A Congressional Ethics Dilemma

Last year I wrote two columns expressing concerns about the Supreme Court’s lack of formal ethics standards and whether certain justices should recuse themselves from various cases before the court. Since then, that issue has garnered significant national attention. However, SCOTUS is not the only governmental branch whose ethical standards require scrutiny.

In November 2011, the CBS show “60 Minutes” aired an episode covering stock trades by members of Congress during both the 2008 economic downturn and during the legislative process that lead to passage of the Affordable Care Act. Many of these trades raised the specter of potential insider trading.

In response to the resulting public outrage, in April 2012 over 90% of both houses of Congress voted to pass the Stop Trading on Congressional Knowledge Act of 2012, commonly known as the STOCK Act. Under the STOCK Act, members of Congress are not allowed to buy and sell securities, including stocks and bonds, if they possess inside information obtained in their congressional capacity. Furthermore, congressional members directly engaging in a financial transaction exceeding $1,000 must report that transaction within 45 days. Transactions made by certain family members must also be reported within 30 days of being notified of the transaction.

In 2022, the New York Times analyzed the stock trades during 2019-2022 that were reported under the STOCK Act. During that period, 183 members of Congress from both parties reported transactions. Ninety-seven of them sat on congressional committees that potentially provided non-public information about the companies whose interests were bought or sold by the reporting congressional member.

Shortly before the holidays, this topic was highlighted in a Daily Beast article discussing Mike Garcia’s trade of Boeing stock in August 2020. In Garcia’s case, he sold approximately $50,000 of Boeing stock in August 2020 while he was a member of the House Committee on Transportation and Infrastructure. In September 2020 that committee released an investigative report on the Boeing 737 Max airliner. Garcia also failed to report the sale under the STOCK Act until Nov. 23, 2020 — several weeks after the reporting deadline and two weeks after the polls closed in an election that he won by about 300 votes.

According to a Signal article published Dec. 15, Garcia responded that, because he was a member of the minority party, he was unaware of the Boeing report prior to its release. Moreover, the pertinent hearings were conducted before he took office. Apparently Garcia was unaware of missing the reporting deadline until after the election and promptly filed the report upon learning of the oversight.

The purpose of this letter is not to engage in a he said/she said discussion with Garcia. I am sure that the other 96 members of Congress, including many Democrats, who traded securities while they sat on committees having potential insider information about the securities they traded also have explanations/excuses for their actions. However, Garcia is our local congressman and this is a local paper, which is why I cite him as an example of a widespread issue.

Although the STOCK Act made insider trading on material non-public information a criminal act, no member of Congress has been charged criminally under the STOCK Act despite the apparent widespread noncompliance uncovered by the New York Times.

Many who work in the private sector are subject to rigorous rules involving insider trading that are strictly enforced. They are presumed to have knowledge of all the facts they reasonably should have known about.

In January 2022, the TRUST in Congress Act (H.R. 345) was introduced in the House. If enacted, it would prohibit members of Congress from trading stock while in office and would require members of Congress to place their holdings in a blind trust. Although the bill was cosponsored by 54 Democrats and 15 Republicans, it died in Congress as did a similar bill concurrently introduced in the Senate.

Even if these bills never see the light of day, at the beginning of each congressional session, Congress should require each member of Congress to receive formal instruction explaining the insider trading rules and reporting requirements. Each member should be required to affirmatively acknowledge completing the course and understanding the rules. Furthermore, the penalties for STOCK Act violations should be enforced. This is the standard for those who work in the securities industry.

Congressional public approval ratings are at a low point. Undoubtedly, one of the reasons is because Congress perceives itself to be above the law. Enforcing the punitive measures in the STOCK Act is an example of how Congress can demonstrate to the public that its members are not above the law.

Jim de Bree Valencia

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