In an ongoing investigation, the New York Times has uncovered shady stock trades by members of Congress. Some congressmen and congresswomen appear to have used information they learned in their positions as legislators to make profitable stock trades.
Ethics experts have raised red flags and say this trading could be a significant conflict of interest. Here, we take a closer look at what the NY Times has uncovered and how this could impact Congress in the future.
What the New York Times discovered
The STOCK Act was a long-awaited solution to the corruption problem in Congress. The act, passed in 2012, requires members of Congress and their staff to disclose any stock trades they make above $1000 in value within 45 days.
In addition, the act prohibited congress members from using inside information to make trades. However, the act allows them to still participate in the market but should stop them from using their positions of power to get ahead.
However, when performing an in-depth analysis of stock trades made by members of Congress, the New York Times uncovered some troubling findings. Namely, they discovered that 97 lawmakers somehow traded stocks in industries that the work of their legislative committees could impact.
Of all the trades made between 2019-2021 by these 97 lawmakers, around 3,700 were made before critical events that could have impacted the stock’s value. This is significant because it raises the question of whether these members of Congress used their inside knowledge to make trades that would line their own pockets.
Some key examples include:
- Senator Tommy Tuberville, who sits on the Senate Agriculture Committee, made many stock purchases tied to the future of corn and cattle prices. This is significant as it occurred during the same period the committee was looking into bills that would impact those prices.
- Representative Bob Gibbs, an Oversight & Reform Committee member, made trades in pharmaceutical company AbbVie that the committee’s investigations could have impacted.
- Representative Alan Lowenthal, a House Committee on Transportation and Infrastructure member, was also under scrutiny as his wife sold Boeing stock one day before the committee announced negative findings about the company.
While many members have stated that brokers made trades without their knowledge, the question remains as to whether or not they used their positions of power to gain an advantage in the stock market. The current penalty for breaking the STOCK Act is a mere fine, usually $200. But given the potential for corruption, some call for more severe punishment.
What this means for Congress
The findings of the NY Times investigation are troubling. If members of Congress are using their inside knowledge to make trades that benefit them personally, it raises serious questions about the integrity of our government.
This issue is compounded by the fact that many members of Congress are already incredibly wealthy. For example, the median net worth of a member of the 116th Congress was slightly above $1,000,000, equating to around 12 times the median net worth of an American household. So if members of Congress are using their positions to get ahead financially, it furthers the divide between them and the average American.
Some possible solutions to this problem include:
- Making the punishment for breaking the STOCK Act more severe. This could include a prison sentence or the forfeiture of all assets gained from illegal trades.
- Requiring members of Congress to place their assets in a blind trust. This would prevent them from knowing which stocks they own and stop them from making trades that could benefit them personally.
- Imposing stricter rules on stock trading by members of Congress. This could involve prohibiting trades during specific periods or banning trades entirely.
- Increasing transparency around stock trades made by members of Congress. This could involve requiring lawmakers to disclose their trades within two weeks.
However, if laws are passed that prohibit members of Congress from making trades altogether, it could have negative consequences as well. These include:
- Less talent looking to enter Congress. If members of Congress are prohibited from participating in the stock market, it could dissuade talented individuals from running for office. After all, many people use stocks as a significant pillar in their investment strategy.
- It’s unclear if such laws would be effective. There is no guarantee that prohibiting members of Congress from trading stocks would stop them from doing so. Moreover, some members may be willing to risk breaking the law if they believe they can profit handsomely from it.
When it comes to the stock market, members of Congress should be held to a higher standard. Trading stocks based on information they have access to as legislators could lead to insider trading and other unethical behavior.
However, passing laws prohibiting members of Congress from trading stocks altogether could have unintended consequences. For now, increasing transparency around stock trades made by members of Congress is a step in the right direction.