(Bloomberg Opinion) -- Thanks to ethics legislation that Senator Jon Ossoff is considering, Congress will have to focus more purposefully on one of Washington’s most persistent and egregious financial conflicts: stock trading.
The Georgia Democrat will seek to ban trading in individual stocks by federal legislators and family members; he is reportedly looking for a Republican co-sponsor before he introduces his bill.
Including family members goes beyond similar legislation other politicians have crafted recently; those measures focus only on legislators. Allowing, say, a spouse to trade securities whose value might be influenced by pending laws or regulations is an obvious loophole in ethics guidelines and should be closed posthaste. Insiders are often insiders, even if they aren’t officeholders.
The bleak prospects for Ossoff’s proposal and others like it indicate just how unwilling Congress has been to fully tackle this problem and plug loopholes that continue to undermine the Stock Act of 2012, which was enacted to blunt insider trading. You can come up with many reasons to argue against tighter trading rules, and House Speaker Nancy Pelosi has offered one of the worst.
“We’re a free-market economy,” and spouses shouldn’t face trading bans, the California Democrat said in a press conference last month. “They should be able to participate in that.”
Pelosi’s husband, Paul, a wealthy real estate investor, certainly does participate. Last June, he earned millions of dollars exercising options on Alphabet Inc. shares, trades the speaker disclosed in July; she said she had no prior knowledge of the investment, and there were no allegations of wrongdoing.
Within days of the speaker’s December press conference opposing trading bans, she filed a disclosure form indicating that the Pelosis had bought options on shares of Alphabet, Micron Technology Inc., Roblox Corp., Salesforce.com Inc., Walt Disney Co. and a partnership investing in a collection of Marriot International Inc. hotels. Come on. Even if there’s no wrongdoing here, the speaker has wide-ranging legislative powers and all of this, at a minimum, represents a financial conflict.
The problem is also robustly bipartisan.
Last August, Senator Rand Paul of Kentucky, a Republican, disclosed 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 — just before the World Health Organization classified the outbreak as a pandemic. Paul sits on a Senate health committee that the Trump administration privately briefed in January 2020 about the coronavirus. Paul disclosed the Gilead purchase about 16 months after a 45-day reporting deadline required by the Stock Act had lapsed.
The Stock Act has certainly curtailed many abuses as well as some of the financial windfalls federal legislators once enjoyed. Studies indicate that outsized gains from politicians’ stock holdings decreased after that bill was enacted. But there’s still much to be done.
A recent Business Insider examination of about 9,000 financial disclosure forms filed by every sitting federal lawmaker and their senior staff members found that only four members of the House and six from the Senate were trading using qualified blind trusts, which distance politicians from investment decisions. The analysis also found that dozens of federal legislators were violating conflict-of-interest provisions of the Stock Act, while others had indulged in activities that created “clashes between their personal finances and public duties.”
Business Insider highlighted Representative Kevin Hern, an Oklahoma Republican, as a member of a group of lawmakers from both sides of the aisle who are especially exposed to ethical problems. I wrote about Hern’s financial conflicts in 2020 after learning that the legislator helped ensure that Covid-19 relief money funded by taxpayers was steered to franchise owners like his family. He doesn’t appear to be worried that any of this is problematic.
Congress has company, too. The Federal Reserve has had to show the door recently to officials who played too loosely with their investments. The Wall Street Journal has produced a series of startling reports on financial conflicts tied to securities trading within the federal judiciary. And the Supreme Court remains oddly removed from stricter ethical guidelines and transparency, even though all of the justices either trade stocks, cash in on problematic book deals or accept pricey travel packages and expensive gifts. Chief Justice John Roberts, while acknowledging that even the appearance of financial conflicts is detrimental, has said he doesn’t consider it a widespread problem on the court or in the broader judiciary and doesn’t necessitate outside oversight.
However oversight continues to take shape in Congress, let’s hope that Ossoff’s bill gets further traction and bipartisan support. He is one of the 10 members of Congress whom Business Insider cited for maintaining a proper blind trust for his investments, and the website rated him a “solid” for his transparency and ethical vigilance. Many others in Congress should follow his example.
More From Other Writers at Bloomberg Opinion:
- Members of Congress Shouldn’t Trade Stocks: The Editors
- Senators’ Stock Trades Would Make a Poker Cheat Blush: Aaron Brown
- The Federal Reserve Needs to Get Its Ethics Straight: The Editors
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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