Congress Trading Stocks: Ethics and Transparency

In the United States, members of Congress are allowed to trade stocks, but there are certain rules they must follow.

The STOCK Act, passed in 2012, aims to increase transparency in Congress's financial dealings. It requires lawmakers to disclose their trades within 30 days.

However, some lawmakers have been accused of failing to comply with these rules. For example, in 2018, it was reported that over 50 members of Congress had failed to disclose their trades on time.

The lack of transparency in Congress's financial dealings has raised concerns about potential conflicts of interest and the integrity of the legislative process.

Members of Congress trade individual stocks as part of their personal portfolios. They're not supposed to use information gathered on the job, but it's plausible some do so anyway.

According to the STOCK Act, members of Congress are required to file disclosure forms within 45 days of a transaction with a value exceeding $1,000. However, the vast majority of Americans across the political spectrum think this law doesn't go far enough.

Over 80% of Republicans, Democrats, and independents support a full ban on trading for members of the House and Senate, as well as the president, vice president, and Supreme Court justices. This suggests a strong desire for greater transparency and accountability in congressional trading practices.

Some examples of questionable trading practices include Sen. Tommy Tuberville's (R-Alabama) failure to properly report his stock trades, and Rep. Tom Malinowski's (D-New Jersey) dozens of undisclosed stock trades from 2020 to early 2021.

Here are some notable examples of lawmakers trading stocks:

These examples raise concerns about the potential for lawmakers to use their access to information for personal gain, rather than making decisions in the best interest of the American people.

Criticisms against congressional stock trading are numerous. One of the main concerns is disaster profiteering, where lawmakers profit from disasters like the COVID-19 pandemic by making trades before the public is aware of the situation.

Lawmakers could be profiting off of disaster, and it's difficult to prove that they're not using insider information to inform their trades. According to the STOCK Act, lawmakers can't use non-public information to inform their trades, but it's hard to determine whether they're using insider knowledge or not.

Bias in lawmaking is another issue, where lawmakers make decisions based on what increases the value of the companies they invest in. For example, a congressperson invested in the oil sector may be hesitant to pass climate legislation that hinders oil production.

Here are three main criticisms of lawmakers being able to trade stocks:

On the other hand, lawmakers argue that they have a right to control their own retirement accounts and other savings through all types of investing, including individual stock trading. This opinion is based on monetary fairness.

Thousands of government officials go through ethics reviews annually, often requiring them to divest certain investments depending on their current or upcoming work.

The rules and ethics surrounding congressional stock trading are evolving. Senate Minority Leader Mitch McConnell doesn't invest in individual stocks, but believes his peers have the right to do so.

Proposed changes to ethics rules are on the table, with Sen. Elizabeth Warren's Anti-Corruption and Public Integrity Act aiming to impose stricter rules on trading. A ban on stock trading for lawmakers is unlikely to gain approval, given many still have a financial interest in the matter.

Fresh scrutiny is being applied to appointed positions, like Federal Reserve Chair Jay Powell, who's reassessing the ethics required for individual stock trading within the organization. Active stock trading tends to be subject to more scrutiny than long-term investing.

For lawmakers who divest their individual stock holdings, diversified funds or blind trusts are often the alternative. In a blind trust, an elected official can transfer their positions into the care of a trusted family member during their time in office.

Over 80% of Americans, regardless of party affiliation, support a full ban on trading for members of Congress, according to a 2023 survey by the University of Maryland's School of Public Policy.

The vast majority of Americans believe that the current law, the STOCK Act, doesn't go far enough to address perceived conflicts of interest for representatives and senators.

Rep. Abigail Spanberger, D-Va., agrees with the public's sentiment and has sponsored a bill, the TRUST in Congress Act, which aims to ban members of Congress from trading individual stocks.

The TRUST in Congress Act requires congresspeople, their spouses, and dependent children to place certain assets into blind trusts, where they must remain for 180 days after they cease to be members of Congress.

A notable example of questionable stock trading by a member of Congress occurred during the early days of the COVID-19 pandemic, when some lawmakers made trades that raised eyebrows, such as buying Clorox stock after receiving classified briefings.

Former Sen. Kelly Loeffler, R-Ga., and her husband were criticized for selling upwards of $20 million in stocks via 27 transactions beginning on Jan. 24, 2020, the day she attended a Senate briefing on the looming pandemic.

The Unusual Whales Subversive Democratic Trading ETF (NANC) and the Unusual Whales Subversive Republican Trading ETF (KRUZ) allow the general public to invest in a basket of stocks based on more than 1,000 individual securities held by members of Congress.

Each fund holds a basket of stocks, not a single stock, so you're diversifying your portfolio and potentially reducing risk.

Portfolio manager Christian H. Cooper trades 1,300 names, a staggering number that requires manual updates based on new disclosures.

The funds are rebalanced roughly once a week according to the inflows of disclosures, which means the portfolio is constantly changing.

The growth of these funds has been explosive, going from nothing to $128 million in just over 250 business days.

The public's interest in these funds is clear, with the growth being a testament to the appeal of investing like a member of Congress.

Some lawmakers have been accused of using inside information to make suspicious stock trades during the pandemic.

Senator Richard Burr (R-NC) made major stock trades after receiving a closed-door briefing on the incoming COVID-19 public health crisis in January 2020.

Burr's Securities and Exchange Commission (SEC) investigation is ongoing.

Investigations by the SEC and the Department of Justice were launched against Senators Kelly Loeffler (R-GA), Jim Inhofe (R-OK), and Dianne Feinstein (D-CA), but have since been dropped.

A total of four members of Congress made major stock trades before the general public was made aware of the coming pandemic's potential severity.

Nearly 75 lawmakers held stocks in Moderna, Johnson & Johnson, or Pfizer, the main producers of the COVID-19 vaccine in the U.S., and traded those stocks in the early weeks of the pandemic.