To Gain Public’s Trust, Should Members of Congress Stop Trading Stock?

The latest campaign ad by Senator Kelly Loeffler, a freshman Republican from Georgia fighting to keep her job, is entitled “CLEARED.” It recounts how she fought back against charges that she improperly traded stocks based on a confidential briefing she received in January about the looming coronavirus crisis. In late May, the Justice Department confirmed that an investigation into the trades did not find evidence that she broke the law.

But if she was exonerated, Ms. Loeffler paid a heavy political price, as her choice of campaign message vividly illustrates. She burned almost three months of her campaign — time she had planned to use introducing herself to voters — fighting accusations that she traded on insider information to help avert thousands of dollars in losses to her portfolio. Even now, she is struggling to regain the trust of voters.

The story of Ms. Loeffler and a handful of other senators whose trades drew federal scrutiny has become a cautionary tale in Congress this spring, as lawmakers are battling to maintain the public’s trust as they try to respond to a pair of national crises, one a lethal pandemic and the other a national outcry over systemic racism in policing.

Markets may have moved on, but the storm of scrutiny has left a lingering question: Why do lawmakers, who have easy access to nonpublic information and the power to shift markets, allow themselves to buy and sell financial stakes in companies in the first place? And should they continue to do so?

Most officeholders, including top Democratic and Republican leaders, say yes. They argue that placing limits on what lawmakers do with their retirement accounts and other savings would be unwarranted and unfair. A vast majority of members of Congress, after all, appear to follow the letter and spirit of the law that outlaws insider trading. When there are questions, as in the case of Ms. Loeffler — or Senator Richard Burr, Republican of North Carolina — the Securities and Exchange Commission and Justice Department can investigate.

But government ethics advocates and a small but growing bipartisan group of lawmakers sense an opening and are trying to make their move.

“Frankly, there is a lack of public trust that grows out of questions about whether or not members of Congress are gaming financial markets when they have insights as to what is going on in public policy,” said Representative Chip Roy, Republican of Texas. “There has been an increased recognition that it is difficult to give confidence to the American people that whatever we are deciding is fully divorced from our own personal interest.”

On Monday, Mr. Roy and Representative Abigail Spanberger, a moderate Virginia Democrat, introduced legislation that would require all members of Congress, their spouses and dependent children to put assets like stocks or commodity investments into blind trusts while they hold office, giving up control over how the money is invested for their full tenure.

Progressive Democrats like Representative Alexandria Ocasio-Cortez of New York and Senator Elizabeth Warren of Massachusetts have in recent weeks promoted even more drastic solutions, from bans on congressional stock trading to barring lawmakers from owning individual stocks altogether.

The idea is that even the appearance of a conflict — a senator writing aviation policy, say, who owns stock in Boeing — undermines the public’s already abysmally low trust in Congress and therefore its ability to legislate effectively. Congress, they point out, already makes similar conflicts of interest illegal for executive branch employees, and thousands of federal officials undergo ethics reviews each year that often require them to divest any financial interests they have in companies or industries that their work could affect.

For his part, Senator Mitch McConnell, Republican of Kentucky and the majority leader, said that each member should be allowed to invest as they saw fit.

“As for myself, I decided many years ago I was more comfortable not owning individual stock,” he said in a statement.

A review by the Campaign Legal Center found that between early February and early April, as Covid-19 roiled the markets and Congress approved about $2.8 trillion in relief programs that touched almost every corner of the American economy, 12 senators made 227 stock purchases or sales worth as much as $98 million. In the House, 37 members made 1,358 trades worth as much as $60 million.

“Multiple members are picking stocks and trading at the same time they are picking industry winners with a bailout,” said Kedric Payne, general counsel for the group who worked on the study.

Practical considerations are also moving other lawmakers to reconsider. Even if a lawmaker accused of insider trading, like Ms. Loeffler or Mr. Burr, can ultimately prove they acted legally and ethically, doing so can be costly.

As Ms. Loeffler found this spring, in a highly polarized political and news media climate, many voters are not waiting to see what lengthy investigations find. Ms. Loeffler decided along the way to divest her portfolio from almost all individual stocks and stepped down from a subcommittee that indirectly oversaw the company led by her husband. She conceded no wrongdoing but said, realistically, that her denials were simply “being ignored.”

“Maybe the bottom line is, if you’re going to be in the Senate you can’t own any stock. Or at least own mutual funds,” Senator John Cornyn, Republican of Texas, told Politico last month.

Congress last tried to address concerns about the financial interests of its members in 2012, when it passed the Stop Trading on Congressional Knowledge Act, or Stock Act. The legislation for the first time explicitly outlawed insider trading based on information lawmakers and their staff members learned in the course of official duties.

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The Stock Act also required lawmakers to disclose the purchase or sale of stocks, bonds, commodities futures and other securities within 45 days of transactions, rather than once a year, as they once did. The idea was that if sunlight shined in on congressional investments, it would discourage improper trading and make it easier to police questionable transactions.

But six years later, many criminal defense lawyers and ethics advocates have come to believe that it may simply be too hard to prosecute a member of Congress under the law for that demarcation to mean anything. Mr. Burr’s case, which has already escalated to include the seizure of his cellphone, may test that theory.

Other developments have shown that there are certain circumstances the law simply cannot reasonably reach. In early 2017, watchdogs demanded an investigation into Tom Price, a former Republican congressman from Georgia who served as Health and Human Services secretary, after it was revealed that he had invested more than $300,000 in health care stocks at the same time he was proposing and actively shaping health care legislation on an important House subcommittee on health.

Later in 2017, the independent Office of Congressional Ethics found that Representative Chris Collins, Republican of New York, might have violated insider trading laws by sharing nonpublic information about a biotech company on whose board he served. It also found that he most likely violated House ethics rules based on interactions with the National Institutes of Health while he served in Congress.

“The Stock Act was not strong enough medicine for the problem,” said Senator Jeff Merkley, Democrat of Oregon.

Mr. Merkley introduced legislation, the Ban Conflicted Trading Act, that would bar members of the House and Senate from trading individual stocks but not necessarily outlaw their ownership. In effect, lawmakers would have six months after their first election to Congress to make sales or swap what they wanted, but thereafter they would not be allowed to execute transactions.

Under Mr. Roy’s and Ms. Merkley’s proposals, lawmakers could still invest in mutual funds or exchange traded funds.

A House version of Mr. Merkley’s bill, introduced by Representative Raja Krishnamoorthi, Democrat of Illinois, has earned support from Ms. Ocasio-Cortez and at least one Democratic moderate representing a swing district, Representative Jared Golden of Maine.

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