Editorial: How to prevent insider trading in Congress
By the Editorial Board, chicagotribune.com
On Jan. 24, Sen. Richard Burr, R-N.C.,attended a private Senate briefing on the coronavirus, which featured Anthony Fauci, the government’s top infectious disease expert.
At the time, the virus was a news story, but the headlines for the most part were confined to travel warnings. Illinois officials were following the case of an infected Chicago woman who had recently returned from Wuhan, China. U.S. Sen. Josh Hawley, R-Mo., was urging President Donald Trump’s administration to consider stricter travel bans between the United States and China.
But the general public was largely unaware of, and could not have predicted, the economic shutdown looming. The idea of closing bars and restaurants and instituting stay-home orders would have seemed absurd.
By mid-February, Burr had dumped hundreds of thousands of dollars of stock in various companies, including some hotel chains that would soon lose much of their value in the face of a growing pandemic. He also told a private lunch gathering on Feb. 27, in a speech obtained by NPR, that coronavirus was “much more aggressive in its transmission that anything we have seen in recent history. It is probably more akin to the 1918 pandemic.” Publicly that same month, he was assuring Americans that the United States was well-prepared for any outbreak.
The coincidences — his awareness of the contagion, his assurances and his stock sales — raised suspicions that the senator had made use of inside knowledge for his own financial advantage while publicly downplaying the risks of the outbreak.
Another senator who attended the January briefing with Fauci, Republican Kelly Loeffler of Georgia, soon sold more than $1 million worth of shares. Sens. Dianne Feinstein, D-Calif., and Jim Inhofe, R-Okla., also sold large amounts not long after.
Burr, amid a storm of criticism, asked the Senate Ethics Committee to review his transactions. Several news outlets have since reported that the Justice Department is making its own inquiries.
Burr says he based his trades on information that was publicly available. Loeffler and Feinstein said their investment decisions are in blind trusts and thus beyond their control. Inhofe said his sales were part of an ongoing divestiture plan he began in 2018 after becoming chairman of the Armed Services Committee.
We don’t begrudge members of Congress the opportunity to buy and sell stocks to accumulate funds to pay for their children’s education, provide for retirement or anything else. It’s a legitimate activity that more than half of Americans engage in. To forbid it outright would make it harder for people who are not already wealthy to serve in elective office.
Nor we do leap to the conclusion that these senators violated any law or ethical obligation. Someone paying close attention to news reports from China and South Korea could have figured out that particular U.S. companies were likely to take a big hit. But we don’t presume that politicians who have access to information that is not widely known would never stoop to profiting from it. We’re from Illinois. We wake up skeptical.
The STOCK Act already bars members of Congress and their aides from making “investment decisions based on insider information they might come across because of their congressional role.” Alas, “cases are rare because proving that a politician relied on such nonpublic information is difficult,” according to ProPublica.
Senators have to file forms disclosing their transactions, which subjects them to potential scrutiny. That mandate, however, may not be enough to deter misbehavior when large sums are at stake. So we’re glad to see that U.S. Rep. Raja Krishnamoorthi an Illinois Democrat from Schaumburg, has introduced a bill to impose stricter rules.
His legislation would bar members from trading individual stocks or serving on corporate boards. As Senate sponsor Jeff Merkley, D-Ore., says, “Buying and selling stocks while making decisions that affect the stock’s value is inherently a conflict of interest.”
The change would leave members other ways to build wealth through equities. Those newly elected to Congress would be free to retain the stocks they already own, as long as they don’t sell them. They also could put assets in a blind trust, which turns decisions over to independent trustees.
Under Krishnamoorthi’s legislation, members would also be allowed to invest in stocks through diversified mutual funds, which don’t pose the same risks. Current members would have six months to sell their holdings if they don’t want to meet these conditions, and new members would get the same grace period. That doesn’t sound too onerous, now, does it?
When elected officials and congressional staffers manage exceptional timing in trading individual corporate shares, reaping big financial rewards in the process, they undermine public confidence in the integrity of both government and markets. Even scrupulous members of Congress suffer from the perception of sleaze.
Many members, perhaps most, are capable of resisting the urge to find ways to turn their position into large sums of money. For those who are not, Krishnamoorthi’s bill offers a better solution: removing the temptation.
Editorials reflect the opinion of the Chicago Tribune Editorial Board, as determined by the members of the board, the editorial page editor and the publisher.
PC: Mark Wilson/Getty