By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
Last week saw the release of news showing some Congresscritters plumbing new deaths of ethically challenged behaviour. Seems that after receiving briefings about the coming COVID-19 calamity, senators Richard Burr and Kelly Loeffler, cooed reassurance to constituents – and then proceeded to dump shares.
As Politico tells the story:
Burr, the chairman of the Senate Intelligence Committee, on Friday called for a Senate Ethics Committee investigation into his trades amid an uproar over reports that he had sought to safeguard his portfolio against the looming pandemic even as he assured the public all was well. Burr, who had been present for a classified briefing on the outbreak in late January, wrote an op-ed declaring the U.S. “better prepared than ever before” to face down the virus on Feb. 7 — six days before unloading at least $628,000 of his own stock as the market was peaking.
And Burr’s not the Senate’s only COVID-19 miscreant. Politico again:
The North Carolina Republican is one of several senators, including Loeffler, Sen. Dianne Feinstein (D-Calif.), Sen. James Inhofe (R.-Okla.) and Sen. David Perdue (R-Ga.), who sold stock in late January and early February as the Senate was ramping up coronavirus briefings.
And, again according to Politico, nor are efforts to dodge the financial impact of COVID-19 limited to esteemed senators:
Previously unreported lawmakers who sold assets in the weeks leading up to the market crash include Rep. Susan Davis (D-Calif.), who unloaded thousands of dollars of stock in Alaska Air and Royal Caribbean cruises. A senior aide to Sen. Mitch McConnell made a mid-January purchase of Moderna, Inc., a biotechnology company that had four days earlier announced it would begin developing a coronavirus vaccine. And an aide to Sen. Jeanne Shaheen, who serves on the Senate Foreign Relations Committee, sold off stock in companies including Delta Airlines in late January and later bought stock in Clorox, Inc., which makes bleach and sanitary wipes.
….
Davis, the 10-term California Democrat who is a member of the House Armed Services and Education and Labor Committees, unloaded stock on Feb. 11 in the airline and cruise industries, two sectors that have since been ground to a halt by the pandemic nearly two weeks before the market tanked. Davis’ spokesman said she has a “third party handling her portfolio and does not play a role in the purchase or sale of her stocks.”
Alrighty then. Politico’s account has more sordid details, concerning additional players and transactions, so I encourage you to read it in full.
Under current law, again according to Politico:
It’s illegal for lawmakers and aides to trade stocks based on private information. But they are allowed to buy and sell shares based on public information they absorb on Capitol Hill so long as they disclose those trades within 30 days. That permissive approach to buying and selling stocks — the executive branch has much stricter rules — has drawn criticism from watchdogs who argue the freedom to trade isn’t as important as the need for the public to trust Congress to act only on its behalf.
A Modest Proposal
Congress has long played fast and loose in the realm of insider trading – and surprise, surprise, just as Dodd-Frank didn’t protect us from financial meltdowns, so the Stop Trading on Congressional Knowledge (STOCK) Act, signed into law on April 4, 2012, didn’t eliminate the sort of behavior that anyone but a Congresscritter would recognise as problematic
Here I find I do agree with Harvard Professor Laurence Tribe’s tweet:
Given the STOCK Act of 2012, any halfway decent Attorney General would by now have directed the DOJ to open criminal insider trading investigations into Senator Burr and the other Senators who exploited their positions to profit by endangering the publichttps://t.co/10TCX4xto5
— Laurence Tribe (@tribelaw) 20 March 2020
By calling for an ethics committee inquiry, Burr seems confident that he did nothing wrong.
And, who knows, according to the letter of the law – or what some clever white shoe lawyer can twist it to mean – he may not have done.
A Modest Proposal
So, I have a modest proposal to advance. One that will not result in the death of any innocent babies.
Keep the current framework, with one major immediate change.
Let the Congresscritters trade away on “public information”. Invest. Buy and Sell.
Provided that, within 24 hours of booking a trade, they also fully disclose, online, their transactions, in a simple, easy to understand format.
They would have already made the trade. Make them post the confirm.
