'Time for Congress to Act': Watchdog Groups Urge Passage of Stock Trade Ban

Citing reports of "suspicious stock trades" at the start of the pandemic and a "crisis of institutional legitimacy," a diverse group of 19 organizations on Monday urged Congress to pass legislation banning individual stock trading by federal lawmakers.

The demand was delivered in a letter to U.S. House leaders from organizations including Citizens for Responsibility and Ethics in Washington (CREW), Public Citizen, and the Revolving Door Project. It was sent amid growing momentum for such a ban--a prohibition that the groups frame as clearly needed in light of "the routine and bipartisan failures to comply with the STOCK Act."

That 2012 law--designed to prevent insider trading by lawmakers--was violated by over 50 members of Congress during 2020 and 2021, according to a recent investigation.

Addressing this problem, the groups argue, necessitates "a blanket ban on trading or owning any individual stocks, bonds, commodities, futures, derivatives, options, or other similar financial assets, except widely held investment funds." A blind trust would only work if the beneficiary does not know what assets the trust holds, they wrote.

Numerous related legislative proposals have already been put forth, including a bipartisan measure led by Sens. Elizabeth Warren (D-Mass.) and Steve Daines (R-Mont.) and the Ban Congressional Stock Trading Act introduced by Sens. Jon Ossoff (D-Ga.) and Mark Kelly (D-Ariz.).

Ethics watchdogs have pointed to questionable stock transactions by lawmakers at the start of the Covid-19 pandemic, as well as trades by the husband of House Speaker Nancy Pelosi (D-Calif.), as evidence current law isn't doing enough to promote transparency and accountability.

While some lawmakers, including Rep. Ro Khanna (D-Calif.), have expressed support for a stock trading ban but said it should not cover spouses, the groups behind the letter reject such a carve-out for close family.

Not extending the ban to spouses as well as dependent children "would undermine much of the purpose of the legislation and allow the conflicts of interest presented to remain. A spouse or dependent child who appears to profit from a member's actions or knowledge of the market is just as damaging to the public's perception of our government as a member profiting themselves," the letter states.

The groups added that a stock trading ban needs to have teeth if it's to function as any sort of deterrent, meaning there must be a threat of "punishment or civil penalties" in case of violations.

An additional key feature, according to the groups, is that the legislation must not have "an exclusive intent standard that would make enforcement of the legislation unworkable or unlikely."

The letter argues that "a standard requiring proof that a member 'knowingly' violated the act would make a very high bar for any enforcement and accountability for unethical conduct" and as such "would defeat the purpose of the legislation, as it would likely result in members believing that they can escape discipline and even potentially retain the benefits of trades made in violation of the law."

Citing broad public support for such a ban shown by polling, the groups told House leaders that "by adopting the policies that we have set out above, you can help to end this problem that is eroding public trust in our government and undermining Congress' legitimacy."