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Congressional Stock Trading Ban Faces Uphill Battle

Congressional Stock Trading Ban Faces Uphill Battle

Hopefully a bill by a different name will keep those in Washington from breaking the rules. 

This week, House Democrats unveiled the text of a bill designed to stop members of Congress, their spouses, and other officials, including Supreme Court justices, from owning or trading individual stocks. 

The “Combatting Financial Conflicts of Interest in Government Act” is a 26-page bill that could be voted on this week, according to Business Insider.

The bill would ban top officials across the Executive, Legislative, and Judicial branches, as well as their spouses and dependent children, from owning or trading stocks, as well as cryptocurrencies and other digital assets. 

To comply with the bill, members of Congress may place holdings into qualified blind trusts. The bill also allows for investments in other investment vehicles like diversified mutual funds and ETFs; U.S. T-bills, bonds, and notes; and state and muni bonds. 

House Speaker Nancy Pelosi in the past has been against any stock trading ban, saying once that Congressmembers “should be able to participate” in the stock market since the U.S. is a “free-market economy.”

Pelosi and her husband, venture capitalist Paul Pelosi, are some of the most active stock market traders in Congress, according to some estimates

While online pressure campaigns may have helped change Pelosi’s mind about her stance, there are still multiple hurdles ahead for the bill to be passed by the lower house. 

For one, Congress’s latest session will only last from Wednesday through Friday afternoon before a break until after the November elections. Also, House Majority Leader, and second ranking Democrat, Steny Hoyer is reportedly opposed to the ban.

Is Insider Trading a Problem?

The crazy thing is there is already a law on the books that bars Congressional members from trading on insider information they may receive in their roles as lawmakers. 

The Stop Trading on Congressional Knowledge Act is basically ignored by Congressional members, with an Insider investigation finding that 72 members of Congress having violated the STOCK Act

Maybe part of the reason for so many lawmakers ignore the STOCK Act is that the standard penalty for violating the act is just $200 and even that fine can be waved by ethics officials in the House and Senate. 

Meanwhile, the New York Times reported that nearly 100 lawmakers or their family members had reported trades in companies influenced by the committees on which they sit. 

Under the Stock Act, members of Congress are allowed to buy and sell stocks, bonds, and other financial instruments, but they can’t trade on inside information and must disclose within 45 days any transactions worth more than $1,000 that they or their immediate family members have made. 

Pelosi’s Prolific Trading

Pelosi has received a lot of attention for her well-timed stock and option trades. Back in March 2021, Pelosi caught flack for buying 25,000 shares in Microsoft  (MSFT)  less than two weeks before Microsoft signed a $22B deal with the U.S. Army. (Source: SEC). Recently, Pelosi made another felicitous trade, this time on the sellside.

On July 26th, Pelosi sold 25,000 shares of NVIDIA for $165.05 per share, realizing a -$341,365 dollar loss. At the time, it seemed like a rare miss for the experienced congressional trader.

However, one month after the sale, the U.S. enacted new restrictions that would impair NVIDIA’s ability to sell high-tech semiconductors to China. This resulted in a massive loss of future revenue for the chip company. Following the news, shares of NVIDIA plunged to a 52-week low, making Pelosi’s July sale of NVIDIA a sharp move in hindsight. Had Pelosi held onto those NVDA shares, her -$341,365 dollar loss would have grown to more than $1 million dollars based on NVIDIA’s current price.

Written by Andrea Davies