And to prevent unseemly attempts to circumvent the law, make related party transactions subject to similar disclosure requirements, akin to those that currently that apply to politically exposed persons under anti-money laundering requirements. In other words, a Congresscritter can’t route a personal transaction through a spouse, progeny, Grandma, weird Uncle Albert, a next door neighbor, or a professional colleague, so as to elude the disclosure requirement.
I would extend this immediate disclosure requirement to staff members as well.
An alternative to this idea is to upend the existing system, to require all Congresscritters to place all their holdings in a blind trust – managed by trustee – and then throw the full force of the US securities law at anyone who indulges in a dodgy transaction. Because if IIRC, the Securities and Exchange Commission (SEC) cannot pursue Congresscritters directly.
But some immediate problems would arise. First, the lack of tough SEC enforcement capability.Yes, I will concede say that the SEC has a (slightly) better track record on insider trading than in other areas. But I doubt whether their attorneys would zealously pursue transgressions on the part of trustees acting on behalf of Congresscritters. Ditto for congressional staff. And even if some SEC enforcement staff have the gumption go after these targets, they would first have to flag the trade, then initiate and pursue the enforcement action. Which would take time. And would happen way after the date of the alleged offense.
I’m not just aiming to crack down on potential profiteering. I’m trying to change the system so that when key members of Congress act to safeguard or enhance their portfolios, we the public see that activity in real time.
Yet another option would be to restrict Congresscritters to a limited choice of investments, somewhat analogous to the crappy options available in many 401(k)s.This might include index funds, with low fees.
The trouble with this option is that Congresscritters still have access to information that affects the broad market – and as we see above, some of them traded on that knowledge. In other words, they know the shit is about to hit the fan, but the problem is they think they can protect their finances but have no obligation to clue us, the public, into impending catastrophe. Again, this solution might trim the profiteering, but without letting us know the real score.
What Is to Be Done?
Require all congressional trades to be subject to my modest proposal: immediate disclosure, in a clear, simple format, online.
Then we could immediately see which Congresscritters aren’t putting their money where their mouth is.
And ask them just why this is the case.
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This still gives them time to benefit from their insider knowledge ahead of the public. It also makes the act appear more above board because now it’s posted somewhere. The only beneficiary of this idea will be fund managers who use a strategy of tracking to congresscritters’ portfolios.
How about just restricting all investment of congresscritters and spouses to the TSP fund options, to be only adjusted during once a year open season period (coinciding with Congressional recess) and out of season adjustments only permitted for certain life changes (like buying a house or suddenly needing a white collar criminal defense lawyer). If they don’t like the restrictions, they can take their valuable talents elsewhere.
Ditto for any SES or above appointments.
Or we could all just agree that the people responsible for high level policy – presidents, congressmen, senators, cabinet members, and their high level staff, ought to be required to put their financial assets in a blind trust.
This was addressed in the article:
“An alternative to this idea is to upend the existing system, to require all Congresscritters to place all their holdings in a blind trust – managed by trustee – and then throw the full force of the US securities law at anyone who indulges in a dodgy transaction. Because if IIRC, the Securities and Exchange Commission (SEC) cannot pursue Congresscritters directly.
But some immediate problems would arise. First, the lack of tough SEC enforcement capability.Yes, I will concede […] that the SEC has a (slightly) better track record on insider trading than in other areas. But I doubt whether their attorneys would zealously pursue transgressions on the part of trustees acting on behalf of Congresscritters. Ditto for congressional staff. And even if some SEC enforcement staff have the gumption go after these targets, they would first have to flag the trade, then initiate and pursue the enforcement action. Which would take time. And would happen way after the date of the alleged offense.
I’m not just aiming to crack down on potential profiteering. I’m trying to change the system so that when key members of Congress act to safeguard or enhance their portfolios, we the public see that activity in real time.”
I find merit in JLS proposal here, if only because having this out in the open would invariably shine more light on our horrid kleptocracy. This transparency would hopefully translate to more people elected to government losing their jobs.
