Craig Holman is a government affairs lobbyist for Public Citizen.
When Public Citizen asked for an investigation in January of possible insider trading by Rep. Chris Collins (R-N.Y.) and then-Rep. Tom Price (R-Ga.), it raised the question of whether the Stop Trading on Congressional Knowledge Act has had any impact on members' stock-trading activity at all.
When the Stock Act was finally approved in 2012 by a reluctant Congress, it was a widely hailed legislative achievement. The legislation applied the law against insider trading for the first time to Congress itself and mandated an online disclosure system of members’ stock trades so that compliance to the law could be monitored.
I fully expected that the disclosure system would also reduce stock-trading activity by Congress, especially in industries that members directly oversee, because the conflict of interest would now fall under public scrutiny. "I don't know how much active trading has gone on since the Stock Act. I suspect it's dampened it," I told the Hill newspaper in 2014. "Members are going to be more cautious now."
Have recent events proved me wrong?I looked at stock-trading activity of all U.S. senators before and after passage of the Stock Act to answer that question. The results provide good news and bad news, showing that the law has worked but can still be bolstered.
The Stock Act has indeed had a dramatic impact on stock-trading activity by senators, reducing both the overall volume of stock trades and the transaction value of those trades. Remarkably, the number of stock transactions three years before and after passage of the Stock Act has fallen by 68 percent. Furthermore, the monetary value of those stock trades has also fallen by 66 percent — an extraordinary achievement.
It is reasonable to assume the same trend has occurred in the House of Representatives. But subsequent legislation by Congress eliminated the “searchable, sortable and downloadable” disclosure requirement of stock-trading activity, which makes it much harder to compile a comparable database for the House.
But there is bad news as well. Of the senators who remain active in the stock market, they have a high propensity for trading stocks in businesses they directly oversee from their committees. From these perches, members of Congress often are privy to information that could directly affect the value of stocks, posing a serious conflict of interest when trading in those markets. Sen. Sheldon Whitehouse (D-R.I.), one of the Senate's more prolific players in the stock market, sits on the Senate Subcommittee on Primary Health and Retirement Security as well as the Subcommittee on Privacy, Technology and the Law, all the while trading stocks in the health-care and technology industries. Sen. Bob Corker (R-Tenn.) joins Whitehouse in trading stocks in infrastructure businesses he directly oversees from his position on the Senate Banking, Housing and Urban Affairs Committee. The list goes on of senators playing in the stock markets of industries directly related to their official oversight roles in Congress.
Politico found a similarly disturbing trend in both chambers of Congress. Politico identified about 30 percent of members of the House and Senate who are currently active in the stock market. Several of these members play in the markets over which they have some direct legislative responsibility — in some cases, even sponsoring legislation that could have a direct bearing on their stock investments.
Just as problematic, many congressional senior staffers — who have been removed from public scrutiny of their stock-trading activities when Congress eliminated the comprehensive disclosure requirement of the Stock Act — are also trading stocks in industries their bosses directly oversee. Last year, three members of the Senate Judiciary Committee asked the Justice Department whether the drug company Mylan was violating federal drug laws. Nine days later, the Justice Department agreed and levied a massive settlement penalty against the company. After the letter and before the settlement, a senior staffer to the Judiciary Committee dumped between $4,004 and $60,000 of Mylan stock investments.
Such conflicts of interest in stock trading activity are squarely addressed in the executive branch. Senior executive branch officials are required to divest themselves of any stocks and other properties that pose a direct conflict of interest with their official duties. The same ethics standard should apply to Congress — both to members and senior staff. A member of the Senate Armed Services Committee, for example, should not be actively buying or selling stocks in the defense industry.
In order to ensure compliance with the Stock Act, it is imperative that Congress reestablish its searchable, sortable and downloadable disclosure system for stock trades by members and senior staff. No doubt the limited disclosure system still in place has contributed to the decline in congressional stock-trading activity. But the ongoing conflicts of interest in the stock market by some members of Congress and their staff call for a much more robust online disclosure system.
Furthermore, the “political intelligence” industry — the secretive Wall Street operatives and lobbyists who roam the halls of Congress in search of valuable information to sell on the stock market — must be brought out of the shadows. The Political Intelligence Transparency Act, reintroduced by Reps. Louise M. Slaughter (D-N.Y.) and John J. Duncan Jr. (R-Tenn.), would mandate that these operatives register under the Lobby Disclosure Act and disclose their clients and activities on a regular basis.
While the Stock Act has clearly been a phenomenal achievement in reducing troubling stock-trading activity by members of Congress, more remains to be done. It is time to revisit and strengthen the law.