information derived from their positions.” The law was meant to curtail rampant insider stock trading on Capitol Hill, but not everyone took the new law to heart — including, perhaps, Paul himself.

Paul disclosed Wednesday, and the Washington Post reported, that his wife bought stock in Gilead Sciences Inc. — the maker of a drug billed as a possible Covid-19 treatment — on Feb. 26, 2020, “before the threat from the coronavirus was fully understood by the public and before it was classified as a pandemic by the World Health Organization.” Paul is a member of the Senate Committee on Health, Education, Labor & Pensions, which the Trump administration briefed in January 2020 about the coronavirus.

Paul disclosed the stock purchase 16 months after a 45-day reporting deadline mandated by the Stock Act had lapsed. His spokeswoman said he prepared the disclosure last year but learned only recently that it hadn’t been filed. She also said that Paul’s wife, Kelley, lost money on the investment, which was initially worth $1,000 to $15,000.

Many details remain murky, but what is abundantly clear is that financial conflicts are alive and well in Washington. And the cure still eludes legislators. As Walter Shaub, the former director of the U.S. Office of Government ethics, noted, there is an obvious fix: “Members of Congress shouldn’t be allowed to buy and sell stocks.” Bloomberg Opinion’s editorial board reached the same conclusion.

The Gilead drug, remdesivir, had the potential to be a blockbuster. In May of 2020, the Food and Drug Administration approved it for emergency use, and five months later granted full approval. It was eventually eclipsed by vaccines. But on Feb. 24, 2020 — two days before Kelley Paul bought the Gilead shares — an official with the World Health Organization praised remdesivir as a coronavirus treatment.

It’s unclear how threatening Paul considered Covid-19 to be in early 2020 or what he learned from the White House or other insiders about it at the time. He didn’t mention the virus at all in his Twitter feed during February 2020, the month his wife bought the shares. On March 20, he praised corporate “ingenuity” in the battle against the virus, complimenting Novartis International AG, Mylan N.V. and Teva Pharmaceuticals Industries Ltd on Twitter for ramping up production of hydroxychloroquine tablets, which former President Donald Trump had touted as a coronavirus cure. Two days later, Paul disclosed that he had tested positive for Covid-19.

All this should get sorted out in a congressional probe of Paul’s trading. But the basic problem is bipartisan and goes well beyond this one senator. In 2019, former Representative Chris Collins pleaded guilty to securities fraud after being investigated for insider trading. Trump pardoned him in 2020, two months after he began his prison sentence. Four senators — Kelly Loeffler, James Inhofe, Dianne Feinstein and Richard Burr — were investigated but not charged for possible insider trading connected to investments made after they received coronavirus briefings in early 2020. (Loeffler, Inhofe and Feinstein said their brokers made the trades without their knowledge.)

Former Senator David Perdue and former Representative Tom Price actively traded shares of companies subject to legislation that came out of committees on which they served. Perdue said advisers handled his trading, and there were never any insider trading charges in connection with his or Price’s investing. But the conflicts of interest revolving around both men were rampant, and the Stock Act was no remedy. (No member of Congress has been prosecuted under the Stock Act.)

In May, Representative Tom Malinowski said he failed to disclose as much as $1 million in trades of medical and technology stocks of companies engaged in the pandemic response. In June, Paul Pelosi, the husband of House Speaker Nancy Pelosi, earned millions exercising options on Alphabet Inc. shares. The speaker disclosed the trade in July and said she had no prior knowledge of it. There are no allegations of wrongdoing by the Pelosis, but given the speaker’s broad legislative purview, it makes no sense that she or her husband should own or trade securities. Why risk even the appearance of financial impropriety or conflicts, much less the possibility of wrongdoing?

The Stock Act certainly curtailed many abuses, and the outsized gains that federal legislators once enjoyed from their stock holdings decreased after it was enacted. But as my colleague Aaron Brown has pointed out, “bad behavior doesn’t disappear when outlawed, it just changes.”

The Stock Act needs to be greatly strengthened, or replaced by more sweeping guidelines. A number of politicians have introduced legislation to do just that.

It doesn’t ultimately matter whether Kelley Paul lost money on her Gilead trade. Presumably, she invested in the company because she thought she would do well. Did she talk to her husband about the investment? Did he share information from private Covid-19 briefings with her? Apart from those questions, should the Pauls be investing in medical companies when the senator sits on an important committee that has an impact on the industry?

I can answer that last question: No. But until ethical and legal guidelines around financial activities in Washington are tightened, federal leaders may not work very hard to ask such questions of themselves.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Timothy L. O'Brien is a senior columnist for Bloomberg Opinion.

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