“Transparency” is smoke and mirrors. Just a buzz word conned up by the PR message massagers. So what if the thieves that make up “the world’s greatest deliberative body” put some bit of a notice in some obscure place, kind of like “legal notices” in state and local government. With what we have in the way of investigative journalists and government enforcers, and the feebleness of “hue and cry” generally in our culture, just giving some feeble notice that they have pulled off another scam, “corruption” pure and simple under the definition common here. No way any of these folks, all part of that “club” George Carlin reminds us we are not in.
Let’s recall that Feinstein also did some dirty trades in this latest outrage. What others of the great deliberators have pulled the same trick, along with all the others? How about a quick DDG search on “Feinstein corruption.” I’m sure there are lots of entries in the mainstream media, to go along with this one: http://www.floppingaces.net/2007/05/02/feinsteins-corruption-ignored/
Here is another modest proposal. A certain Monsieur Guillotine has recently invented a clever device that ends bad behavior almost instantly.
{Although I am opposed to capital punishment, I am willing to make exceptions. Trying not to be too bloody minded this morning, but I do recall that Roman and Japanese emperors sent notes to people informing them that suicide was their best option.}
Currently, we live in a financial world in which the only convicted criminal is Martha Stewart. Yes, the woman who brought you recipes for marshmallows from scratch seems to have corrupted the whole U.S. system of equities, stocks, investments, and trades.
I suggest that all of the men and women listed in the post be charged with crimes. With the feckless Dianne Feinstein for funsies. That’ll soon clean up the behavior in the Congress. When you have war profiteers sitting in Congress, you have to charge them with their crimes. This is what grand juries are for.
I also note that several of the perps are women. So much for that higher-moral-standard and exceeding-competence foofaraw.
They broke that glass right at the top !
Like most good ideas, if enacted, there would be loopholes to get around it. I’m a practical person and live in the real world. The elite in power are going to protect their status at any cost. Why are so many laws passed even though the public is opposed to them? People have been brain washed for so long that many can’t make a rational decision. The do and say what they are told. I , before they were closed went to a local bar frequented by blue collar workers. They make more that a School teacher but don’t have a college degree. We have two state prisons and many of them work or worked in a prison. They aren’t stupid people but never got a formal education beyond high school. I mostly listen to the conversations. I learned long ago that you won’t change their thinking so it’s counter productive to even try. The conversations are mostly a repeat of what they have been told. Only rarely do you hear anything original. Unfortunately this is what the majority of the population is like. It’s one of many reasons why we have a government that doesn’t represent the people. As an example I listened for 8 years about how bad Obama was. He did nothing but golf and go on vacation. The same people that had taxpayer funded health care insurance were opposed to other people getting health care insurance.Obama told us we could keep our own doctors was his big lie. The very same people are silent about their hero Trump. In there mind Trump can do no wrong. In fact these people say the economy only improved once Trump became president. Apparently they suffer from Amnesia.Almost on a Dailey bases I hear someone say how great our country has become because Trump is president. This my friend is the real world not the one I would like it to be.
Provided that, within 24 hours of booking a trade, they also fully disclose, online, their transactions, in a simple, easy to understand format.
Why the 24 hours?
Good point! The required reporting should be immediate: if a Congresscritter, staffer, or related party trades, s/he must disclose immediately.
One also needs to know the 2012 Stock act was quietly amended about a year later.
Here is a comment I made a few days ago, note the rot could go a lot deeper as 28,000 senior officials were exempted from posting stock transaction data in the 2013 Amendment,
https://www.nakedcapitalism.com/2020/03/links-3-20-2020.html#comment-3322126
see https://en.wikipedia.org/wiki/STOCK_Act
This was passed, with righteous fanfare, on April 4, 2012
Then it was quietly amended on April 15, 2013, with bipartisan approval.
Note that for many senior government officials “their records are no longer easily accessible to the public.”
Also “The amendment also eliminated the requirement for the creation of searchable, sortable database of information in reports, and the requirement that reports be done in electronic format, rather than on paper.”
So the congress pushes for paper records when it suits them, but not paper ballots, that could benefit voters.
