Congress’ approval rating hit another historic low when a recent Gallup poll found 76 percent of registered voters think congressional incumbents don’t deserve re-election. That’s the highest percentage in the 19 years Gallup has asked the question.
So what’s Congress’ plan to turn things around? Run a public relations campaign, of course. Its most recent effort comes in the form of the Stop Trading on Congressional Knowledge (STOCK) Act - a bill that’s been in the making for six years but recently got a big push after a “60 Minutes” investigation raised serious questions about the success some members of Congress have had buying and selling stocks while in office.
The STOCK Act is supposed to ban members of Congress from insider trading. The trouble is, Congress is already subject to the same insider trading laws that apply to everyone else. The STOCK Act is just a feel-good law aimed at improving Congress’ tattered image. And if anything, the bill creates problematic loopholes by too narrowly focusing congressional insider trading laws on pending legislation, thus excluding information obtained in hearings and meetings. Just as troubling, what should have been the obvious financial targets for the law, such as stock options and real estate holdings, aren’t even covered in the STOCK Act.
STOCK’s current language, as introduced in the House, merely makes it clear that insider trading laws apply to Congress and requires members and their staffs to report financial transactions within 90 days instead of annually. A Senate panel has passed a version requiring lawmakers to disclose their stock trades of more than $1,000 within 30 days.
At a recent Financial Services Committee’s STOCK Act hearing, Rep. Stevan Pearce, New Mexico Republican, asked the Securities and Exchange Commission’s enforcement director, “Would you take this legislation and go to work on members of Congress who have been getting by with things?”
“No. I don’t think that’s the case,” replied Robert Khuzami, the SEC’s chief enforcer.
That’s because the STOCK Act is just theater, not good governance. This bill might make Congress look like it got something done, but it won’t stop many of the trades Congress has been making. To prevent members of Congress and their staffs from cashing in on their positions while in office, a law needs to require them to report all financial transactions in real time, on the date they are made and prevent them from capitalizing on any nonpublic information they receive from any source gathered in the course of their public service.
The proposed STOCK Act has enough loopholes to drive a truck through. A simple fiduciary duty law that covers all financial vehicles and transactions - stocks, real estate, derivatives, etc. - would be more likely to protect taxpayers’ interests. This law would be better able to spot Congress’ dubious financial deals because it includes all avenues by which members are able to use their privileged positions to enrich themselves, and it immediately shares the details of the members’ financial activity.
To give the law some teeth and make members of Congress think twice about using their positions to get rich, the SEC or the Justice Department must commit to forming an independent unit actively monitoring congressional stock activity and prosecuting offenders, which isn’t happening now.
While Congress skates by, consider that Comcast CEO Brian L. Roberts was just fined $500,000 by the Justice Department for failing to report stock purchases. Could it be trusted to levy similar charges against one of its own? Will the government actually police what Congress is doing or will it continue to let the fox guard the henhouse?
For six years, the STOCK Act sat idle, practically unknown by many members of Congress. Now it has more than 220 co-sponsors who don’t seem to be concerned with whether it actually solves any problems. If members want to try to fool the public while continuing their curious financial dealings, this is the bill for them. But if members of Congress are truly intent on preventing their own from trading on their influence and benefiting financially from their positions, the STOCK Act isn’t the answer.
James Groth is a policy analyst at Reason Foundation (Reason.org).