Insider Trading in Congress: 70% of Americans Believe Members of Congress Hold an Unfair Advantage in the Stock Market; the Remaining 30% are Idiots
The United States Constitution was deliberately created with checks and balances across the three branches of government, preventing a singular branch from gaining too much power and containing fail-safes to ward off elected officials from abusing their positions. One controversial law within the Constitution regards the limits placed on insider trading. Insider trading occurs when one uses non-public information to influence the buying or selling of securities or other financial instruments. While it is illegal for a large majority of the population, members of Congress have long been exempt from these laws. This established, an unpatched loophole recently led to criticism and concern about the ethical implications of lawmakers trading stocks based on non-public information.
Perhaps the best example of this were the actions of former Speaker of the House Nancy Pelosi and her husband, Paul Pelosi. In March of 2022, Paul Pelosi purchased nearly $5 million in Tesla stock while Nancy pushed for electric vehicle subsidies in the House of Representatives. Furthermore, in June 2022, Paul exercised call options to purchase up to $5 million of NVIDIA, a tech company specializing in graphic cards and artificial intelligence (AI), directly before a bill providing domestic semiconductor manufacturers with more than $50 billion in subsidies was presented to the House (Capitol Trades, 2022). The Pelosi case raises significant moral implications about insider trading in Congress as members of Congress are elected to serve the public interest, not their own financial gain. Blatantly using insider information to trade on the New York Stock Exchange (NYSE) not only directly contradicts the basic rationale of a representative democracy, but also undermines public confidence in both the NYSE and our government. Insider trading also raises concerns about the legitimacy of the legislative process and the motive behind some congressional agendas. The legality of insider trading in Congress gives lawmakers–like the Pelosis–the power to push legislation for their own gain and disregard the public good.
Surprisingly, in 2012, the Stop Trading on Congressional Knowledge (STOCK) Act––an act meant to put an end to congressional insider trading––was successfully passed through Congress. Unfortunately, it did not stop trading on congressional knowledge, potentially due to its poorly enforced and weak structure. The emergence of COVID-19 highlights its ineffectiveness; members of Congress from both parties were extremely active in the stock market during the COVID-era, combining for over $150 million in total stock transactions during the pandemic (Campaign Legal Center 2023). Although the STOCK Act is largely ineffective, strengthening and enforcing it with new legislation could help restore public trust in the political system and ensure that lawmakers are held accountable for their actions.
U.S. Senator Josh Hawley introduced a new act in January 2023 in direct response to the shortcomings of the STOCK Act and the ongoing malfeasance in Congress called the PELOSI (Preventing Elected Leaders from Owning Securities and Investments) Act. This bill serves to prevent both elected leaders and their spouses from holding or trading individual stock while forcing violators to return all profit to American taxpayers. In defense of his bill, Senator Hawley stated:
For too long, politicians in Washington have taken advantage of the economic system they write the rules for, turning profits for themselves at the expense of the American people. As members of Congress, both Senators and Representatives are tasked with providing oversight of the same companies they invest in, yet they continually buy and sell stocks, outperforming the market time and again. While Wall Street and Big Tech work hand-in-hand with elected officials to enrich each other, hardworking Americans pay the price. The solution is clear: we must immediately and permanently ban all members of Congress from trading stocks. (Hawley, 2023)
While Senator Hawley does not expect the PELOSI Act to successfully pass in Congress, his deliberately ironic name for the Act calls attention to both the Pelosis’ and Congress’ wrongdoings and fosters conversation about a bill with legitimate potential in Congress.
The combination of media coverage of the Pelosis’ trades and Hawley’s PELOSI Act draws considerable attention to the lack of proper legislation restricting congressional insider trading and will influence future legislation. Elected officials are incentivized to listen to public opinion to be re-elected in the next term. When a significant portion of the public expresses support for a particular policy or issue, it often generates momentum and pressure for lawmakers to take action.
As the public becomes more educated about insider trading corruption, pressure will be increasingly applied to elected officials to fix the issue in the form of the new TRUST (Transparent Representation Upholding Service and Trust in Congress Act) in Congress Act. Similar to the PELOSI Act, the TRUST in Congress Act aims to restrict the congressional ability to use private information for personal benefit in the stock market. It prevents lawmakers from trading individual stock while in office by requiring members to put their holdings in a qualified blind trust or divest. It also explicitly prohibits lawmakers’ spouses and dependent children from trading stock.
There is a fundamental hole in our legislation allowing elected officials to use private, congressional information to line their pockets with the money of public investors. Honestly, it shouldn't surprise anyone that people like the Pelosis are gaming the system. While they are technically not breaking the law, they are abusing the power of their position. To eliminate this unfair advantage, it is critical that the Trust in Congress Act passes.
References
Campaign Legal Center. 2023. "Campaign Legal Center Urges Congress to Pass Trust in Congress Act." Accessed April 23, 2023. https://campaignlegal.org/update/campaign-legal-center-urges-congress-pass-trust-congress-act
Spanberger, Abigail. 2023. "At Start of New Congress, Spanberger & Roy Reintroduce Trust in Congress Act to Ban Members of Congress & Their Families from Trading Individual Stocks." Accessed April 23, 2023. https://spanberger.house.gov/posts/at-start-of-new-congress-spanberger-roy-reintroduce-trust-in-congress-act-to-ban-members-of-congress-their-families-from-trading-individual-stocks
Hawley, Josh. 2023. "Hawley Announces Pelosi Act Reintroduction: Bill to Ban Lawmakers from Trading Stocks." Accessed April 23, 2023. https://www.hawley.senate.gov/hawley-announces-pelosi-act-reintroduction-bill-ban-lawmakers-trading-stocks
Campaign Legal Center. 2023. "Stock Act: A Failed Effort to Stop Insider Trading in Congress." Accessed April 23, 2023. https://campaignlegal.org/update/stock-act-failed-effort-stop-insider-trading-congress
Capitol Trades. 2022. "Nancy Pelosi's Husband Sold Visa Shares Worth $4 Million." Accessed April 23, 2023. https://www.capitoltrades.com/articles/nancy-pelosi-s-husband-sold-visa-shares-worth-4-million-2022-12-01