“The STOCK Act was modified on April 15, 2013, by S.716. This amendment modifies the online disclosure portion of the STOCK Act, so that some officials, but not the President, Vice President, Congress, or anyone running for Congress, can no longer file online and their records are no longer easily accessible to the public. In Section (a)2, the amendment specifically does not alter the online access for trades by the President, the Vice President, Congress, or those running for Congress. The reasoning for this change was to prevent criminals from gaining access to the financial data and using it against affected persons. This bill was introduced by Senator Harry Reid on April 11, 2013. It was considered by the Senate and passed by unanimous consent. In the house, S.716 received only 14 seconds of discussion before being passed by unanimous consent.”
“The main provision that was repealed would have required about 28,000 senior government officials to post their financial information online, something that had been strongly criticized by federal government employee unions. A report by the National Academy of Public Administration, published in March 2013, said that the provision could threaten the safety of government employees abroad, as well as make it difficult to attract and retain public sector employees.”
“The amendment also eliminated the requirement for the creation of searchable, sortable database of information in reports, and the requirement that reports be done in electronic format, rather than on paper.”
Exactly – is esteemed law expert Tribe, admittedly a notable sufferer of TDS, unaware of the law here? BTW, I posted the same Wikpedia link/passage in another online forum, but then someone pointed out that the wording is confusing:
“…some officials, but not the President, Vice President, Congress, or anyone running for Congress, can no longer file online and their records are no longer easily accessible to the public. In Section (a)2, the amendment specifically does not alter the online access for trades by the President, the Vice President, Congress, or those running for Congress.”
Here are a couple other articles which appear to get the details right:
Why Congressional Insider Trading Is Legal – and Profitable | Investment U
And here, from ref. [12] in the Wikipedia article:
So, the 2013 loophole introduced via 10-second-floor-discussion amendment to the 2012 STOCK Act which allowed Burr et al to insider-trade in the way they did passed both houses of Congress by unanimous consent, and was signed into law by then-president Obama. Again, the scandal is what’s legal, and the fact that it’s only legal for the same clique of lawmakers who made it legal for themselves and their cronies.
Thanks for posting this.
“By calling for an ethics committee inquiry, Burr seems confident that he did nothing wrong.”
By calling for an ethics committee inquiry, Burr seems confident that his cronies will come up with a finding that he did nothing wrong.
There, fixed it.
Good correction – I agree!
The problem driving all the shelter-in-place orders is panic coming from health care providers and public safety people. Why are they panicking? Didn’t they sign-up for this?
They are panicking because they have been forced to “fly blind” about whether they or those they care for have been exposed to or are suffering from COVID-19. Why no tests? Because the people in Washington, in both the Trump administration and the congressional leadership, were more concerned during January and February about “calming the markets” and cooing that there was no urgency to test people.
The recent study in Pù, Italy shows that 100% testing and targeted quarantines would have knocked this thing down without forcing millions who are healthy to forego paychecks and lose their livelihoods. It is now clear that this Auschwitz Orchestra “calming of markets” was intended as cover as the Washingtonians headed for the exits. They must be turfed-out and their assets confiscated. All of this could have been prevented if the focus had been on producing and distributing test kits nation-wide.
No test data and no PPE. That should make the front-line medical workers relaxed and copasetic because there is no evidence there is a danger.
Correction: Vò, Italy.
https://www.theguardian.com/commentisfree/2020/mar/20/eradicated-coronavirus-mass-testing-covid-19-italy-vo
And ask them just why this is the case.
Yeah, that’ll fix ’em! Didn’t Sen Loeffler just answer those questions? Not very convincingly, but she’s new at this. I am sure she’ll get better with practice, maybe even up to the Feinstein/Pelosi standard.
OK, how about the put all their holdings into a blind trust. One blind trust, like a huge congressional 401K, and it is managed by, oh, CalPERS, or Larry Summers. Or indexed to the minimum wage or the median life expectancy — many fun options.
A blind trust managed by an insurance company with 3% front-end loads and surrender charges along with 1%+ annual expense ratios would be the way to go.
Not a bad idea.
How about we take a page from the Neo-liberal playbook and have all Government higher level apparatchiks paid like the CEOs are. A base salary and stock in an “American Hedge Fund.” Tie the AHF to a basket of indexes, tied directly to the real economic health of the nation. When America does well, all of America, the AHF does well, and the apparatchiks do well. When ‘things’ turn sour on Main Street, the AHF, and the apparatchiks whose “stock options” are based on the AHF take a haircut.
