What Is the STOCK Act?
The Stop Trading on Congressional Knowledge Act of 2012, or STOCK Act, became law in the wake of media reports critical of stock trading by members of the U.S. Congress, notably during the 2008 global financial crisis and the legislative debate on the Affordable Care Act in 2009-2010. The STOCK Act significantly expanded the reporting requirements for securities transactions by members of Congress and senior federal officials enacted in 1978. It also made clear members of Congress are subject to U.S. securities laws barring trading on material non-public information.
- The STOCK Act passed in April 2012 with strong bipartisan support following repeated disclosures of heavy stock trading by some members of Congress.
- It significantly expanded the disclosure requirements for securities transactions by members of Congress, requiring monthly reports.
- Compliance with the law's provisions has been spotty, and new congressional trading controversies emerged in connection with the COVID-19 pandemic.
- Several bills pending in Congress as of February 2022 would prohibit members from trading individual stocks and require them to place assets in blind trusts.
Understanding the STOCK Act
The STOCK Act was introduced in Congress in January 2012 and passed in April 2012 with substantial bipartisan support. It followed a November 2011 60 Minutes report highlighting stock trading by members of Congress and suggesting they were not subject to laws barring trading on material non-public information obtained in the course of official duties. The report also described the failure of prior STOCK Act bills to advance in Congress. The segment spurred additional media coverage.
The STOCK Act passed with overwhelming bipartisan support. The Senate approved it by a 96-3 vote. In the House of Representatives the margin was 417-2.
The STOCK Act sought to address the perceived conflicts of interest in stock trading by members of Congress and other federal officials by requiring them to make public all securities transactions with a value above $1,000 within 30 days of receiving notice of the transaction and within 45 days of the transaction date. It also mandated the posting of the filings on the internet. In most cases, the requirements also apply to trades by spouses and dependent children. Under the Ethics in Government Act of 1978, securities transactions by members of Congress and senior executive branch officials had to be reported annually.
The STOCK Act also dramatically broadened the reporting requirement, applying it for the first time to all executive branch employees at the GS-15 pay grade and above. After complaints that this provision exposed the personal financial data of 28,000 federal employees and a lawsuit seeking to overturn the provision by a coalition on behalf of the affected officials, the expansion of the reporting requirement was repealed a year later by unanimous consent in both the House and Senate. STOCK Act provisions continue to apply to members of Congress and senior executive branch officers.
Criticism of the STOCK Act
While the STOCK Act passed by overwhelming margins, compliance with its reporting requirements has been spotty, the initial penalties for violating them modest and the compliance records shielded from public scrutiny. In 2021, news organizations identified 55 members of Congress who violated the law. No public information was available on whether they'd been assessed the initial $200 fine for a reporting violation, nor as to whether they had paid it, a probe by Insider found.
While the STOCK Act affirmed insider trading on material non-public information is a crime, no charges have been brought against a member of Congress under that provision. New York Republican Chris Collins resigned from Congress in 2019 just before pleading guilty to insider trading in connection with his role as board member and significant shareholder of an Australian biotechnology company.
Proving the information acquired in the course of work in Congress was material to a particular stock trade would be harder. The legal hurdles are higher as well, because the U.S. constitution's "speech and debate" clause shields members of Congress from official questioning elsewhere about their legislative work. The Supreme Court has interpreted the clause broadly to bar subpoenas and search warrants related to congressional business, with the notable and limited exception for bribery investigations.
Following revelations that several senators engaged in heavy stock trading following a confidential briefing on the COVID-19 pandemic in January 2020, the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) launched probes, but the DOJ probe has since ended and no civil or criminal charges have been filed.
Not surprisingly, given these issues with STOCK Act compliance and enforcement, the increased reporting of trading transactions by complying officials has deepened public cynicism about their perceived conflicts of interest instead of allaying it. Private sites like House Stock Watcher have made tracking the trades reported under the STOCK Act easier than ever.
Some TikTok users have begun to treat House Speaker Nancy Pelosi's disclosures under the act as actionable information. These are typically disclosures of her husband's purchases of deep-in-the-money call options on some of the largest and most liquid U.S. stocks, unlikely fodder for insider trading. Critics say even the appearance of a conflict of interest is damaging to public confidence in lawmakers.
New Proposals to Stem Congressional Trading
Several new bills pending in the House and Senate would bar members of Congress from trading individual stocks. Although they differ in details, many would force members of Congress to place their investments in a blind trust.
Among proposals pending as of mid-February 2022 were the Ban Conflicted Trading Act co-sponsored in the House by New York Democrat Alexandria Ocasio-Cortez and Florida Republican Matt Gaetz, among others; the TRUST in Congress Act, also in the House; the Ban Congressional Stock Trading Act in the Senate; and the Bipartisan Ban on Congressional Stock Ownership Act, also in the Senate.
Pelosi, the California Democrat who has previously said members of Congress should be able to trade stocks on the same terms as everyone else, was reported in February 2022 to have accepted the need to restrict such trading.
Congressional Trading Controversies
Congressional trades following meetings with senior government officials during the 2007-2008 global financial crisis have been widely reported. Following the 60 Minutes report in 2011 the Office of Congressional Ethics investigated the frequent trading during the crisis by House Financial Services Committee Chairman Spencer Bachus, an Alabama Republican. The probe cleared Bachus months later.
Georgia Republican Tom Price made trades worth more than $300,000 in health care stocks between 2012 and 2016, sometimes while pursuing legislation material to their prospects. He was confirmed as health and human services secretary in 2017 following the disclosure.
Several U.S. senators traded heavily shortly after receiving a confidential COVID-19 briefing in January 2020. Senate Intelligence Committee Chair Richard Burr, a North Carolina Republican, sold between $628,000 and $1.72 million of his stock holdings in 33 separate transactions on Feb. 13. Burr, one of the three senators to vote against the STOCK Act, also sold nearly $47,000 of a Dutch fertilizer stock in 2018 shortly before it declined 40%.
Georgia Republican Kelly Loeffler and her husband Jeff Sprecher, CEO of Intercontinental Exchange Inc. (ICE) and chair of the New York Stock Exchange, initially disclosed selling between 1.275 million and $3.1 million of stock in the three weeks following the closed-door briefing. Loeffler and Sprecher later reported additional stock sales during the period, including Intercontinental Exchange stock worth $18.7 million.
California Democrat Dianne Feinstein and her husband sold $1.5 million to $6 million in shares of a California biotech company in transactions split between Jan. 31 and Feb. 18 in 2020. Meanwhile, Oklahoma Republican James Inhofe sold up to $400,000 in stock on Jan. 27, 2020. The Justice Department ended probes into the trading by Inhofe, Feinstein, Loeffler and their spouses in May 2020.
In the summer of 2020, the Justice Department closed its probe into the trading of the shares of Cardlytics Inc. (CDLX) by David Perdue, a Republican Senator from Georgia who previously served on the company's board. Perdue had drawn scrutiny by reporting 194 separate securities transactions over February and March of that year.
The Justice Department informed Burr it had dropped the probe into his trading in January 2021. The Securities and Exchange Commission was still probing his stock trading as of October 2021, the agency disclosed in court filings.