What Is the STOCK Act?
The Stop Trading on Congressional Knowledge Act of 2012, or STOCK Act, was enacted in response to media reports critical of stock trading by members of the United States Congress, particularly during the 2008 global financial crisis and the legislative debate over the Affordable Care Act in 2009-2010. The STOCK Act, passed in 1978, dramatically enhanced the reporting requirements for securities transactions by members of Congress and senior government officials. It further said that members of Congress are liable to US securities rules that prohibit trading on substantial non-public information.
- Following repeated exposes of significant stock trading by certain members of Congress, the STOCK Act was approved in April 2012 with strong bipartisan support.
- It considerably enhanced the disclosure requirements for members of Congress’ securities transactions, mandating monthly disclosures.
- Compliance with the rules of the statute has been patchy, and new congressional trade problems have surfaced in response to the COVID-19 outbreak.
- As of February 2022, many legislation pending in Congress would prevent members from trading individual equities and compel them to store assets in blind trusts.
Understanding the STOCK Act
The STOCK Act was presented in Congress in January 2012 and approved with strong bipartisan support in April 2012. It came after a 60 Minutes program in November 2011 that highlighted stock trading by members of Congress and said they were not subject to rules prohibiting trading on substantial non-public information received in the course of official responsibilities. Prior STOCK Act measures failed to move in Congress, according to the study. The part sparked significant media attention.
The STOCK Act was overwhelmingly supported by both parties. The Senate passed it by a vote of 96-3. The margin in the House of Representatives was 417-2.
The STOCK Act attempted to address perceived conflicts of interest in stock trading by members of Congress and other federal officials by requiring them to make public all securities transactions worth more than $1,000 within 30 days of receiving notice of the transaction and 45 days of the transaction date. It also required that the filings be made available on the internet. In most circumstances, the restrictions also apply to spouses and dependent children trading. Securities transactions involving members of Congress and senior executive branch employees were required to be disclosed yearly under the Ethics in Government Act of 1978.
The STOCK Act also expanded the reporting requirement significantly, extending it for the first time to all executive branch workers at the GS-15 and higher. Following objections that this clause exposed the personal financial data of 28,000 federal workers, as well as a lawsuit filed on their behalf by a coalition, the extension of the reporting obligation was abolished a year later by unanimous approval in both the House and Senate. The requirements of the STOCK Act continue to apply to members of Congress and senior executive branch personnel.
Criticism of the STOCK Act
While the STOCK Act was enacted by wide percentages, compliance with its reporting obligations has been patchy, with early fines for violations being minimal and compliance records being concealed from public view. In 2021, news outlets discovered 55 members of Congress who had broken the law. According to an Insider investigation, no public information was available on whether they had been charged the original $200 fine for a reporting violation, or if they had paid it.
While the STOCK Act stated that insider trading on substantial non-public information is illegal, no charges have been filed against a member of Congress under that clause. Chris Collins, a New York Republican, resigned from Congress in 2019 shortly before pleading guilty to insider trading in connection with his employment as a board member and large shareholder in an Australian biotechnology firm.
It would be more difficult to demonstrate that knowledge obtained while working in Congress was relevant to a specific stock transaction. The legal difficulties are even tougher, since the “speech and debate” provision in the United States Constitution protects members of Congress from official interrogation about their legislative activity elsewhere. The Supreme Court has widely construed the provision to prohibit subpoenas and search warrants for legislative business, with the important and restricted exception of bribery investigations.
Following revelations that several senators engaged in heavy stock trading following a confidential briefing on the COVID-19 pandemic in January 2020, the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) launched investigations, but the DOJ investigation has since concluded and no civil or criminal charges have been filed.
Not surprisingly, given these challenges with STOCK Act compliance and enforcement, increasing reporting of trading activity by conforming officials has intensified rather than alleviated public skepticism about their apparent conflicts of interest. Private websites such as House Stock Watcher have made it simpler than ever to keep track on trades disclosed under the STOCK Act.
Some TikTok users have started to consider House Speaker Nancy Pelosi’s disclosures under the legislation to be actionable information. These are often announcements of her husband’s purchases of deep-in-the-money call options on some of the biggest and most liquid US equities, making insider trading implausible. According to critics, even the perception of a conflict of interest undermines public trust in MPs.
New Proposals to Stem Congressional Trading
Several new House and Senate measures would prohibit members of Congress from trading individual stocks. Despite differences in detail, several would require members of Congress to deposit their interests in a blind trust.
The Ban Conflicted Trading Act, co-sponsored in the House by New York Democrat Alexandria Ocasio-Cortez and Florida Republican Matt Gaetz, among others; the TRUST in Congress Act, also in the House; the Ban Congressional Stock Trading Act in the Senate; and the Bipartisan Ban on Congressional Stock Ownership Act, also in the Senate, were among the proposals pending as of mid-February 2022.
Pelosi, the California Democrat who earlier said that members of Congress should be permitted to trade stocks on the same conditions as everyone else, was reported to have agreed the necessity to ban such trading in February 2022.
Congressional Trading Controversies
Congressional transactions after meetings with high government officials during the global financial crisis of 2007-2008 were extensively publicized. Following the 60 Minutes exposé in 2011, the Office of Congressional Ethics examined House Financial Services Committee Chairman Spencer Bachus, an Alabama Republican, for his frequent trading during the crisis. Bachus was cleared months later by the investigation.
Between 2012 and 2016, Georgia Republican Tom Price traded in health care stocks worth more than $300,000, often while supporting legislation relevant to their prospects. Following the revelation, he was confirmed as Secretary of Health and Human Services in 2017.
Following a classified COVID-19 briefing in January 2020, some US senators traded significantly. On February 13, Senate Intelligence Committee Chair Richard Burr, a Republican from North Carolina, liquidated between $628,000 and $1.72 million in stock holdings in 33 distinct transactions. Burr, one of three senators who voted against the Company Act, also sold about $47,000 in a Dutch fertilizer stock in 2018, just as it fell 40%.
Georgia Republican Kelly Loeffler and her husband, Intercontinental Exchange Inc. (ICE) CEO and New York Shares Exchange chairman Jeff Sprecher, first admitted selling between 1.275 million and $3.1 million of stock in the three weeks after the closed-door briefing. Loeffler and Sprecher subsequently disclosed further stock transactions during the time, including $18.7 million in Intercontinental Exchange shares.
Dianne Feinstein of California and her husband sold $1.5 million to $6 million in shares of a California biotech business between January 31 and February 18, 2020. Meanwhile, on January 27, 2020, Oklahoma Republican James Inhofe sold up to $400,000 in shares. In May 2020, the Justice Department concluded its investigations into the trading by Inhofe, Feinstein, Loeffler, and their wives.
The Justice Department concluded its investigation into the trading of Cardlytics Inc. (CDLX) shares by David Perdue, a Republican Senator from Georgia who formerly sat on the company’s board, in the summer of 2020. Perdue had raised eyebrows by disclosing 194 individual securities transactions in February and March of that year.
In January 2021, the Justice Department told Burr that the investigation into his trading had been closed. The Securities and Exchange Commission was still investigating his stock transactions as of October 2021, according to court records.
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