New Senate bill bans lawmakers from trading individual stocks: NPR

Sen. Jeff Merkley, a Democrat from Oregon, and Sen. Josh Hawley, a Republican from Missouri, are part of a group of lawmakers introducing a bipartisan bill that would ban lawmakers from trading stocks.

Valerie Plesch/Bloomberg via Getty Images; Drew Angerer/Getty Images


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Valerie Plesch/Bloomberg via Getty Images; Drew Angerer/Getty Images

A group of senators from both parties introduced a new proposal that would ban members of Congress, their spouses and dependent children from trading individual stocks.

Democratic Sen. Jeff Merkley of Oregon, Sen. Gary Peters of Michigan, Democratic Sen. Jon Ossoff of Georgia and Republican Sen. Josh Hawley of Missouri are outlining a new version of a measure called the “ETHICS Act,” which would end the trading and holding of Congressional Stock. Peters, who chairs the Senate Homeland Security and Governmental Affairs Committee, is expected to hear the bill in his committee later this month.

Merkley previewed the new proposal in an exclusive interview with NPR, saying, “If you want to serve in Congress, don't come here to serve your own portfolio, come here to serve the people.”

He argued that the issue is a cross-party issue. “The public absolutely agrees that stock trading is wrong,” Merkley said, citing a University of Maryland poll that found 85 percent of the public supports a ban on stock trading by members of Congress.

Current law requires lawmakers to disclose when they trade individual stocks, but critics say it’s unevenly enforced and insufficient. The STOCK (Stop Trading on Congressional Knowledge) Act, passed in 2012, requires members of Congress and their spouses to disclose all trades over $1,000 within 45 days.

Insider trading laws apply to lawmakers, but the push for more transparency about their investments came after the 2009 financial crisis. Several lawmakers made big profits trading financial services stocks before major banks collapsed. Those trades raised questions about whether they were profiting from information they learned from congressional committees.

“The fact that members of Congress are doing better than a general portfolio suggests that there is some privileged information that people are hearing about — maybe it's not insider information, maybe it's early information, maybe it's an insight that comes from working on an industry through your committee work or something, but that's a problem,” Merkley said.

If the new bill passes, lawmakers would immediately stop buying new individual stocks and by the start of the next session of Congress in 2027, lawmakers would have to divest individual assets. Previous reform proposals directed lawmakers to move assets into blind trusts, but this measure specifies mutual funds. Congressional staffers would not be covered by the proposal.

“We've struggled for a long time with whether we should include blind trusts, they're complicated and it's really a simplification in this case. People aren't going to hold stocks and that's the cleanest, purest form of it,” Merkley said.

Several bipartisan House and Senate initiatives have been introduced in recent years, but none have gotten far enough to be considered by committees. Former House Speaker Nancy Pelosi, who doesn’t trade stocks but whose husband is an active trader, initially opposed new reforms but opened the door for legislation to be passed by the 2022 midterms. Several amendments to change the law have been pushed through the Senate without success, but no panel has advanced legislation to address the concerns since the STOCK Act passed.

The current law contains an enforcement mechanism that experts say is weak, under which lawmakers face a $200 fine if they fail to report transactions by the required deadline, which advocates say is the only way to track whether investments could be related to official duties. But members of both parties admit they have failed to file reports on time, with some filing weeks or even more than a year late.

The Senate bill would expand the penalties. Under the plan, failure to divest would result in fines equal to the value of the lawmaker’s monthly salary or 10% of the value of each offending asset, whichever is greater.

“The fines in this bill are enormous,” Merkley said, stressing that the penalties would be assessed monthly and that “anyone who breaks the rules is going to face enormous consequences very, very quickly.”

Under the new Senate proposal, all lawmakers and newly elected members would have to change their existing portfolios by March 31, 2027. They would have 120 days to divest all covered investments. The proposal also includes a provision requiring a certificate of divestment covering both the president and vice president.

If a legislator leaves government service, there is a 90-day cooling-off period. During this period, they are still not allowed to invest in individual stocks.

It would also increase the fine for failure to report to $500 and require all disclosures to be entered into a searchable public database.

The disclosures lawmakers are currently filing have prompted financial services firms to create products that model lawmakers’ investments. Those funds have consistently beaten the market — a dynamic that nonprofits pushing for reform are using to show that the public doesn’t trust their elected officials.

Merkley acknowledged that it is unlikely the proposal will come to a vote on its own, but he said he aims to attach it to another bill that must be passed this year.

He acknowledged that it's difficult to raise the issue when passing a bill that affects lawmakers' financial portfolios. He said, “Congressmen get very nervous, and when you say your family is covered, they get worried.”

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