A bipartisan coalition of members of the U.S. House of Representatives released a letter urging House leadership to introduce a STOCK Act reform bill by the end of September, a huge step toward preventing conflicts of interest and insider trading in Congress and protecting the public’s trust.
The letter comes after nearly two years of Campaign Legal Center (CLC) watchdog work that resulted in more than a dozen complaints alleging STOCK Act violations by members of Congress.
CLC has been tirelessly highlighting the conflicts of interest that result when members own and trade individual stocks. CLC’s blog series, media appearances and importantly, complaints showing when lawmakers violate the STOCK Act, have demonstrated the need for this critical reform.
On several occasions, the Office of Congressional Ethics (OCE) found wrongdoing in connection with conduct raised in these complaints. The OCE concluded that “the issue of STOCK Act non-compliance is pervasive.”
The letter from the bipartisan House coalition describes the set of shared principles guiding the members as they draft the legislative framework. These “first principles,” if adhered to in the resulting legislation, would help eliminate many gaps and pitfalls of other proposals and of the current system.
The principles are crucial for building strong legislation that actually protects the public trust and guides lawmakers to act in the best interests of their constituents, not their own wallets.
The principles are:
Covers all members of Congress, their spouses and dependents under 18. This measure reduces the significant risk of spouses and dependents as being conduits for insider trading or stock trading that raises conflicts of interest.
Prohibits those covered by the law from owning covered assets, including where investments are traded through an investment vehicle controlled by the covered person. This practical principle prevents the use of an investment vehicle to conceal improper trading.
Requires covered person to divest investments, place in a qualified blind trust or diversify their investments according to the rules. These requirements allow members of Congress to continue to hold investment vehicles many other members of the public have, like mutual funds and certain types of retirement funds, while making sure they are not engaged in individual stock trading gamesmanship that damages public trust.
Qualified blind trusts must be truly blind. All this means is that if a lawmaker chooses to keep stock instead of divesting, the stock must be controlled by an independent trustee who will make trades without the direction or knowledge of the lawmaker. This reduces conflicts because a lawmaker will not know what stocks they have and therefore cannot make decisions on the job that boosts their portfolio.
Clear enforcement mechanisms and penalties to ensure compliance. Sometimes good laws suffer from bad enforcement. This is particularly true of ethics laws and rules in Congress. The law must actually be enforced to protect the public's trust.
The principles also include omitting any carveouts or exemptions that undercut the purpose of the legislation, as well as an agreement to not delay the effective date.
This letter of intent is the clearest action to reform the stock trading rules by the House since a steady stream of allegations that its members are routinely breaking the STOCK Act reporting requirements began nearly three years ago.
At the beginning of the pandemic, CLC highlighted the conflicts of interest resulting from pandemic-related stock trading by lawmakers and what that did to diminish public trust. CLC’s watchdog work continued as more allegations of actual and apparent conflicts of interest related to stock trading came to light.
This reform is long overdue. The fact that a bipartisan group of House members are taking this seriously is a step in the right direction, fulfilling voters' right to know whether their representatives are acting in the public’s interest or for their own financial gain.
In the meantime, CLC will continue to hold lawmakers accountable for STOCK Act violations.