Public Interest or Private Gain? Stock Trading Across the Federal Government

A stock graph with Ben Franklin from the $100 bill in the background.

Voters have a right to know whether officials in the federal government are prioritizing public good or their own personal financial interests.

Congress passed the Ethics in Government Act in 1978 with the goal of increasing public trust in government and building confidence that public servants were indeed acting in the public’s best interest. But 45 years later, non-compliance with this legislation is widespread and public trust is down regarding officials across all three branches of our federal government - legislative, judicial, and executive.

What the rules are

Watergate showcased the ugly underbelly of abuse of public trust. The Ethics in Government Act (EIGA), born out of the post-Watergate scandal reforms, is one of the most important laws ensuring transparency at our highest levels of government and accountability from our nation’s most senior decision makers.

Across all three federal government branches, the Ethics in Government Act requires all federal officials to make their financial interests public. They must disclose their sources of income, liabilities, gifts and transactions (like the sale or purchase of securities or stocks).

Members of Congress can buy and sell stocks but are required to report this information to the public within 45 days of the transaction. In the judicial branch, judges are required to recuse themselves from participating in legal cases tied to their personal stocks. Executive branch officials not only must disclose personal stock ownership and recuse from any matters where their stocks present a conflict, but some agencies outright forbid them from owning any individual stocks at all.

Nonetheless, recent reports show that:

  • At least 15 lawmakers responsible for defense policy have investments in military contractors.
  • Numerous senior executive branch officials from at least four agencies traded stocks tied to their official duties.
  • A number of federal judges traded stocks with companies with cases before them.

A closer look at EIGA violations across each branch of government sheds light on how normalized the status quo of non-compliance is.

Stock Trading in Congress

Members of Congress are elected to serve their constituents’ interests, and ethics laws like EIGA are critical for ensuring that they are committed to constituents rather than their own wallets. But buying and selling stocks is one activity that unites members regardless of party – and that jeopardizes public trust.

Lawmakers generally do comply with reporting rules, but their stock purchases frequently coincide with legislative decisions or current events.

In 2020, former Senator Richard Burr (R-NC) was accused of engaging in insider trading that coincided with closed-door briefings he attended at the onset of the COVID-19 pandemic.

Following earlier scandals, increased public scrutiny had prompted the passage of the Stop Trading on Congressional Knowledge Act (STOCK Act) in 2012..

Congress has largely refused to implement further reforms despite most Americans wanting them to do so and the introduction of more recent updates to the STOCK Act.

Stock Trading in the Federal Courts

The public should be able to trust that judges who are either elected or appointed to serve on their behalf are making impartial legal decisions. Yet federal judges have been violating recusal requirements for decades.

An investigation by the Wall Street Journal found that 152 federal judges oversaw thousands of cases involving companies in which they or their families had invested. Two-in-three of these federal judges made rulings aligned with their personal financial interests in contested cases. Two-in-three of these federal judges made rulings aligned with their personal financial interests in contested cases.

Poor enforcement of the recusal requirements has created an environment in which not only do some judges feel disinclined to comply with these rules, but in which the public cannot feel totally assured that impartiality drives decision making.

Stock Trading in Federal Agencies

Consistent and effective ethics enforcement is essential for maintaining the integrity of the executive branch officials directly appointed by the president to advance policies.

These officials can technically engage in stock trading during their tenure in the federal government, but they can face criminal penalties for doing so if they work on a matter involving the companies in which they hold those stocks.

Still, enforcement of even these rules can be shaky. Many executive branch officials who do report their stock purchases that may give the appearance of conflicts of interest face little to no consequences for their actions. Their relatively short tenure in these roles means that investigations into non-criminal conduct are less likely to occur once they officially leave the government.

Poor enforcement of the Ethics in Government Act has essentially fueled a stock trading bonanza in the very same institutions that are supposed to be centered on public service, whether it is officials working for federal agencies, the federal courts, or Congress.

Blueprint for Reform

The public has a right to know what potential financial ties and possible conflicts of interest could be shaping the decisions made by federal government officials.  

One way to prevent these conflicts of interest, or at least their appearance in Congress, is for lawmakers to fully divest from individual stock ownership while serving in an official capacity. In the executive and legislative branches, better enforcement and more transparency of recusal rules and decisions would help protect the public’s trust.

Fortunately, Congress has already taken some steps to make reform a reality. Reporting by the Wall Street Journal on conflicts of interest within the federal judiciary prompted recent passage of the Courthouse Ethics and Transparency Act.

Besides the recently introduced and bipartisan Transparent Representation Upholding Service and Trust (TRUST) in Congress Act in the House, Senate Democrats recently introduced the Ending Trading and Holdings in Congressional Stocks (ETHICS) Act. Both bills could put an end to the scandals of insider trading and conflicts of interest related to stocks among federal lawmakers.

Congress, the federal courts and the executive branch must do right by the public and put an end to unchecked stock trading by federal government officials tasked with promoting public service.

Janel is a Media Associate, Campaign Finance, Ethics at CLC.