Personal Profit in Congress

In an academic paper published a few years ago, an economist named Serkan Karadas highlighted a suspicious pattern: Members of Congress earned higher than average returns on their stock investments.

The findings suggested that at least some Congress members were profiting off their jobs. With inside knowledge about forthcoming policy changes or economic developments, the members could buy stocks shortly before they rose in price or sell them shortly before they fell.

There have been several high-profile examples in recent years that seem to fit that pattern. In each case, the members say they did nothing inappropriate:

  • Tom Price, a former Georgia congressman (and later Donald Trump’s secretary of health and human services), repeatedly traded health care stocks, including a discounted purchase through a special offer from an Australian drug company.

  • Representative John Yarmuth, a Kentucky Democrat, bought several cannabis stocks while promoting bills favorable to the industry, as Judd Legum of Popular Information reported.

  • Several senators — including Dianne Feinstein, a Democrat; and Kelly Loeffler and Richard Burr, both Republicans — sold stocks after receiving a private briefing on Covid-19 weeks after the discovery of the first case in China.

  • Similarly, Senator David Perdue, a Georgia Republican who was an active trader while in the Senate, bought shares in companies that stood to benefit from the pandemic, like Pfizer and Netflix.

  • The wife of Senator Rand Paul, a Kentucky Republican, bought stock in Gilead Sciences, which makes a Covid antiviral drug, in the pandemic’s early weeks.

In all, members of Congress and their immediate families bought more than $260 million worth of assets and sold more than $360 million last year, my colleagues at DealBook have reported. Karadas’s research found that many of the outsize stock gains in recent years flowed to high-ranking Republicans.

A bipartisan group of Congress members is now trying to put a stop to these trades. They have proposed bills that would require Congress members to place their holdings in a blind trust, operated by somebody else. A separate bill would bar members and senior congressional aides from buying and selling individual stocks.

The bills’ sponsors include Senators Jon Ossoff, Mark Kelly, Jeff Merkley and Representative Abigail Spanberger, all Democrats, and Senator Josh Hawley and Representative Chip Roy, both Republicans.

“It is a huge conflict of interest for someone to be trading in, say, pharmaceutical stocks at the same time as making policy for pharmaceutical companies,” Merkley, who represents Oregon, told NPR.

Spanberger told The Washington Post that she and Roy, who are sponsoring a bill together, were both “disgusted” by the current situation. “If placing limitations on how we can buy and sell stock makes it so that someone trusts us a bit more — Congress doesn’t have a great approval rating — I think that is a quote-unquote sacrifice we should make,” said Spanberger, who represents a swing district in Virginia.

For now, the bills seem unlikely to become law, partly because they lack the support of Democratic leaders. Nancy Pelosi, the House speaker, has argued that members of Congress deserve the same freedom as other Americans to buy and sell stocks. “We are a free-market economy,” Pelosi said last month. Members of Congress “should be able to participate in that.”

Critics respond that Congress members are different from everybody else, because of their access to sensitive information. The critics also argue that people who enjoy the privilege of serving in Congress have a responsibility to put the public trust above their own financial interests; if they would rather not do so, they can join the private sector.

Michelle Cottle, a Times Opinion writer, wrote that Pelosi’s position seemed “a wee bit out of touch” given many Americans’ economic frustrations. Helaine Olen of The Washington Post has written: “Neither bill demands major financial sacrifice. But it’s still asking too much for some.”

Congress did tighten the rules on itself in 2012, through a law known as the Stock Act. It prohibits members from making trades based on privileged information and requires them to disclose any trades within 45 days. But the law has failed to prevent problematic trades — much as early critics of it, like Senator Elizabeth Warren, predicted.

Why? Proving that a specific trade stemmed from a specific piece of information is so difficult that prosecutors have never brought charges based on the law. And dozens of members and their aides have ignored the disclosure requirement, according to the publication Insider. The standard first-time fine for failing to report a trade on time is only $200.

All of which suggests that members of Congress will continue to profit from their access to sensitive information, unless they eventually pass a new bill that restricts trading.

Related: Three top Federal Reserve officials have resigned in the past year after being criticized for their trades. “The conduct is beyond reprehensible,” Dennis Kelleher, the president of Better Markets, a watchdog group, told me. The Fed has since tightened its rules.