Analysis: When lawmakers buy and sell stocks, they’re playing with fire #Breaking112
Recent scrutiny has forced the issue of congressional stock trading into the limelight.
The potential conflict of interest is blatantly obvious. Lawmakers should focus on the most efficient legislation and not what might best serve their financial interests. Sure, some laws achieve both, but voters shouldn’t have to worry if their Washington representatives’ stock portfolios would benefit from, or influence directly, their decisions as lawmakers.
A lawmaker who owns shares in America’s big banks might have different views on banking deregulation, for example, said James Cox, professor of corporate and securities law at Duke University.
“We should be very concerned about the fact that if you’re able to profit on individual stocks, it may impact the kind of decisions you’ll make for your activities as a Senator,” said Cox.
It’s been a turbulent year for the stock market, and that’s one of the reasons congressional trading practices is in focus: Lawmakers received briefings on the coronavirus pandemic before financial markets and the general public, giving them an informational advantage.
Critics of congressional stock trading believe lawmakers must pass stricter regulations to keep members of Congress from dabbling in investments affected by the very laws they write.
Congressional stock trading
Congressional insider trading — the use of nonpublic information for one’s financial benefit — was outlawed in 2012 through the STOCK Act. But the law failed to forbid members of Congress from buying and selling shares of companies affected by the very laws they write.
Congressional stock trading activity dropped by some two-thirds after 2012, according to a study by nonprofit consumer advocacy organization Public Citizen. But Craig Holman, government affairs lobbyist for Public Citizen, thinks insider trading in Washington never stopped.
The pandemic, he says, put that in sharp focus.
Feinstein’s DOJ probe was also dropped, while the status of Burr’s investigation is unclear. Burr’s office did not respond to a request for comment.
Even outside of the writing of actual legislation, lawmakers come across information that could inform their investment decisions in hearings, or discussions with colleagues or lobbyists, said Cox. And that makes their trading decisions less transparent, he added.
“What’s wrong with this picture is members of Congress are in a position to know public policies, to know who’s going to be awarded government contracts, to know the market values that the public is not in a position to know,” Holman told CNN.
The most active trader in the Senate
Perdue is a poster child for the complexity of congressional stock trading issues because of the sheer volume of his trades.
“He may well be the tip of the iceberg, but that iceberg is sticking way up above the water level and signaling that this needs to be looked at very closely,” said Cox.
Perdue’s communications director John Burke said the senator was “quickly and independently cleared […] of any wrongdoing” by the Department of Justice, the Securities and Exchange Commission and the Senate Ethics Committee.
“Senator Perdue doesn’t handle the day-to-day decisions of his portfolio — all of his holdings are managed by outside financial advisors who make recommendations, set strategy, and manage trades and personal finances,” Burke added.
But Perdue’s trades are in businesses that he’s directly overseeing from his several committee perches, noted Holman, who added that “this is the same problem we saw prior to the STOCK Act of 2012.”
For example, Perdue is a member of the Senate Armed Services Committee, where he chairs the Subcommittee on Seapower. In June 2019 he laid out his efforts to promote the Navy industry in the annual National Defense Authorization Act for 2020.
Perdue first bought BWX shares in late 2018, before selling out fully in July 2019, according to his filings. Over that period, the company’s stock rallied more than 20%.
Meanwhile, Perdue served on the Senate Judiciary Committee, where he backed the Defend Trade Secrets Act in December 2015. Corning’s Vice President and Chief Intellectual Property Counsel, Thomas R. Beall, gave a written statement in support of the bill.
Corning’s stock performance in that time period had little to do with the eventual passing of the Defend Trade Secrets bill and was more related to the company’s growth, share buybacks and investments, according to Martin Yang, senior analyst at Oppenheimer.
“I think the bottom line is that we need to rethink the content of the STOCK Act,” Cox said. “I think it would be a step in the right direction if [lawmakers] were forbidden to trade in individual stocks. If they want to own part of America, they can buy a mutual fund.”
–Yahya Abou-Ghazala contributed to this report.