Determined by the makeup of the AHF, such a scheme can have a salutary effect on America as a whole.
Many have observed that, considering the high costs of running for office in America, politicos seemingly cannot be considering the salaries on offer for public service as their prime motivation. With the AHF in the mix, we can make the “true” motivations for pursuing public service jobs clear and, no less important, a source of ‘public spiritedness’ in the Public Service Sector.
They all, the whole frickin lot of em .. should be trussed in orange, to spend their time in a blindingly dark cell !!!
Forever !
I work in a publicly traded company. We have black-out periods before and after quarterly earning reporting dates. The black-out periods are pretty long. Congress, the Administration, and their staffers should be precluded from doing any financial instrument trading other than normal scheduled purchases and rebalancing while Congress is in session. This would be on top of immediate disclosure within 1 business day of any unscheduled purchases or sales.
Excellent point about black-out periods, and another thing well worth considering. This post has sparked an interesting discussion – the naked capitalism commentariat is the best!
Didn’t Feinstein have a blind trust managed by her husband? What about Warren’s proposal to bar any stock trading while in office?
DiFi’s sale was a biotech stock that doesn’t seem to have a direct connection to Covid-19, and she has a big portfolio. I believe the trade was hands-on by her husband, Mr. Blum. And it actually lost money–the stock has risen (at least for a time) since the action.
This is in no way a defense of any of her Neoliberal, unconscionable policy positions.
As always, the linking tool doesn’t work with the combination of my CPU, OS, and browsers.
Or maybe simply appoint a compliance officer who has to approve/refuse applications to trade stock, before congress critters or their accomplices can do so.
Prediction: Compliance officer co-opted in 3-2-1.
Maybe you are right, the compliance guy will then be the fall guy taking the rap.
It seems easier to simply require blind trust and that all communications from the career criminals err I mean “Congresspersons” be in the form of an affidavit mailed so that perjury and mail fraud can be counts II and III. Plus mandatory minimum sentences, asset stripping, and pension loss. I have no personal objection to capital punishment for anyone who took an oath office to protect and defend. Perhaps even jury sentencing.
Is Congress full of little chipmunks?
No. Most of them are sharks.
Please stop referring to them as critters. It’s so misleading.
Thanks.
I would add lampreys and tapeworms too, etcetera, After all, there is some diversity in the Mahoganyed, Marble Floored Halls of Congress™.
How many of these persons who are in a position to abuse their power, as here, would take the job if they thought they could not financially profit ?
And how many take the job because they are able to twist, bend and amend the rules to their advantage ?
Maybe if we change the rules, those who now take the jobs in order to profit financially wouldn’t pursue elected office – and that would be a good thing, no?
That would be a good “thing “, YES .
Yet who are the “we “, to whom you refer, to change the rules when the present rule makers and changers are the perpetrators ?
I think we should know when they buy as well.
This nothing new. Decades at least. This is just a guess, but it probably got a very big boost when Wall Street gained strength in the 80s/90s and eventually overtook the rest of the economy. IIRC, when last I checked about five years ago, almost every (there were a few honorable exceptions) member of Congress had extremely profitable investments portfolios.
It does explain the mania to protect the stock market and Big Finance while everyone else drowns. Freebies for the nomenklatura while the Democrats demand overly complicated means testing and the Republican treat the needy as moochers.
The problem with the proposal is that it would just encourage them to “churn” on a regular basis so that their insider info blended in better.
To presume that no one would have traded at all in January and February without insider info is silly. But dumping cruise lines after a confidential meeting would get most Wall Streeters investigated by the SEC.
My proposal would be for all public servants to have their investments limited to Treasury bonds while in office, so they’ll keep the American public’s interests in mind.
By Singapore standards most all of our leaders would be investigated and ‘Wealth disproportionate to a person’s earnings could now serve as corroborative evidence when a person was charged with corruption. guilty of bribery.’ This was adopted from British law as Lee Kwan Yew was a British trained lawyer. As I understand it Burr was a lawn mower salesman in Raleigh before he entered the exalted halls of Congress. He makes 170000 per year.
