Amidst Congressional Insider Trading Debate, Lawmakers Target Senior Executives

Reps. Michael Cloud (R-TX) and Jared Golden (D-ME) have collaborated in a bipartisan effort to prohibit top civil servants from trading individual stocks. The Dismantling Investments in Violation of Ethical Standards through Trusts (DIVEST) Act [H.R. 8754] aims to prevent conflicts of interest and unfair advantages.

“No matter what party is in power, we should have no doubt that our government officials are working for the American people, not trying to make a quick buck for themselves. I’m glad to work with Congressman Cloud to lead the bipartisan DIVEST Act, which would explicitly ban the president, vice president, and other senior federal officials from trading stocks while in office,” said Rep. Golden. “While we continue to push for a ban on Members of Congress trading stocks, we also need legislation like the DIVEST Act to address the potential for corruption in the executive branch.”

Contrary to the Congressman’s statement, the DIVEST Act does not impact the President, Vice President, or administration officials. The bill covers  “senior federal employees” and defines those employees under 5 U.S.C. 3132, which covers the “Senior Executive Service position”. These positions are primarily general schedule management officials and supervisors in level IV or level V of the Executive Schedule with some exceptions.

Currently, the Stop Trading on Congressional Knowledge (STOCK) Act of 2012 [P.L. 112–105] subjects all executive branch employees to reporting requirements, including Public Financial Disclosures through OGE Form 278. In the 10 years since the STOCK Act became law, there have not been any reports of Senior Executives facing insider trading accusations.

Conversely, Congress According to the New York Times, nearly a fifth of Congress show possible conflicts in stock trades. Members of Congress may access market information and influence, but they and their family members can purchase and sell stocks without much restriction.

According to a poll released earlier this year by Convention of States Action in partnership with the Trafalgar Group, most Americans believe members of Congress and their spouses have an “unfair advantage” and should be banned from trading stocks while in office. This revelation comes at a time when public’s trust in both the federal government remains critically low. Late last year, Gallup suggested that lack of confidence in government is related to waning trust in politicians.

The DIVEST Act comes alongside a broader conversation on regulating stock trading by government officials. Reps. Cloud and Golden are also co-sponsors of the TRUST in Congress Act (H.R.336), a bill that seeks to address insider trading issues in the legislative branch. Further, Rep. Cloud joined a coalition of Congressmembers last week, including Reps. Angie Craig (D-MN), Brian Fitzpatrick (R-PA), Pramila Jayapal (D-WA), Andy Kim (D-NJ), Raja Krishnamoorthi (D-IL), Neguse (D-CO), Alexandria Ocasio-Cortez (D-NY), Katie Porter (D-CA), and Abigail Spanberger (D-VA), urging House leadership to consider a list of  “first principles” to end congressional stock trading.

Collectively, the coalition has introduced nearly all of the bills in Congress on this issue, including the TRUST in Congress Act, the Ban Conflicted Trading Act (H.R.1579), the Bipartisan Ban on Congressional Stock Ownership Act (H.R. 6678), the STOCK Act 2.0 (H.R. 6694), the No Option for Stock Trading and Ownership as a Check to Keep Congress Clean Resolution (H.Res. 873), and the Restoring Trust in Public Servants Act (H.R. 6844).

The “first principles” incorporate a shared consensus of the legislation. While the coalition prepares a bill to this affect, they ask House leadership to add the following to any legislation on the issue:

1. Covers all Members of Congress, their spouses, and dependents under 18;

2. Prohibits covered persons from owning or trading securities, commodities, futures, derivatives, options, or other similar financial assets, including where such investments are traded through an investment vehicle that the covered person controls;

3. Requires covered persons to either:

   1. Divest prohibited investments within 120 days of the effective date;

   2. Place such investments in a Qualified Blind Trust; or

   3. Diversify such investments by placing them in widely held, diversified mutual or exchange-traded funds, or U.S. Treasury bills, notes, or bonds.

4. For purposes of this bill, Qualified Blind Trusts must be truly blind;

5. Stipulates clear enforcement mechanisms and penalties that are sufficient to ensure Member compliance;

6. Omits any gimmicks, carveouts, or exemptions that undercut the purpose of this legislation; and,

7. Does not delay the effective date beyond what is reasonably necessary to implement the bill.

According to Jason Briefel, Director of Policy & Outreach at the Senior Executives Association (SEA), Congress should focus on its own branch before placing additional burdens on executive branch officials without evidence of wrongdoing. SEA called the DIVEST Act is “a shameless election-season campaign hit against public servants, designed to obfuscate the real source of lack of accountability and trust in our federal government.”

“This bill serves to persecute career civil servants who already face extensive and intrusive financial disclosure regulations applied routinely by the Executive Branch—a rigorous process Members of Congress nor their staff are they themselves subjected to,” Briefel said. “As co-sponsors of the TRUST in Congress Act, Reps. Cloud and Golden should prioritize the very real issue of trust in lawmakers and ensure that Congress abides by the same laws it imposes on the federal workforce, before accusing career civil servants of unfounded, void-of-evidence accusations and adding even more requirements to the Executive Branch that Congress does not subject itself to–especially as it relates to financial disclosure and conflict of interest accountability. Analogizing career civil servants who dedicate their lives to public service and the American people as boogeymen is abhorrent, even more so when the standard of accountability from the legislative branch is abysmal.”

The coalition hopes to work with lawmakers supporting existing legislation on a bill incorporating the “first principles” outlined above  for a vote by September 30, 2022.

---