'Deep conflicts of interest': Democrats eye banning lawmakers from trading stocks

On Tuesday, April 18, federal lawmakers unveiled a new bipartisan bill that would prohibit members of Congress and some of their family members from buying or selling individual stocks. The bill, dubbed the Ending Trading and Holdings in Congressional Stocks (ETHICS) Act of 2023, was sponsored by two Democrats, Oregon's Jeff Merkley and Ohio's Sherrod Brown, in the U.S. Senate and by Rep. Raja Krishnamoorthi (D-Illinois) and Rep. Michael Cloud (R-Texas) in the U.S. House of Representatives.

It remains to be seen how far the bill will ultimately go in the Senate (where Democrats have a small majority) and the U.S. House (where Republicans, under Speaker Kevin McCarthy, have a narrow single-digit majority). Similar bills have failed in the past.

CNN Business reporter Nicole Goodkind discussed the ETHICS Act with Merkley, who believes that stock trading by members of Congress promotes "deep conflicts of interest" and "needs to end."

Merkley told Goodkind, "There's two forms of corruption. One is that having a portfolio of individual stocks concentrated in a particular area changes a member's view of how they would write legislation that might include breaks for that particular industry that would drive the value of their stock. It might change how they would vote on legislation. And then, there's the second aspect, which is that members have access to often confidential information and briefings that precedes actions by the (Biden) Administration, or what bills are going to be coming to the floor."

The Oregon Democrat continued, "That is information that the public doesn't have. The result is members tend to do better than the general public and better than the S&P 500. There's an unfair advantage for (lawmakers); you could tackle that by just ending the trading of individual stocks."

Merkley stressed that the ETHICS Act is badly needed because as a U.S. senator, it is "wrong" for him to have stock information "that the public doesn't have." Goodkind, however, wanted to know how the bill would be enforced.

The senator replied, "I'll start with really expensive penalties that will scare people a lot. If you're in violation of the selling, buying or holding provisions of this law in any given month, the penalty is a month's salary, or 10 percent of the amount of stocks that were traded or held. And that is a huge amount…. The provision for lawmakers buying stock goes into effect immediately. The provision for not selling goes into effect after 90 days, so they can sell their portfolio."

Things could get complicated when it comes to lawmakers' family members. In other words, which family members would be affected? Merkley specifically mentioned spouses, sons and daughters.

Merkley told Goodkind, "The place where it affects reelection is the spouse and children. The conversation among members was that in this modern age, spouses have their own lives and their own habits. And while it's fair to change the rules right away for us, it's not fair to do that to spouses. So, the rules would only be applied to them after reelection. I think there's just a widespread sense that this bill has to apply to spouses and minor children."

In the past, some prominent members of Congress have defended stock trading by lawmakers — including former House Speaker Nancy Pelosi (D-California). At a press conference in 2021, Pelosi was asked if that activity should be banned and responded, "No.... This is a free market. We are a free-market economy. They should be able to participate in that."