Congress Moves For Emergency Containment of Ethics Outbreak

Below is my column in The Hill newspaper to the latest outbreak of ethics and the politically distancing being used by members to control the outbreak over insider trading. Notably, Minority Leader Chuck Schumer was adamant on barring businesses owned by President Donald Trump and Vice President Mike Pence from benefiting from the stimulus package. Notably absent however was a similar ban for members who have considerable stock or ownership interests in such companies.

Here is the column:

Members of Congress are moving with speed and determination to meet an existential crisis on a bipartisan basis. This is not about the coronavirus. The public has learned, once again, that lawmakers may be profiteering in the stock market. Members from both parties have worked for decades to prevent the closing of this obvious avenue of corruption. I know because I have been advocating for two decades that members of Congress should agree to the mandatory use of blind trusts for any stock ownership.

But members of Congress know voters will soon move on, distracted by the outbreak of a deadly disease or redirecting their political rage against the opposing party. The past incubation period for ethics outbreaks is only a couple of weeks and, with some political distancing, the curve is already flattening out. Lawmakers can rest easy because normalcy is simply one news cycle away and, until then, they are tax sheltering in place.

Several members of Congress have been denounced for dumping stocks before the government took critical measures to deal with the pandemic. Senators Richard Burr, Kelly Loeffler, James Inhofe, and Dianne Feinstein together are responsible for as much as $11 million in recent stock sales. It turns out that many lawmakers become market investment geniuses after they enter Congress. A University of Memphis study found that 75 percent of randomly selected members had made “stock transactions that directly coincided with legislative activity.” A Georgia State University study noted that, from 1993 to 1998, senators beat the stock market by 12 points with their portfolios and outperformed “corporate insiders” by 8 points.

Over the years, I have written about the obvious profiteering by members through insider information, stock manipulation, and sweetheart deals. It is not just a problem for the lawmakers. In 2016, the spouse of an aide to House Speaker Nancy Pelosi bought stock in two pharmaceutical firms, just before Congress passed a bill benefiting the companies. In 2017, the Senate demanded that the Justice Department open an investigation into the drugmaker Mylan. Nine days later there was a $465 million settlement with the company. Meanwhile, during that brief period, an aide to Senate Minority Whip Richard Durbin sold tens of thousands of dollars of Mylan stock. An investigation by Politico revealed numerous examples of such suspicious trades by House and Senate staffers of both parties.

Whenever a member of Congress is caught in such a scandal, Washington immediately turns to its timely and proven emergency plan and protocol. First, all lawmakers will express shock and dismay. Second, the affected members call for ethics investigations of themselves. Third, Washington waits for the next shiny object to dangle before voters. Why not? We fall for the same $5 genuine gold watch scam over and over again. The two political parties have us so wired into hating the other side that we still refuse to accept that both parties are equally craven and corrupt.

Right on cue, Washington has moved gingerly through phases one and two of its emergency contingency plan. Senate Minority Leader Charles Schumer and members like Burr have called for ethics investigations. This, after all, is what the ethics rules of Congress are really designed for. They give cover to the alleged corrupt practices of members. What happened here is perfectly legal and, even more troubling, ethical under the rules of Congress. There is no requirement of a blind trust by members.

Under a blind trust, the trustees and beneficiaries generally communicate only to discuss asset distributions, to discuss general investment goals or to disclose summary trust information required for tax purposes. A blind trust is a mandatory requirement which lawmakers in neither party want. Accordingly, when scandals arise, members pass legislation named for public consumption, like the laughable Stop Trading On Congressional Knowledge Act which, notably, does not stop members from trading on congressional knowledge. The law, also known as the Stock Act, applies the same insider trading rules to members and staff that are applied to company executives. While fines are possible, they are unlikely.

Insider trading cases are hard for prosecutors to make against members of Congress because the law was designed to punish corporate officials who trade stocks by using proprietary information. Members of Congress do not deal with proprietary information held by company executives and, even with the broader definitions applied by the courts, it would be very difficult to use the legal language to fit legislative profiteering.

Moreover, legislative information usually holds some public controversy component that can be pointed to as the reason for a trade. Indeed, Burr has claimed that his decision was based on public information, a defense that would be challenging to defeat given the level of media attention and the varying reports that were being aired. While a shareholder would face alleged securities fraud in a civil action, Burr can legitimately claim that his action to sell simply showed better instincts than information.

The Stock Act has worked as members intended, however, as the public eventually moves on. One year after its passage, Congress then quietly amended the law to reduce disclosure requirements. The leadership on Capitol Hill passed the bill in “30 seconds” while most members were out of town to further reduce accountability. President Obama held a massive ceremony to sign the original bill, but his signing of the amendments one year later resulted in just a single sentence acknowledgement.

This is just one of the many federal loopholes that have allowed members of Congress to grow rich in public service. This includes the ability of the children and spouses of our elected officials to receive windfall contracts and undeserved positions from companies to buy influence, while elected officials can insist there is nothing illegal about such deals. This is how the rules are written. They facilitate, not frustrate, special dealing.

