U.S. lawmakers have been under the microscope lately for trading stocks in companies where they or their staff members might have some inside knowledge.
The rules for buying and selling stocks were strengthened for Congress in 2012 by the Stop Trading on Congressional Knowledge Act.
Developing rules about Congress members trading stocks is an ongoing process. The Bipartisan Ban on Congressional Stock Ownership Act of 2022 was introduced in February by Senators Elizabeth Warren (D-Mass.) and Steve Daines (R-Mont.), as well as Representatives Pramila Jayapal (D-Wash.) and Matt Rosendale (R-Mont.).
The proposed legislation would cover members and their spouses. It grew out of anger over members of Congress trading stocks at the start of the pandemic, before its seriousness had become public knowledge.
The requires them to divest ownership of individual stocks, bonds, commodities, futures, and other securities including interests in hedge funds, derivatives, options and other complex investment vehicles.
Members may continue to own and trade common, widely held investment funds (e.g., mutual funds and exchange-traded funds), as long as they do not present a conflict of interest and are diversified.
Although the bill has gained broad support, Congress failed to act on it before its October recess and its fate is uncertain.
One particularly significant member of Congress has a spouse that is in the spotlight for some trades that did not go well.
A Disclosure Reveals a Loss
U.S. House Speaker Nancy Pelosi’s husband was revealed to have lost money as part of the disclosure process. The combined losses from trading in Micron Technology, Nvidia and Walt Disney options totaling nearly $900,000.
The transaction report shows that her husband Paul Pelosi lost $392,575 from selling Micron options he had purchased last December. He also sold Nvidia call options that total a loss of $361,476. Call options in Walt Disney reported in the disclosure ended up losing $132,824.
The transactions took place on Sept. 16.
About 20 percent of members of Congress from both sides of the aisle traded stocks in 2021, according to UnusualWhales.com.
Other Government Officials Under Scrutiny
An investigation of public financial disclosures last week revealed that more than 2,600 executive branch officials invested in stocks of companies their agencies oversaw from 2016 to 2021.
The activity included an official at the Environmental Protection Agency who invested in oil and gas stocks, a Food and Drug Administration employee who was allowed to own forbidden food and drug stocks, and a Defense Department official who bought stock in a company before it inked a deal with the Pentagon.
The Wall Street Journal reported that most of the disclosure documents were not online or easily accessible. “The review amounts to the most comprehensive analysis of investments held by executive-branch officials, who have wide but largely unseen influence over public policy,” the publication said.
The 2,600 officials serving both Republican and Democratic administrations adds up to more than one in five senior employees among 50 agencies who engaged in the practice.
Some provisions in the proposed legislation aimed at Congress are listed below.
- The bill covers members of Congress and their spouses.
- It requires them to divest ownership of individual stocks, bonds, commodities, futures, and other securities including an interest in a hedge fund, a derivative, an option, or other complex investment vehicles.
- Members may continue to own and trade common, widely held investment funds (e.g., mutual funds and exchange-traded funds), as long as they do not present a conflict of interest and are diversified.
- Treasury securities, government employee retirement plans, and interests in small businesses are not covered by the ban.
- Assets received as compensation from the primary occupation of a member’s spouse are not covered by the ban. A member’s spouse whose primary occupation is to trade assets for clients may continue to engage in that occupation.