Donna Nagy, a law professor at Indiana University-Bloomington and an expert on insider trading, has testified before Congress in favor of changing the law in this manner.
“In times of crisis like this current one, the public should not have to wonder whether lawmakers are using their access to material, nonpublic government information, to make gains or avoid losses in their stock portfolios,” she said.
Nagy notes that similar restrictions on stock ownership are already in place for federal judges and leaders of federal agencies; she and other securities law experts have advocated for the rules to be extended to members of Congress.
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In a direct response to the controversy, Democratic U.S. Reps. Raja Krishnamoorthi of Illinois, Alexandria Ocasio-Cortez of New York, and Joe Neguse of Colorado announced Monday that they will introduce legislation to prohibit members of Congress from trading individual stock or serving on corporate boards.
“The recent news reports have made it clear that it’s past time to end the potential conflicts of interest created by members of Congress and their top staffers trading in stocks while making decisions affecting their values and receiving sensitive, nonpublic information through government service,” Krishnamoorthi said in a news release.
The same bill, called the Ban Conflicted Trading Act, was filed last year by U.S. Sen. Jeff Merkley, D-Oregon, but hasn’t gone anywhere in that chamber.
U.S. Sen. Elizabeth Warren included similar language in her 2018 proposal titled the Anti-Corruption and Public Integrity Act. But her bill was filed late in the session and expired without getting a hearing; Warren did not refile the proposal when Congress reconvened.
Warren and Merkley were both responding to U.S. Rep. Chris Collins, a Republican from New York who was charged with insider trading. Although those allegations are not directly related to his congressional duties, Collins encouraged family members to buy stock in a company after learning secret information that would increase its value.
Former Republican U.S. Rep. Tom Price of Roswell traded on stocks of various health care companies, a practice that was scrutinized in 2017 when he became the nominee for secretary of health and human services. Price invested in these businesses during the same time that he served on a House subcommittee that determined federal tax policy on health issues.
Although the controversy became a talking point for Democrats who opposed his nomination, Price was never accused of breaking the law and was ultimately confirmed.
Loeffler, a Republican appointed by Gov. Brian Kemp to fill the Senate seat Johnny Isakson left because of health issues, says her financial transactions under scrutiny were legal and ethical. She says the current controversy is politically motivated and powered by misinformation.
She and her husband, Jeff Sprecher, who owns the New York Stock Exchange’s parent company, sold $1.8 million in stock over a three-week period, according to information from her campaign. The start of that window is marked by a senators-only briefing on the spread of COVID-19 that Loeffler attended Jan. 24.
Loeffler and her husband purchased $487,009 worth of stock during that same period, including investments of $168,000 each in software companies Citrix and Oracle.
Citrix provides work-from-home products that are now in demand, and the White House recently announced that Oracle is developing a tool that can be used to track how coronavirus patients are responding to experimental treatments.
The couple also purchased $1.5 million in put options, a type of investment that locks in prices even if a stock’s value decreases.
The Daily Beast was the first to analyze Loeffler’s transactions, which she says she had no knowledge of until days or sometimes weeks after they occurred.
“I’m not involved in my portfolio; my husband is not involved,” Loeffler said Tuesday during a Fox Business interview. “Our portfolio is managed by third parties. The actions are blind to me until they put it in front of me at the end of the reporting period.”
Democrats and watchdog groups filed complaints, but so far no government agencies have said Loeffler is under investigation. The Securities and Exchange Commission did issue a warning about the risk of insider trading violations from those who have inside information about the impact of the coronavirus on markets.
Loeffler’s aides also point out that a couple million dollars in stock transactions represents just a small percentage in the portfolio of a woman estimated to be worth $500 million.
U.S. Rep. Doug Collins, a Republican from Gainesville who is challenging Loeffler in a special election in November, used the trades to help drive home a campaign talking point that his ultrawealthy opponent is out of touch with voters.
He said Wednesday that many current members of Congress had stayed quiet about the financial transactions, choosing not to criticize their colleagues publicly but also declining to come to their defense. That is indicative that many members take issue with the decisions made by Loeffler and others during the pandemic, Collins said.
“It’s very disheartening to know that people are profiting off this virus,” Collins said.
Loeffler wasn’t the only sitting member whose transactions were criticized. Also facing scrutiny are Republican U.S. Sen. Richard Burr of North Carolina and, to a lesser extent, Democratic U.S. Sen. Dianne Feinstein of California, Republican U.S. Sen. Jim Inhofe of Oklahoma and David Perdue, Georgia’s other Republican U.S. senator.
Burr said he made his financial decisions based off news reports, not any information he received during nonpublic briefings. He later asked the Senate Ethics Committee — which is made up of his colleagues — to review the transactions to ensure no lines were crossed.
Both Loeffler and Perdue have said their financial advisers acted independently and without their input. Perdue appears to have participated in an equal amount of buying and selling during this time, but the decision to sell off stocks in a casino company and invest further in a pharmaceutical company helping to develop a coronavirus vaccine caused some to question whether he also was trading based on inside information. Other purchases, however, involved investments in the Walt Disney Co. and Delta Air Lines, companies that haven’t fared well during the outbreak.
Collins has not advocated for any changes in law to prevent Loeffler or other members from trading in company stocks, but he said he isn’t closed to the idea. The best way to prevent such controversies, he said, is to encourage members to follow existing laws, which already make insider trading illegal.
A 2012 law called the Stop Trading on Congressional Knowledge Act, or STOCK Act, says that members of Congress are prohibited from using nonpublic information obtained through their government position to make financial decisions. The STOCK Act also required new public disclosures about members’ stock purchases and sales.
A study conducted before the STOCK Act's passage showed that members of Congress were more successful in trading stocks than the general public, earning 20% higher returns on average. After the law was passed and members' transactions became more public, the volume of activity decreased.
Still, some experts say the controversy involving Loeffler and others indicates more needs to be done.
For example, Loeffler has declined thus far to put her assets in a qualified blind trust, a government-reviewed setup that would ensure she is not involved in how her vast portfolio is managed.
“In the absence of a blind trust, the burden of proof is on the members to show that they weren’t communicating with their independent advisers,” said Dennis Thompson, a founding director of the Safra Center for Ethics at Harvard University. “They can’t just assume that we take their word for it because the timing and nature of the trading raises reasonable suspicion, and so the burden is on the members to try to allay those suspicions.”
Especially with large amounts of money involved, it is hard for the public to trust that investors are not having some type of communication with their financial consultants, Thompson said.
Robert Weber, who teaches about securities regulations at Georgia State University’s College of Law, said Loeffler’s case is complicated by statements she made praising President Donald Trump’s handling of the coronavirus epidemic and downplaying the long-term impacts.
“Appreciate today’s briefing from the President’s top health officials on the novel coronavirus outbreak,” Loeffler wrote on Twitter the day of the Jan. 24 briefing. “These men and women are working around the clock to keep our country safe and healthy.”
On Feb. 27, 11 days after she would have received the report about her financial transactions, Loeffler shared an article that accused Democratic candidates for president of exaggerating the nation’s readiness to respond.
“FACT: America is doing an incredible job working to keep its citizens safe and healthy in the wake of the #coronavirus outbreak,” Loeffler wrote. “ALSO FACT: Democrats are intentionally misleading the American public and it’s dangerous.”