CPIB ‘helped raise Singapore’s standing’
Lee Kuan Yew outlines critical role it played in helping Republic to prosper
By Leonard Lim, The Straits Times, 19 Sep 2012
SINGAPORE’S graft-busting watchdog and its officers have contributed to the country’s standing, founding prime minister Lee Kuan Yew said yesterday.
They give confidence to investors, which has led to national progress and prosperity, he said, in hailing their efforts as the Corrupt Practices Investigation Bureau (CPIB) marked six decades of stamping out bribery.
Mr Lee and his successor Mr Goh Chok Tong were special guests at a ceremony marking the occasion yesterday.
Mr Lee added in a statement: “We must remain vigilant and ensure that Singapore continues to be regarded as one of the least corrupt nations in the world, with a clean public service and businesses that abhor corruption.”
Singapore has remained clean despite being in an area where bribery is endemic, he noted, and its challenge is to stay corruption-free.
His mission when he became prime minister in 1959, he recalled, was to establish a clean and efficient government against such a corruption-ridden backdrop.
The CPIB had been set up seven years earlier by the British, but little was done because the CPIB lacked the necessary resources and legal powers, and corruption remained commonplace.
So, then PM Mr Lee set about tightening the laws and entrenching a zero-tolerance stance towards bribery.
Wealth disproportionate to a person’s earnings could now serve as corroborative evidence when a person was charged with corruption. Systems to ensure every dollar in revenue was accounted for were established. Instruments to prevent, detect and deter instances in which discretionary powers could be abused were sharpened.
“We… gave CPIB officers more powers of interrogation and to seize documents,” he said.
Nobody was exempt, including the prime minister himself, whom the CPIB was directly under.
If the head of government refused to give his consent for the agency to make inquiries into a case, its director could seek permission from the president.
The CPIB, which Mr Lee termed a “tenacious and effective instrument” against graft, has also developed a formidable reputation for thorough and fearless investigations. High-level government officials, including ministers, MPs, senior civil servants and prominent businessmen, have all been probed.
Mr Lee said this was testament to the agency’s independence.
They include the case of Teh Cheang Wan, one which Mr Lee recounted in detail in his message in a coffee-table book launched to coincide with the 60th anniversary celebrations.
In 1986, the then National Development Minister offered to pay back $800,000 in exchange for immunity. Teh eventually committed suicide and left a letter for Mr Lee, which is reproduced in the 120-page book.
The most recent high-profile probes involve the former chiefs of the Central Narcotics Bureau and Singapore Civil Defence Force, in which they allegedly obtained sex for contracts.
Mr Lee said the latest cases were new forms of corruption, with sex being exchanged for favourable outcomes, observing that “there is no end to human ingenuity”.
Leaders must be above suspicion, he said, and insist on the same high standards of probity of fellow ministers and the officials working for them.
Consultant and former university don Jon Quah, who has carried out research on corruption since 1977, paid tribute to the elder statesman, and said Mr Lee played a very important role in establishing Singapore’s zero-tolerance policy to graft from the start.
“That was the right decision, as being a country with no natural resources, the best way to attract investment was to show we did not accept corruption,” he said.
Former senior minister of state for law and home affairs Ho Peng Kee said the former PM set a clear and uncompromising anti-graft tone which has become embedded in Singaporeans’ DNA.
NEW FORMS OF CORRUPTION
The latest cases are new forms of corruption, with sex being exchanged for favourable outcomes. There is no end to human ingenuity.
– Mr Lee Kuan Yew
Thanks for posting this. And I should remind readers that Singapore pays its regulators well, and thus doesn’t have a revolving door problem.
This is an encouraging example of the importance of strong leadership — thank you Mr. Lee. If there’s a will, there’s a way; when there’s no way, it’s because there’s no will.
How about a public announcement 24hr BEFORE a trade, rather than after. Better yet, 30days before a trade.
If we can be expected to forfeit constitutional rights to fly on an airplane because it is a “choice” (per SCOTUS), then so should be being Senator, Representative or President. If they want to day trade or run a resort, then let them choose do something else.