While insider trading on the stock market had long been illegal for you, me, and Martha Stewart, the law did not apply to members of Congress gleaning inside information from their congressional perches and cashing in — not until 2012.
A series of insider trading scandals forced a reluctant Congress finally to pass the STOCK Act, making it illegal for lawmakers to trade on inside information. The members of Congress who still participate in equities markets must now disclose their transactions online.
The transparency requirement has significantly reduced congressional equity trading activity, but many members of keep playing in the stock market, even when doing so serious conflict of interest concerns. A 2022 analysis by The New York Times found that 97 lawmakers or their families bought and sold stocks that directly intersect with their work on congressional committees. In starker terms, nearly one in five members of Congress traded stocks in businesses to which they are privy to inside information and for which they can affect the value of those stocks through official actions.
This does not reflect well on Congress.
The problem is particularly bad in the defense industry. Congressional stock trading can arguably be seen as “war profiteering” – members of cashing in on defense industry stocks at the same time Congress receives updates on the wars in Ukraine and Israel and sets the Pentagon’s annual budget, half of which goes to military contractors every year.
The potential for unethical stock trading may be worse for military corporations than any other. With the onslaught of new wars, Congress added $70 billion over the last two years to an already bloated Pentagon budget, much of which is funneled directly into the coffers of defense contractors like Palatir, Lockheed Martin, and Northrop Grumman. The stock values in these companies have since experienced double-digit growth – a lucrative business opportunity not overlooked by lawmakers calling the shots.
At least 25 members of Congress sitting on national security committees have simultaneously purchased stock in these very same companies. The majority of these members sit on the Senate and House Armed Services committees, the entities responsible for overseeing the Defense Department budget and contracts. Stocks are held by both Republicans and Democrats. Reaping the benefits of the military-industrial-complex is thoroughly bipartisan.
Some of these members include Sen. James Inhofe (R-Okla.), former chair of the Senate Armed Services Committee, who traded in technology companies as the committee battled over a $10 billion cloud computing contract with Microsoft; House Armed Services Committee Rep. Pat Fallon (R-Texas), who sold off his Microsoft stock two weeks before the cloud computing contract was cancelled; and committee colleague Rep. Ro Khanna (D-Calif.), whose trades spanned all of the top five military contractors.
There is no decisive evidence of insider trading by any of these members. In fact, Khanna has simultaneously sought to limit Pentagon spending. But the potential conflicts of interest are readily apparent.
Though lawmakers “to the T” continue to deny they are using non-public inside information gleaned from their official duties for trading on the stock market, and remain steadfast that the desire for self-enrichment on the market does not influence their official decisions, it is a hard sell. The opportunities for self-serving are omnipresent.
This is one piece of the puzzle explaining why the public is so distrustful of Congress. Poll after poll show that the overwhelming majority of Americans – Democrats, Republicans, and Independents alike – strongly support banning members of Congress and their spouses from gaming personal interests on the stock market while serving in public office.
In response to this outside pressure, some members of Congress have introduced legislation seeking to ban stock trading in specific sectors. Earlier this year, Rep. Rashida Tlaib (D-Mich.) introduced the Stop Politicians Profiteering From War Act, which would ban members of Congress from having financial interests in any company that does business with the Department of Defense. Sen. Jeff Merkley (D-Ore.), Rep. Raja Krishnamoorthi (D-Ill.), and others have introduced the ETHICS Act, which would ban congressional stock trading altogether.
The disclosure requirements and ethics reforms of the STOCK Act of 2012 have been a big step in the right direction. But it’s not enough to end the appearance, if not the actuality, of members of Congress and their families taking advantage of inside information for their own benefit.
It is time to go a step further and close this window for potential conflicts of interest entirely by prohibiting stock trading activity by members of Congress and their spouses and dependent children.
Craig Holman, PhD, is the government affairs lobbyist for Public Citizen. Savannah Wooten is People Over Pentagon advocate at Public Citizen.
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