Free Market Threats Part One: Is Congressional Insider-Trading Threatening Our Democracy?

Have you ever wondered how Congresspersons who come into office without significant wealth seem to accumulate it over careers that often don’t span an average working person’s working lifetime? I may have found part of the answer.

Recently, while thumbing through the paper-clipped stack of pieces from, among other sources, National Review, RedState, Vox, The Washington Post, Fox News, The New York Times, The Wall Street Journal, BuzzFeed, The Atlantic, The Week, The Hill, Roll Callas well as ABC, NBC, CNBC, CBS and, most recently, The Bulwark stacked up in the old-style (read “physical”) in-box at the corner of my desk that I have to clean out from time-to-time, I came across one from The Intercept with the all-caps headline:

SEN. JEFF MERKLEY WANTS TO STOP CONGRESS MEMBERS FROM INSIDER TRADING BY BANNING THEM FROM OWNING STOCKS [1]

Intrigued, I read on. The article’s point is that while the 2012 STOCK Act was intended to eliminate the widespread practice of Senators, Representatives, staffers and executive branch employees using highly sensitive and lucrative information they obtain in the normal course of their responsibilities (commonly known as “inside information”), it hasn’t worked out as planned. In fact, according to the information provided, securities trading by elected and appointed representatives and employees of our government continues to be widespread and questionable, if not downright suspicious.

In short, the STOCK Act was supposed to be an effective response to public outrage over Congress and government employees enriching themselves using information that is illegal for anyone else. Even though many observers thought the Act was almost toothless Congress saw fit to remove its one or two remaining cuspids just over a year later without publicity before or after its 30 seconds of consideration on the House floor.

The really intriguing thing, though, is how it was effectively nullified: According some other reporting I found, the 2012 STOCK Act didn’t “just outlaw trading on nonpublic information by members of Congress, the executive branch and their staffs. It greatly expand[ed] financial disclosures and [made] all of the data searchable so insider trading and conflicts of interest would be easier to detect.” (Emphasis added). [2]

Let’s focus on that phrase I’ve italicized, “all of the data searchable.” Now, when I think “searchable data” what comes to my mind is my computer and the Internet first. How about you? That’s the world in which we live. However, according to Tamara Keith of NPR, that seems to not be what Congress means!

What Keith discovered was that since 2013 if you, for example, wanted to see if anyone in government is using their special status for personal profit you have to (1) travel to Washington, D.C., (2) make your way to the basement of the Cannon Office Building [3] and (3) go through a search process reminiscent of the 1980s:

You have to enter your name and address into a computer…then you have to know the name of the person you are searching for. If he or she has filed a financial disclosure form, it will come up as a PDF, which you can print at a cost of 10 cents a page…

Since there are, according to the article, somewhere in the vicinity of 30,000 individuals who file disclosure forms and, as we’ve learned from problems in the last few years, not all of those are complete or accurate, the “database” is, for all practical purposes, useless. Could that be what the 2013 revision of the STOCK Act was really intended to do? Give that some thought and, if you care to do so, let us know what you think.

[1] Dayen, David. “Sen. Jeff Merkley wants…” The Intercept, 12/17/2018

[2] Keith, Tamara. “Insider Trading Ban Passes Congress, But Some See Missed Opportunity” and “How Congress Quietly Overhauled Its Insider-Trading Law” NPR, 3/22/ 2012 and 4/16/2013 respectively.

[3] 27 Independence Ave SE, Washington, DC 20003.

Ed Lynch is founder and CEO of FPG. He has worked with ERISA-qualified plan sponsors and designated fiduciaries in most aspects of plan development and maintenance since the early 1980s. Ed founded FPG with the mission to be a leader in the field of employee benefits and the most trusted source of information and evaluation in the retirement plan industry.