Donna M. Nagy is executive associate dean and C. Ben Dutton professor at the Indiana University Maurer School of Law.
President Trump’s choice to lead the Department of Health and Human Services, Rep. Tom Price (R-Ga.), held stock in dozens of companies in the health-care, biomedical and pharmaceutical industries even as he was voting on, and often sponsoring or promoting, legislation that could affect the value of his investments. Some of his stock purchases have sparked concerns under the Stop Trading on Congressional Knowledge (Stock) Act of 2012, which makes clear that the insider-trading prohibitions arising under the federal securities laws apply to members of Congress. I testified in Senate and House hearings on the act. As then, I believe it did not go far enough.
Even if Price’s stock purchases were permissible under federal securities law, his sizable investment portfolio nevertheless places his legislative judgments into question: Did personal stock holdings influence his legislative activity? That very question points to the urgent need for new legislation to guard against the possibility — or even just the appearance — of self-interested decision-making by members of Congress.
Price’s blatant conflict of interest is hardly an aberration at the Capitol. Several senators participating in last week’s Health, Education, Labor and Pensions Committee hearing and Tuesday’s Finance Committee confirmation hearing also hold stock in health-related companies. Indeed, a 2012 Post investigative report revealed that many members of Congress hold large personal investments in the industries and companies subject to their committees’ oversight.
The ownership of stock in companies that are directly and substantially affected by legislative action is legally permissible because the federal anti-conflict statutes that prevent executive and judicial branch officials from participating in matters that affect their financial interests do not apply to Congress. To be sure, ethics rules in both chambers prohibit members from deriving personal financial benefit from their congressional service. But long-standing interpretations of those rules allow lawmakers to work and vote on legislation likely to increase the value of their personal investments, provided they are not the sole beneficiaries of that legislation or part of a highly circumscribed class of beneficiaries.
The Senate Ethics Manual, for instance, candidly acknowledges that legislation “may have a significant financial effect on a Senator because his holdings are involved.” Yet the manual presumes that “the votes cast by the Senators and Congressmen are predicated on their perceptions of the public interest and the public good, not on personal pecuniary interest.” That’s a strange presumption for an ethics manual.
In his 2012 State of the Union Address, President Barack Obama called for legislation that would reduce the gaping trust deficit between Washington and the rest of the country by prohibiting elected officials “from owning stocks in industries they impact.” Sens. Sherrod Brown (D-Ohio) and Jeff Merkley (D-Ore.) took up that challenge a few weeks later when they sought to add a provision to the Stock Act that would have placed strict limitations on securities investments by members and certain employees of the Senate. Their amendment was defeated 26 to 73, in part because a divestiture requirement was viewed as unnecessary in light of the Stock Act’s requirement for prompt (no later than 45 days) reporting of securities purchases or sales.
But now, nearly five years later, the hullabaloo surrounding Price’s confirmation hearing demonstrates the need for additional reform. The increased transparency brought about by the Stock Act has not sufficiently deterred members of Congress from owning stock in companies subject to their oversight. Nor has it diminished the public’s corrosive belief that lawmakers can — and sometimes do — place their personal financial interests ahead of the public they serve. Ironically, the increased transparency could actually be exacerbating the risk of self-interested legislative activity because, as behavioral research shows, the disclosure of a potential conflict can often make the discloser feel morally absolved.
What’s needed is legislation that would, subject to some narrowly crafted exceptions, prohibit members of Congress and senior staff officials from owning any securities other than government securities or shares in diversified mutual funds. Such a proscription would hold the legislative branch to the same high standards of ethics and integrity that Congress already demands from federal judges and agency officials in the executive branch, including Tom Price — if he becomes secretary of health and human services.