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.
Photo Credit: Leader Nancy Pelosi