Mike Lowry
Getting Rich
From Government Employment
Insider trading has plagued Cong r e s s for years. One law proposed by Sen. Josh Harley (R-MO) is under consideration, named the PELOSI Act (Preventing Elected Leaders from Owning Securities and Investments Act) which has been renamed the Honest Act. This law if passed would require all federally elected officials to divest all financial investments.
The name of this proposed act is clearly a not too subtle acknowledging the questionable stock trades by form Speaker of the House Nancy Pelosi and her husband. The Pelosi couple have a reported wealth of over $418 million, much of it from stock purchases and sales.
They made a major purchase of NVIDA stock just days before Congress passed the $32 billion semiconductor subsidy bill. Stories of this trade and similar trades by others in government have put pressure on Congress to do something.
Another law being considered is to require elected officials in Congress and Senate to put their investments in a blind trust.
Officials of both Democrats and Republicans have divided opinions of such proposed laws. They note many elected officials come from business and could be forced to face a major expense just to serve in office.
Others question how well a blind trust would do with investments. President Jimmy Carter put his investments in a blind trust that lost him a lot of money by the end of his term as president.
The issue of insider trading and advantage of inside government knowledge is not new. Back in the 1970s, Mark Warner, while an undergraduate at George Washington University, went to work as an aide to Sen. Christopher Dodd.
In this job, he had inside knowledge of actions being considered by Congress regarding dramatic changes coming in the telecommunications industry. This knowledge included deep procedural knowledge of how federal contracts and regulatory announcements like those in the Congressional Record were published and distributed.
He reportedly acted quickly on public information, sometimes before it was widely disseminated, to secure valuable licenses and contracts. The action was not illegal at the time because the information was “technically” public — even if access was limited to insiders who knew where and when to look!
Warner used what officials call “informational arbitrage,” that is, using procedural knowledge to gain a market edge. While ethically questionable by today’s laws, it was not considered insider trading under the laws of the time.
The STOCK Act (Stock Trading On Congressional Knowledge Act) was passed to prevent this kind of behavior by requiring timely disclosure and banning the use of nonpublic information for personal gain by government officials — and staff members! The prior laws only applied to elected officials.
Warner used his strategic knowledge, how and when government information would become actionable and his deep understanding of FCC licensing procedures to make a fortune in the cellular phone industry.
Today with an estimated wealth of over $250 million, Warner is one of the wealthiest senators. Today he continues to buy and sell stock and has invested heavily in municipal bonds, particularly bonds issued in Virginia where all interest earned is exempt from both state and federal income tax.
More information on Warner, Pelosi and other government officials’ stock and buying and selling can be found by going to the Quiver Quantitate website.
The 2012 STOCK Act was supposed to stop insider trading, but enforcement has been weak with violations rarely prosecuted, penalties of minimal (i.e. $200 for late disclosers) and no criminal referrals for repeat offenders.
In you are not in Congress and violate insider trading laws, you risk heavy fines and prison time. Martha Stewart served a prison term for the same crime many government officials violated with no punishment at all.
Recently, a congressional committee passed the proposed Honest Act that would ban stock and investment trading by all lawmakers from Congress and Senate, the president and vice president by forbidding any of them or spouses or dependent children from owning stock, bonds, and other investments like commodity futures, investment real estate or crypto currency. The bill allows officials elected prior to the act taking effect to have until the end of their current term to end to divest. Newly elected officials would have 90 days to divest all such holdings.
The proposed law was passed on a close vote but was opposed by representatives of both parties for a variety of reasons. Many do not believe the bill that passed the committee would ever be approved by the full Congress and viewed as mere window dressing the committee members could use to claim they are working to stop insider trading.
Other bills, such as requiring the politicians to put their investment holding in a blind trust, face similar opposition. Most expect Congress to take some action but probably more in line with putting real teeth into the STOCK Act.
Until something is done, we can expect more stories like Sen. Ricard Burr (R-NC) who sold between $628,000 and $1.7 million in stock after a closed meeting on Covid on Feb. 13, 2020, and called his brother-in-law who also sold his stock holdings. FBI investigated and Burr stepped down from heading the Senate Intelligence Committee, but the Justice Department dropped all charges against him in January 2021.
Sen. Kelly Loefflerr (R-GA) attended a closed meeting on Covid on Jan. 24, 2020, and in weeks that followed sold between $1.3 and $3.7 million worth of stock, as well as purchasing a large holding in Citrix, a company that gained value because of the working remote trend. She claimed the actions were without her knowledge by a third party. The DOJ dropped investigation in May 2020.
Sen. Diane Feinstein (DCA), after she attended a closed COVID meeting, saw her husband sell between $1.5 and $6 million in stock. She claimed the investments were her husband’s stock as her assets were in a blind trust. FBI investigated but no charges were filed.
Apparently, Pelosi and Feinstein don’t talk to their husbands about political issues that could affect the stock market, and the husbands just had great insight to make amazing stock trades!
Some thoughts for your consideration.
