A bipartisan group introduced Wednesday measures that ban lawmakers from trading stocks and other investments. In particular, the ban covers the buying and selling of stocks, most bonds, and options contracts. Additionally, the bill applies to members of Congress and senior-level staffers.
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Democrat Senators Jeff Merkley (OR) is the lead Senate sponsor. Senators Sherrod Brown (D-OH), and Raphael Warnock (D-GA) co-sponsored the Senate version. Meanwhile, the House counterpart comprises both Republicans and Democrats authors. For the House, they include Democrat representatives Raja Krishnamoorthi (IL), Alexandria Ocasio-Cortez (NY), and Joe Neguse (CO). Additionally, House Republicans who sponsored the bill are Representatives Matt Gaetz (FL) and Michael Cloud (TX). Also, 10 Democratic lawmakers also co-authored the House version.
The Ban Conflicted Trading Act prohibits Congress members and employees from three actions. First, it prohibits the buying and selling of specific investments. Second, it forbids lawmakers from entering transactions that create a short position. Finally, it prevents them from serving on boards of for-profit companies. Previous laws were already placed for lawmakers, such as the STOCK Act. This bans lawmakers from making investment decisions based on nonpublic information. In addition, insider trading is also illegal under several federal securities laws.
Tightening The Rules
The new measure holds lawmakers to tighter standards. It also prevents top congressional members from making money off their jobs. However, some of these moves do not fall under the definition of insider trading. Consequently, the new bill hopes to close the loopholes. “We need to end the era in which members of Congress buy and see individual stocks for personal gain. This practice is deeply corrupt,” remarked Senator Merkley, the lead Senate co-sponsor.
Republican congressman Michael Cloud, another co-sponsor, wants more accountability. “Congress must be held accountable to the American people,” he said. As elected officials, they have a constitutional obligation to honor the public trust. As such, members of Congress cannot abuse their roles in exchange for financial gain.
Meanwhile, Representative Krishnamoorthi wants existing loopholes closed. Admittedly, there is “unavoidable potential conflict of interest,” he said in a statement. Members of Congress and staffers face the dilemma of trading stocks. At the same time, they need to make decisions that can affect the value of these stocks. “Our legislation will eliminate even the possibility of these conflicts of interest and ensure public servants put their constituents first by banning members and their senior aides from trading individual stocks,” he added.
Completely Ban Lawmakers From Trading Stocks
The new measure will force Congress members and staffers to file disclosures. Within six months of the bill's passage, they will need to sell their investment portfolio. This includes stocks, non-Treasury bonds, options contracts, and derivatives they own. Those holding investments can transfer holdings into a blind trust. This way, they can continue looking after their retirement accounts without violating laws. Meanwhile, incoming new lawmakers will need to do the same after taking office. The bill gives them six months to unload their existing individual holdings.
The bill’s authors argue that members of Congress get access to advance information. They get these in advance as part of legislation work. Often, the information gathered can impact stock prices. In fact, several senators got flak for selling stock ahead of the pandemic. The Department of Justice investigated the Senators to check for possible violations. However, the department eventually decided against pursuing any cases.
Ban Conflicted Trading Act
This is the second time House representatives filed the Ban Conflicted Trading Act. The earlier 2019 measure resulted from former Representative Chris Collins' (R-NY) actions. Collins received a conviction on charges of securities fraud related to insider trading. As a result, he started a two-year prison sentence in October. However, former President Donald Trump pardoned him within two months.
Watch the CNBC video special Insider Trading And Congress: How Lawmakers Get Rich From The Stock Market:
Should lawmakers choose between holding office and engaging in trades? Also, do you agree with banning members of Congress from making trades while in office? Let us know what you think. Share your comments below.