Part 3 - The STOCK Act: The Failed Effort to Stop Insider Trading in Congress

Issues
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PART 3: How to Protect the Interests of the Public and Stop Insider Trading in Congress 

Over the last decade, the Stop Trading on Congressional Knowledge (STOCK Act) has provided the public with unprecedented transparency of the financial interests of the country’s most powerful officials.

In some ways, that transparency has become a victim of its own success: the public, now armed with a decade’s worth of data, is painfully aware of how the STOCK Act has failed to meet expectations.  

It is clear that transparency is not enough, particularly with the persistent trend of noncompliance with reporting requirements. Insider trading allegations abound, investigations are rare, and penalties are nonexistent.

The public’s trust in Congress remains low, especially with regard to congressional stock trading, because of the rampant conflicts of interest and the perception that lawmakers put their interests above the public’s. 

Public trust in Congress has not improved since the STOCK Act passed, and a significant majority of the public opposes members of Congress being able to trade any stock. A poll conducted by CLC in November 2021 found that 67% of voters support prohibiting members of Congress from owning stock in specific companies.

That same poll also found that 78% of Americans had “extremely serious concerns” with members of Congress profiting from information they learned during a classified briefing through stock trading. 

Another indication that the public believes lawmakers trade on nonpublic information is the proliferation of websites and social media platforms to publicize members of Congress’s financial disclosures—not only to monitor their financial interests, but to use that information to inform their own trades.

A growing group of investors claim that trading stock based on lawmakers’ periodic transactions reports is “smart money” and that they see “abnormal positive returns when there’s a disclosure by a senator.”

Penalties for insider trading have not materialized, as no successful insider trading case has been brought against a member of Congress under the STOCK Act - despite multiple allegations of violations. This lack of consequences for bad behavior is unhelpful for the growing public distrust in Congress.  

The current trend of perceived corruption and alleged insider trading will continue without meaningful reform. Fortunately, updating the STOCK Act and changing the current congressional stock trading status quo is popular and has bipartisan support.

If lawmakers continue to pursue reform and close possible loopholes, there is hope of increased public confidence in Congress.   

Criticism of the STOCK Act does not have to be seen as simply a list of shortcomings, however. In fact, the failures of the STOCK Act can provide insight to those seeking to improve upon our current infrastructure and achieve the law’s initial objectives. 

Various proposals for STOCK Act reform have emerged from public concern with congressional stock trading controversies. The proposals include five major options for reform: 

  1. An absolute ban on individual stock ownership. 

  2. Requiring qualified blind trust for stock transactions. 

  3. Permitting ownership of only stocks that were owned prior to holding office.  

  4. A system of preapproval for stock transactions. 

  5. Immediate disclosure of stock trades. 

Each of these options has unique benefits and challenges, which are further outlined here. The effectiveness of any of the reform proposals is dependent upon enforcement.

Meaningful STOCK Act reform should, at the very least, close five common potential loopholes that could lead to further public distrust. Nevertheless, 10 years of the STOCK Act has established that the status quo is unsustainable. 

Danielle is a legal counsel on CLC's ethics team.
Delaney is a senior legal counsel on CLC's ethics team.
Kedric is CLC's Vice President, General Counsel, and Sen. Dir., Ethics
Pros and Cons of STOCK Act Reform Proposals