Ivan Boesky and Martha Stewart are two high-profile cases of individuals profiting from stock trades based on privileged information. Both Boesky and Stewart served time for profiting from insider information. It’s a law that’s been on the books since the Securities Exchange Act of 1934. Congress passed these laws in response to the great market crash of 1929. If Congress passed these laws, shouldn’t Congress (our lawmakers) and other high-ranking government abide by them?
According to a recent study, the answer is a firm “NO”. A Wall St. Journal report concluded that over 2,600 government officials had traded stocks that had previously lobbied their departments for “favorable policies.” To put things in perspective, that equates to 1 in 5 senior-level officials taking part in an activity that would put your average citizen in jail?
The New York Times did an analysis and found that in three years (2019-2021), 97 senators and representatives, or their family members, bought or sold stocks or other financial assets in industries that could be affected by their legislative committee work, violating a law designed to prevent insider trading and stop conflicts of interest. During this period, approximately 3700 trades could be considered conflicts of interest between elected officials’ private finances and their public responsibility of conducting themselves ethically and impartially. The report stated as an example that 15 lawmakers assigned to our defense interest had invested in military contractors. Other lawmakers and staff assigned to regulating cryptocurrency had invested in bitcoin and altcoin.
This is not an issue mutually exclusive to one party. There were claims that Senator Richard Burr (R-NC) sold off stocks early in the pandemic that he knew could be compromised by public policy. Speaker of the House, Nancy Pelosi (D-CA), came under heavy fire when it was determined that her husband made a significant gain on a stock transaction involving a chipmaker just before the House passed a bill that would help the US’s computer chip.
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The STOCK (Stop Trading on Congressional Knowledge) Act of 2012 was passed to curtail or limit insider knowledge trading. It calls for full disclosure in a publicly accessible database of all trades within 30 days of execution. Failure to disclose within the allotted time frame can result in a maximum of $200 fan, which Congress can waive. To put things into perspective, Martha Stewart was fined $30,000 for her indiscretion on top of jail time.
A recent effort to move stricter legislation onto the House floor was, unsurprisingly, rejected by Speaker Pelosi. It should not surprise anyone, including members of Congress, that a September Gallup poll shows their favorability rating at a whopping 22%.
