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Congress’s Unethical Stock Trades

Congress’s Unethical Stock Trades

Members of Congress may be profiting off of their legislative decisions. A Washington Post investigation finds that 130 members of Congress or their families have invested up to $218 million in companies that have lobbied on bills before Congress.

Roughly one in eight stock trades made by members of Congress overlapped with legislation. Moreover, Congresspeople’s stock portfolios yielded higher rates of returns compared to the average investor. Congressional offenders came from both sides of the aisle, with Democrats and Republicans engaging in this activity at fairly equal rates.

Notably, these trades are not criminal, as they do not contradict existing congressional ethics rules. Nevertheless, it definitely raises issues of potential bribery and conflict of interest. “If you have major responsibility for drafting legislation that directly affects particular companies, then you shouldn’t be trading in their stock,” says Harvard professor Dennis Thompson.

That is not to suggest that Congress has no regulations on stock and bond trading. Months ago, Congress passed the Stock Act, a law which forbids legislatures and their employees from trading based on inside information. However, investing in companies whose financial success is often determined by the legislation being voted upon is not considered “insider information.”

When congresspeople were questioned about their shady trading practices, they denied any wrongdoing, generally either pleading ignorant or explaining that their brokers take care of their investment decisions.

Regardless of their excuses or justifications, one way or another, the members of Congress have an edge with their investments. Though they may argue it is a coincidence, Senators’ financial gains exceed the market average by 10%.

One way around the blatant conflict of interest is for congresspeople to set up blind trusts, which means handing over financial decisions to an outside adviser and staying in order to maintain impartiality during legislative decisions. Currently, however, only six Senators have established blind trusts.

One of the more egregious stock trades that the investigation uncovered was Oklahoma Senator Tom Coburn purchasing $25,000 in bonds of a genetic tech firm, Affymetrix. Coburn subsequently held up the Genetic Nondiscrimination Act until modifications were made to the bill that arguably ended up benefiting Affymetrix.

Similarly questionably, Kentucky Representative Edward Whitfield sold his shares in General Electric just before a carbon emission bill was destroyed in the House and the stock plummeted.

Meanwhile, Texas Representative Michael McCaul has upwards of $23 million and Massachusetts Senator John Kerry has as much as $86 million invested in companies that lobby them. Both legislatures insist that they are not in control of their own trusts.

Whether or not congresspeople’s legislative decisions are influenced by their stock trades (or vice versa) is difficult to prove definitively. However, the appearance of this conflict of interest is enough to raise questions, so if members of Congress want to maintain trust with the public, stricter ethical restrictions on what is permitted with regards to stock trading will be necessary.

Related Stories:

Senate Passes STOCK Act

Presidents Signs Congressional Insider Trading Ban

House GOP Gaming Ethics Reform

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Photo Credit: Leader Nancy Pelosi

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37 comments

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5:25AM PST on Jan 6, 2013

Congress needs to be cleaned out. Term limits is the way to go, for all politicians, and we the people need to vote on that, not the politicians. Two years for congress, four at the max and they should not be able to come back and be voted in again. Governors and mayors also need to have a limit on their terms and not be allowed to buy their next term once it's over: ie: New York's Mayor Bloomberg. He needs to be thrown out of office now.

9:56PM PDT on Jun 29, 2012

Ernest R,
Well then, among your own personal decisions about what is ethical, did the fact that Nancy Pelosi lied by denying doing insider trading on 60 Minutes mean she herself believed it would be wrong to do so, and thereby unethical?
And by the way, if your neighbor happened to think, in his own warped personal code of ethics, that it's ethical to be an ax murderer, and you happen to be around when he decides to swing it your way, I guess that's just his "different idea" of right and wrong then, isn't it?
Or even more simply, if your neighbor happens to wake up before you do each day and steals your morning newspaper, is it therefore ethically OK just because he had insider knowledge that the paper was there and took advantage of it? (like Pelosi did with stocks?) Or would it suddenly become ethical to you if he wrote and got a law passed saying he could take your morning paper if he got there first?

12:39PM PDT on Jun 29, 2012

@ Carl O. “they are all guilty of the same crime” Not true. Insider trading is a crime for people not in congress, but is legal for congressmen. {congresspersons ?] They ought to know that, they wrote the law that makes it legal. What ? Unethical ? Hey, everybody has a different idea about what is unethical.



10:47AM PDT on Jun 28, 2012

I have been writing about "Conflict of Interest" for so long, thank God someone is on the investigating track. The above ideas are all good. It should be noted that they should receive equal pay for equal "work" and nothing more. They would then limit themselves to a few years in service, then they'd go back to the job of making their own living like the rest of us who are still earning income or get laid off when the did nothing but "nay say".

8:53AM PDT on Jun 28, 2012

Hartson D, one of the best comments I've ever read.

7:20PM PDT on Jun 27, 2012

Congress may be corrupt and profiting off of insider information. I'm shocked. Could that explain how many of the middle class went to Congress and got rich? Tell me how can Congress find Martha Stewart in contempt of congress for not showing up and being questioned about her insider trading when they are all guilty of the same crime?

5:02PM PDT on Jun 27, 2012

Yes, Yes, Yes, I agree with so many of you, Brian F., Hartson, Charlie S., Bill R., and Rae T!! I believe and have for many years that TERM LIMITS are the way to go. l I hate to see all of these lifetime politicians. No one should make a career of being in Congress, The Senate, or The House. They become complacent, and have way too many benefits and perks. They make too many deals with one another under the table and never get caught. The add to a Bill, (i.e. pork belly spending) all on the tax payers dollar! It is time to stand up and fire them the next time their names come up to be re-elected!! If everyone did this, we could eventually weed the bad ones out. If they didn't tow the mark, fire the next bunch, and set an example. Vote in a new group until they actually worked for us!! They would take notice sooner or later!! And yes, Washington is the problem, but we tax payers don't have to take it forever!!

2:48PM PDT on Jun 27, 2012

Bill R.: Great idea about returning the profits. Best use of it: to financially hurting elders who lost their retirement money in the crash. Reprimand and watch...step in the right direction for sure, but I'd like to see the laws changed on this so that this is a criminal offense.

2:44PM PDT on Jun 27, 2012

Hmm,...maybe that's why they don't fight so hard to stop job outsourcing...note to self.

2:23PM PDT on Jun 27, 2012

Congress are all a bunch of criminals. How can anybody make $175,000 a year, do nothing but suck up to their corporate masters, while the country sinks in unemployment and debt, and still say they are doing nothing wrong.

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