Insider trading technicality lets members of Congress profit millions
Members of Congress admit that lawmakers use nonpublic information that only they have to make incredibly profitable stock trades. Thanks to technicalities and the exact type of information they receive, lawmakers aren’t getting arrested for it.
Lawmakers have introduced multiple bills to ban members of Congress and their families from owning or trading stocks. That includes Sen. Josh Hawley’s, R-Mo., Pelosi Act, named after Speaker Emerita Nancy Pelosi, D-Calif., whose husband’s extraordinarily well-timed investments have given the family an estimated net worth of $278 million.
“She’s got access to information, just like other members of Congress, that the public doesn’t. And technically, that’s not insider trading,” Hawley said. “So it probably isn’t illegal, but it ought to be. And we ought to ban it.”
The SEC’s definitions for insider trading
It’s already illegal for members to trade on information they receive through their positions, but that law hasn’t done much to stop it. More on that later.
The SEC defines an insider as company officers, directors or 10% stockholders or anyone who possesses inside information because of their relationship with the company. It also applies to people who receive tips.
The trade must also be based on material nonpublic information. That includes: changes to forecasted earnings, loan defaults, mergers and acquisitions, and new product announcements, to name a few.
Members of Congress get a lot of information we don’t get, but it doesn’t necessarily relate to specific companies. It has details on industries, the economy and intelligence about world events.
It’s still far more intel than the average American and even some stock brokers have, but based on that SEC definition of an insider, they’re technically on the outside.
And if they get information about a specific company, it often has to do with official government actions, such as a new contract or an upcoming investigation announcement. While details like that are hard to find and lawmakers certainly learn it first, it’s still public.
Congressional stock ban proposals
The issue makes some members get fed up with the culture on Capitol Hill.
“You know, everybody talks about this place being a dadgum swamp. It’s not a swamp. A swamp is something cool God created. It filters water, animal life lives and flourishes around it. This is a sewer. This is created by man, and it needs to stop,” Rep. Tim Burchett, R-Tenn., said during a recent press conference on stock trading.
Members in the House and Senate are still pushing to get a stock trading ban approved.
There’s the Pelosi Act and the Restore Trust in Congress Act, which prohibit members of Congress and their families from owning or trading stocks and other securities.
Neither bill has gotten beyond the first steps of the legislative process.
“When members are making decisions for how to vote on a bill, we should be thinking about what’s best for the American people, not what is best for our investment account,” Rep. Seth Magaziner, D-R.I., said in support of the Restore Trust in Congress Act. “And members of Congress have access to all kinds of inside information that the average member of the public does not. So the opportunity for corruption is unacceptable.”
“As one of the richest Members of Congress, if I can co-sponsor the bipartisan Restore Trust in Congress Act to ban Members of Congress (and their families) from owning and trading individual stocks, then every Member should too,” Rep. Sara Jacobs, D-Calif., wrote.
Jacobs is worth an estimated $86 million thanks to her billionaire grandfather, who founded the tech company Qualcomm.
Arguments against stock trading ban
“This is a free market and people – we are a free market economy. They should be able to participate in that,” Pelosi said as House speaker in 2021.
Pelosi has since come out in support of stronger ethics rules on stock trading in Congress, provided they also apply to the president and vice president.
It’s worth noting that Congress tried to stop this practice in 2012 when it approved the STOCK Act. They passed rules prohibiting members of Congress from trading based on information they receive on the job. Experts say it appears to have failed to stop investments that may present a conflict of interest. But it does require disclosures for trades over $1,000, and that has helped the public see how entangled some members are in the markets.
Examples of questionable trades
In February 2020, just before COVID-19 spread across the country and sent the stock market crashing, former Sen. Richard Burr, R-N.C., sold up to $1.7 million of his investment portfolio. Based on financial records, which accounted for most, if not just about all, of his net worth.
This sell-off was extraordinary for two reasons: he was the chairman of the Senate Intelligence Committee, and his brother-in-law did it at the same time.
More recently, lawmakers have been selling UnitedHealthcare shares as its profits decline and the Trump administration investigates its billing practices.
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Ella Rae Greene, Editor In Chief
