Stock trading among members of Congress is again in the spotlight. House Speaker Nancy Pelosi said Wednesday that the chamber would vote this month on a bill seeking to restrict lawmakers’ ability to buy or sell financial assets.
The announcement came a day after the New York Times released a report detailing stock trades among 97 lawmakers–or nearly a fifth of Congress–that could present a conflict of interest. The Times report said that while all of the transactions were legal under current rules, potential concerns arose because many of the legislators sit on committees that could have affected a given company’s stock.
“It’s something that continues to bother constituents, the prospect that there could be this illegal trading because of the trading that already goes on and the potential for conflict that we’re talking about in the legal realm,” said Kate Kelly, one of the reporters behind the story, in an interview with “Marketplace Morning Report” host David Brancaccio.
The following is an edited transcript of their conversation:
David Brancaccio: I see here one-fifth had potential conflicts of interest. Help me understand, Kate, the members of Congress were just holding stocks or other financial instruments, or were they buying and selling?
Kate Kelly: It’s really more the latter. There are some cases where these investments that we captured are longer-term in nature. But what we saw with a lot of members was shorter-term purchasing and selling, or maybe the selling of a position that they had had for a while. We looked at three calendar years of transaction reports, which are required to be filed every time you make a new transaction, within 45 days if it meets certain valuation thresholds that are fairly low. And that’s the basis of our analysis. So there had to be some sort of new activity, a purchase, a sale, or sometimes a combination of both, in order for us to even see it.
Brancaccio: And you tried to correlate those portfolios with members of Congress that were involved in legislation that might affect those companies?
Kelly: We did. We thought of a number of ways to slice and dice the data–myself, Adam Playford, and Alicia Parlapiano, who worked on this together. And it seemed like one interesting prism would be to say, “OK, what committees are members serving on?” and match that against the stocks, the bonds or other securities they bought and sold and say to ourselves, “Would a reasonable person think that perhaps the performance of these securities could be affected by work that the committee did.” So for instance, if they sat on an Armed Services Committee in the House or the Senate, and they’re trading defense stocks, a reasonable person might say, “Those defense stocks could be affected by something they’re doing on that committee, or perhaps information that’s coming their way behind the scenes.” So that’s where we came up with the idea of conflicts. And that’s where we generated this figure: one-fifth of Congress, or about, well, exactly 97 Senators and Representatives traded in a way during this three-year period, or their spouses or dependent children, because that’s part of it, too, that could be regarded as conflicted.
Brancaccio: More Democrats, more Republicans, or not really?
Kelly: Evenly split. I think there might have been one extra Republican, literally, but it is a bipartisan phenomenon.
Brancaccio: And we should be clear, right? It’s probably not illegal to do what you found, which is the public policy question, right? Should it be illegal?
Kelly: Totally right. So I should make the disclaimer, and I’m glad you asked, that everything we looked at so far, as we know, is legal. Now, there could be additional details or cases that investigators are working on that they suspect were illegal. But as far as we know, this is all legal behavior. And yes, there is legislation afloat these days that would curb or ban the trading by members, their spouses or their dependent children of individual stocks and other securities in order to avoid this optics problem. Everybody is not allowed to insider trade: you and I, members of Congress, anybody else. But that was codified yet again for members of Congress in 2012, under the Stock Act, and it’s something that continues to bother constituents, the prospect that there could be this illegal trading, because of the trading that already goes on and the potential for conflict that we’re talking about in the legal realm.
Brancaccio: I mean, Congress has talked about going further on this, you know, for those who see a problem here. But those efforts seem to ebb and flow. Where are we now?
Kelly: So after seven months of relatively little visible progress, we heard from Speaker Nancy Pelosi on Wednesday, that her caucus would bring legislation to the floor for a vote this month. So that gives her two weeks to introduce legislation that as we understand it, at the times based on documents we’ve reviewed, would ban members, their spouses and dependent children from trading individual securities at all, they would be permitted to invest in exchange-traded funds, mutual funds and certain other categories. But otherwise, they would have to either divest or put all of their assets into a qualified blind trust. There are other features to that, too. It would include the Supreme Court, it would include senior staffers, which is interesting, Pelosi has said she’s in favor of this type of legislation, but only if it applies to the judiciary branch, too. And to be fair, the judiciary branch had not even caught up to the Congress as of the beginning of this year. There has since been legislation passed that put them in line with Congress. But Congress and the judiciary, for that matter, are still a few steps behind the executive branch in these requirements.
Brancaccio: And we’re not on the verge of an announcement of an agreement to make that law yet, are we?
Kelly: I would be surprised. Now the interesting thing is there’s bipartisan support for reform. Probably the most popular bill in circulation is the TRUST in Congress Act, which has round numbers, about 70 co-sponsors, and a number of Republicans among them. In the Senate, Elizabeth Warren and Steve Daines, Democrat and Republican have co-released a similar stock trading ban that’s, I think, more comprehensive than the Trust in Congress Act. So you see Republicans stepping in here, they understand that two-thirds of Americans want to see an outright ban on this type of individual stock trading. But this has seemed to be low on the priority list for quite a few months now. And I would be surprised if they had that kind of a mind meld where they were ready to announce an act anytime immediately soon.
Brancaccio: Now you and your team contacted many of the lawmakers in question with these potential conflicts of interest, as you’ve defined them. What’d they say? They think A-OK or, “A man’s got to feed his family. What do you want from me?”
Kelly: The vast majority of them said either my spouse does this trading and I’m not aware of it, or my broker does this trading and I’m not aware of it. There are small minorities of members who have their assets or are in the process of putting their assets, into a blind trust. Dean Phillips of Minnesota comes to mind. Josh Gottheimer of New Jersey comes to mind and there are others. Ro Khanna is an interesting example of this–he is of course the California Democrat–doesn’t trade it all himself. Ro Khanna’s wife has a team of advisors or trustees who buy and sell stocks on her behalf on their children’s behalf. From what I’m told Khanna’s wife herself doesn’t even get involved in that decision-making. But they traded 10,500 stocks and bonds and other securities–I think there were other things in the mix–over the course of the three years that we studied, which is by far and away, making Ro Khanna the most active reporter of trades in either chamber. And of course, there were many conflicts because Ro Khanna sits on a number of influential committees and with that number of stocks, you’re almost certain to see stocks that could be affected by his committee work. So that’s a case that other people described to me as well. There is a lot of activity or there’s a modest amount of activity, but it’s done at arm’s length. A few said we’re going to trade stocks or perhaps we’ve invested in stocks for many years. We don’t think this is problematic. It’s totally separate from our committee work. Tommy Tuberville, the Republican from Alabama said to me, “look, I have brokers who do this I don’t even know a thing about the markets myself. I’m sure I would lose the money if it were up to me. And I don’t see any conflict between committee work and this trading because I would never share insider information with my brokers if I had it and I don’t even have it.” And yet optically speaking here he is on the Agriculture Committee talking about cattle prices through some new legislation that’s been proposed, and his brokers are actively trading cattle futures.
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