Oct 14, 2022
Just a few weeks after House Democrats introduced a bill that would see senior officials and members of Congress required to sell much of their stocks before stepping into their positions, the need for such legislation has been brought to the foreground.
Thousands of federal officials were found to have been making decisions in their respective government agencies that had a direct effect on stock they owned or traded, according to an investigation by the Wall Street Journal.
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While critics have long suspected officials don’t always follow the strictest ethical guidelines when it comes to trading, the Journal’s findings show the issue runs much deeper than expected.
Accessing the data was a challenge
Under current legislation, senior officials are required to report their trading activity and they’re not allowed to use their knowledge on working matters to bolster their financial holdings. The Ethics in Government Act from the 1970s requires that senior federal officials publicly disclose their personal finances.
And even though that information is meant to be publicly available, it was still difficult for the Wall Street Journal to access those disclosure forms. The Journal reports that it filed several requests under the Freedom of Information Act to obtain the forms. And many agencies never provided the information at all.
But the newspaper did get more than 31,000 financial disclosure forms filed by 12,000 senior employees, political staff and presidential appointees between 2016 and 2021 for its investigation.
The paper’s findings are striking. Senior officials reported trading stock in companies just before their agency announced decisions that would directly affect that company or its industry. They also reported owning stock in companies that were lobbying their agency.
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What the investigation found
The newspaper found that more than 60 officials across several agencies — including the Federal Trade Commission and the Justice Department — “reported trading stock in companies shortly before their departments announced enforcement actions, such as charges and settlements, against those companies,” says the Journal.
At the Environmental Protection Agency, more than 200 senior officials — nearly one in three, according to the Wall Street Journal — reported having “investments in companies that were lobbying the agency.”
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Every year between 2016 and 2021, EPA staff and their family members owned between $400,000 and almost $2 million in oil and gas company stocks, on average, said the Journal.
And things at the Defense Department weren’t any better. According to the Journal, officials collectively reported owning between $1.2 and $3.4 million of “stock in aerospace and defense companies, on average.”
This is a long-standing problem
Reporting and improper trading has long been a problem. Members of Congress have faced heavy criticism in recent years for seeming to use their inside knowledge of what’s happening in an industry to make money.
Under the Stop Trading on Congressional Knowledge Act of 2012, members and employees of Congress are prohibited from using knowledge obtained through their official positions to influence what stock they own and trade. But many have been critical, saying that law doesn’t go far enough.
The bill from House Democrats would aim to address that by ensuring senior officials, employees and their families would be forbidden from taking part in active investing.
But it may be some time before that legislation is passed, if it passes at all.
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Lauren Bird was a former reporter for Moneywise.com. Before writing about personal finance Lauren reported and produced for CBC and BBC Radio. Her work has also appeared in The Atlantic.
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