As so many of our leaders in Congress have declared, this crisis will pass. The ethics investigations will drag on, and public attention will shift back to political rage. Voters will soon be denouncing the opposing party with the same reliable and willful blindness to the transgressions in their own party. For now, both Republicans and Democrats are remaining steadfast and assuring their respective voters to keep calm and carry on.

Jonathan Turley is the Shapiro Professor of Public Interest Law at George Washington University. You can follow him on Twitter @JonathanTurley.

173 thoughts on “Congress Moves For Emergency Containment of Ethics Outbreak”

  1. Reports of questionable trading by four senators in advance of the recent market meltdown didn’t exactly send shock waves through Washington, D.C. Senate Majority Leader Chuck Schumer (D-NY) has called for ethics investigations, a necessary, but not sufficient response. Perfunctory responses of this type bring to mind that famous scene from the 1942 film Casablanca in which Captain Louis Renault, Vichy France’s Prefect of Police in Casablanca blurts out his famous line. While pocketing his winnings for the evening, he declares with an absolutely straight face that he is “shocked, shocked” that gambling has been going on at Rick’s Café. The investing public will derive little comfort from internal congressional investigations. More intense scrutiny is required.

    I do not think that we know yet whether the STOCK Act of 2012 is, in fact, “toothless” legislation. Last year Representative Christopher Collins (R-NY) entered a guilty plea following an indictment for insider trading. The crime alleged, however, involved the “classic” theory of insider trading because he traded on knowledge gained in his position as an insider of a company. The STOCK Act was designed to stop government officials and employees from trading in securities or derivatives based on information or knowledge derived as a result of their governmental positions. It accomplished that by amending the federal securities laws to impose an explicit duty on members and employees of Congress, as well as executive and judicial branch employees with respect to material nonpublic information. Although the STOCK Act does not define the term “nonpublic governmental information” for purposes of the prohibitions against insider trading, it would be reasonable to conclude that members of Congress who had been privy to intelligence reports about the coronavirus and its probable impact on the economy were prohibited by the statute from trading on information derived from those reports

    Members of Congress are subject to possible criminal and civil penalties for violations of the insider trading laws. Moreover, members of Congress who are convicted of felonies involving public corruption while serving as elected officials are barred from receiving federal pensions. On March 23, the Co-Directors of the SEC’s Enforcement Division issued a stern reminder to those who may have access to material nonpublic information of their responsibilities under the federal securities laws: “The Enforcement Division is committing substantial resources to ensuring that our Main Street investors are not victims of fraud or illegal practices in these unprecedented market and economic conditions. The Enforcement Division is committed to protecting investors and maintaining confidence in the fairness and integrity of our markets.”

      1. It’s not a religious source and has been trying to produce real news. That is why you won’t like it. Actually it was originally geared to Hong Kong so they have some additional insight on China.

        You wouldn’t know these things because you wear blinders and can’t think critically.

        1. “The Epoch Times is a multi-language newspaper[2] founded in 2000 by John Tang and a group of Chinese Americans associated with the Falun Gong spiritual movement.[3] Though the newspaper is known for general interest topics with a focus on news about China and its human rights issues, it has become known for its support of U.S. President Donald Trump and favorable coverage of far-right politicians in Europe; a 2019 report showed it to be the second-largest funder of pro-Trump Facebook advertising after the Trump campaign.[4][5][6][7][8][9][10][11] The newspaper is part of the Epoch Media Group, which also operates New Tang Dynasty Television (NTD).[7] The group’s news sites and YouTube channels have spread conspiracy theories such as QAnon and anti-vaccination propaganda.[7][12][13]” (Wikipedia)

          1. I’ve read in the past what Wikipedia said about Project Veritas. Wikipedia is politically left oriented and spins political issues towards the left. Any political entity that is to the right of their positions will generally be slimed.

            Argue with the news that Epoch reports. They report what they see and editorialize on the editorial page. That is quite different than the NYTimes and WaPo which spin the news on the front page with anonymous reports and a record of innacurate reporting that is appalling. Of course you can’t even write under a distinct alias and rely on anonymity surrounded by others with the same name. That tells us where you are coming from and that what you say is worthless. If it wasn’t worthless the least you would do is write under a distinct name.

      2. Allan says: “George, I thought you might find this interesting.”

        Allan finally gets something right.

    1. “The Epoch Times is a multi-language newspaper[2] founded in 2000 by John Tang and a group of Chinese Americans associated with the Falun Gong spiritual movement.[3] Though the newspaper is known for general interest topics with a focus on news about China and its human rights issues, it has become known for its support of U.S. President Donald Trump and favorable coverage of far-right politicians in Europe; a 2019 report showed it to be the second-largest funder of pro-Trump Facebook advertising after the Trump campaign.[4][5][6][7][8][9][10][11] The newspaper is part of the Epoch Media Group, which also operates New Tang Dynasty Television (NTD).[7] The group’s news sites and YouTube channels have spread conspiracy theories such as QAnon and anti-vaccination propaganda.[7][12][13]” (Wikipedia)

  2. Hey jokers, just so you know – since Turley dutifully leaves out the moron-in-chief and his associates’ perversity – slumlord son-in-law is now out with begging bowl for taxpayer bailout all the while sending stern letters to his renters to pay on time.

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