In mid-December, Nancy Pelosi, the Democratic Speaker of the House of Representatives, brushed off calls for legislation to ban trading by members of Congress with a throwaway comment that has come back to haunt her.
“We are a free-market economy,” she told reporters at the time. “They should be able to participate in that.”
Pelosi’s quip was criticised for being tone-deaf not just because of her status as one of the wealthiest members of Congress, but also for the fact that it was made amid a growing outcry inside the Washington bubble and across the US over controversial investments by public officials.
In the past two years, US lawmakers including Richard Burr, the North Carolina Republican senator, have been accused of improperly trading on confidential information about the pandemic; three senior Federal Reserve officials have been forced to resign after disclosures of questionable trades, forcing chair Jay Powell to battle a reputational crisis; and federal judges have been criticised for failing to recuse themselves from cases involving companies in which they or their families owned shares.
Chris Collins, a former Republican member of Congress, was convicted and sentenced to jail in January 2020 for participating in a scheme to commit insider trading, before being pardoned by former president Donald Trump.
According to the most recent OpenSecrets data from 2018, Pelosi’s net worth was $114.6m, making her the seventh-wealthiest member of Congress at the time.
The Speaker’s husband, Paul Pelosi, runs Financial Leasing Services, a San Francisco-based real estate and venture capital investment firm. The latest congressional disclosures show Paul Pelosi bought millions of dollars worth of call options in several companies last month alone, including Google parent Alphabet, Roblox, Salesforce and Disney. The trades made a splash on video app TikTok, underscoring the extent to which the issue is resonating beyond the Beltway.
Nancy Pelosi’s own trades have become a TikTok sensation.
The furore over powerful people having unfair opportunities to profit from investments has spurred cross-party momentum to crack down on securities trading in all three branches of the US government in an effort to disentangle Washington’s ties with Wall Street and corporate America.
According to a poll released this month by the conservative Convention of States, 76 per cent of Americans believe members of Congress and their spouses have an “unfair” edge in financial markets, with just 5 per cent saying they should be allowed to trade.
“I think the American people, they get why this is problematic. It undermines their confidence in government. It makes it look like they are really there to serve their own personal financial interests rather than to serve the public good,” said Virginia Canter, a former ethics officer to presidents Barack Obama and Bill Clinton and the IMF. She is now at Citizens for Responsibility and Ethics, an advocacy group in Washington.
Politicians are taking notice. Late last year, a group of Senate Democrats, including Sherrod Brown, the chair of the banking committee, proposed legislation to ban Fed officials from trading individual stocks, as Congress began to turn the screws on the US central bank.
Median net worth of US Senators
Lawmakers are also pursuing curbs on their own activities too. This week, Jon Ossoff and Mark Kelly, Democratic senators from Georgia and Arizona, respectively, introduced a bill that would force members of Congress, their spouses and dependent children to place their investments in a blind trust. Abigail Spanberger, a Democratic member of the House of Representatives from Virginia, and Chip Roy, a Republican House member from Texas, have been championing similar legislation for months.
“This is about key steps to affirm that trust that people have in us, to make sure that people know that we are working on their behalf, to remove doubt, and to not only avoid impropriety, but . . . the appearance of impropriety,” Spanberger told the Financial Times. “I do think that there is momentum to it. For some people, it would be a real mind shift.”
Josh Hawley, the Republican senator from Missouri, introduced his own legislation this week that would ban members of Congress from holding or trading individual shares, saying it was “time to stop turning a blind eye to Washington profiteering”.
Kevin McCarthy, Pelosi’s Republican counterpart who could become the next Speaker if his party regains control of the lower chamber in this year’s midterm elections, has also spotted a political opportunity. He has reportedly told allies he is interested in limiting or banning lawmakers from trading stocks if his party takes the reins.
Yet some experts say a crackdown could have unintended and risky consequences and make public service less appealing to those who amassed significant shareholdings before entering government.
“At the end of the day, the access to information on Capitol Hill is pretty significant, it is essentially equivalent to the access to information you get in the boardrooms of public companies,” said Jay Clayton, the former chair of the SEC who is an adviser at Sullivan & Cromwell LLP, a law firm.
But lawmakers should not be too “blunt”, he warned. “You want people invested, riding along with the American economy — you need to draw on private sector expertise in government.”
Others say the behaviour of many public officials has simply become too egregious to ignore, including after it emerged last year that a large number of lawmakers had violated disclosure obligations about their financial transactions required in a 2012 law enacted by Obama.
“How can you have a member of Congress making a decision about healthcare, and regulating the healthcare industry or taxing medical devices, when they are loaded with healthcare company stock? That is an inherent conflict of interest,” said Richard Painter, a former White House ethics lawyer in the George W Bush administration. “That is a huge problem with respect to the credibility of Congress.”
Meanwhile, the political push for stricter trading rules is mostly being driven by a younger generation of lawmakers who are eager to confront the old guard on Capitol Hill, where wealth and power are often paired.
According to 2018 data compiled by OpenSecrets, the median net worth of Senate members was just over $1.6m, while in the House it was just below $500,000.
“Members of both parties are realising that it is just sort of politically dumb to be playing in the stock market when they have that kind of access to inside information,” said Craig Holman of Public Citizen, a consumer rights advocacy group. “Even if they are not doing insider trading, it looks like it.”
A White House official declined to endorse any specific legislation, but said Biden believed “all government agencies and officials, including independent agencies, should be held to the highest ethical standards, including the avoidance of any suggestion of conflicts of interest”.
The issue is resonating on the 2022 campaign trail: John Fetterman, a Democratic candidate for Senate in Pennsylvania, backed a trading ban for members of Congress this week, as did Democratic and Republican primary candidates in several other states.
“I don’t think there are any Republican or Democrat [voters] in Pennsylvania who are like, ‘I want my member of Congress to be able to buy and trade stocks,’” said Joe Calvello, Fetterman’s communications director. “It is wild that members of Congress have appeared to use their inside knowledge for financial gains while we are in the middle of a pandemic where working class people are just struggling to get by.”