Late last week, Republican Senator Richard Burr of North Carolina briefly became the most detestable politician in America, at a time when public outrage toward politicians was at an all-time high.
At least four other Senators also dumped stock: Republicans Kelly Louffler and David Purdue of Georgia and James Inhofe of Oklahoma, and Democrat Dianne Feinstein of California. Two dozen members of the House also engaged in aggressive stock sales in early February after various briefings.
On February 7th, days after being briefed by intelligence officials on response by foreign powers to the outbreak, he co-wrote an editorial on “steps the U.S. government is taking to protect you.” In it, he declared:
The United States today is better prepared than ever before to face emerging public health threats… in large part due to the work of the Senate Health Committee, Congress, and the Trump Administration.
Six days later, Burr sold off 33 stock holdings. Later that month, on the same day Donald Trump was saying coronavirus will “disappear” like “a miracle,” Burr spoke at a private luncheon for heavy financial hitters at the Tar Heel Club. “[Coronavirus] is much more aggressive in its transmission than anything that we have seen in recent history,” he said.
When the story came out, Burr insisted he’d gotten his information “solely on public news reports” from Asia, from CNBC mainly.
Recapping: the Senate’s Intelligence Committee chief was briefed by intel officials, actively reassured the public, dumped stock, whispered the real dope to rich connected folk, got busted by media, then feebly claimed he made financial decisions watching CNBC, before a seething public bracing for years of agony due to financial collapse. If there’s such a thing as a grand slam of political assholedom, Burr hit it.
A key detail is that Burr was one of only four Senators to vote against the 2012 STOCK Act, which was designed to prevent members of congress from trading against non-public information. That nugget was a reminder of how long the fight against congressional insider trading has gone on — and how, despite some successful reforms, a frenetic history of loophole-making has allowed this activity to continue.
Modern efforts to stop the political insider trading problem seem to trace back to 2004, with the publication of a University of Washington School of Business Administration study. Those academics reported that an analysis of Senate portfolios from 1993-1998 showed that “a portfolio that mimics the purchases of U.S. Senators beats the market by 85 basis points a month.”
Along with a series of news reports about the trading habits of various politicians and staffers, this led to the 2006 introduction of the STOCK Act by House Democrats Louise Slaughter on New York and Brian Baird of Washington. The Act made it illegal for members of congress to trade stocks on non-public information. Baird and Slaughter had trouble garnering enthusiasm from colleagues, mustering six co-sponsors across six years.
“It just flat died,” Baird later said. “You could have ‘National Cherry Pie Week” and get 100 cosponsors.”
The issue didn’t generate anywhere near the level of concern by pundits we see this week. In 2007, Slate ran a piece on “the silly effort to stop senators and bureaucrats from trading on their inside knowledge,” insisting that, with the subprime mess and the Iraq war taking up government time, “it’s difficult to see why this far-reaching legislation” is necessary.
Years later, in 2012, an exposé on the subject by 60 Minutes pushed the STOCK Act into overdrive. CBS hammered Democrats and Republicans alike, going after House Speakers from each party.
The 60 Minutes piece noted that former Republican Dennis Hastert pushed through a $207 million earmark to help build a “Prairie Parkway” highway project through the Illinois countryside. Hastert had land adjacent to the project. He sold parcels four months after the bill, reportedly earning a profit of $2 million.
CBS likewise went after Nancy Pelosi, whose preferred financial activity wasn’t land dealing but the Initial Public Offering. CBS reported Pelosi was involved with as many as eight IPOs, including the purchase of 5,000 shares of Visa at $44 while a bill that would have hurt credit card companies was being killed in the House. The share price went up to $64 two days after her purchase.
Steve Kroft asked Pelosi if she thought the Visa deal was a “conflict of interest.”
“The— y- I- I don’t know what your point is of your question,” she answered. “Is there some point that you want to make with that?”
When SEC Enforcement Director Robert Khuzami was called to testify about congressional insider trading, many members of congress apparently expected he would say that existing laws already prohibited it, thereby making a new law unnecessary.
Khuzami complied, sort of. “There is no reason why trading by Members of Congress or their staff members would be considered ‘exempt,’” he said. But he unexpectedly added that the application of such laws to members of congress was “without direct precedent and may present some unique issues.”
True insider trading typically involved an officer of a private, publicly-traded company acting on non-public commercial information, like the famous Martha Stewart case, or the one involving Galleon’s Raj Rajaratnam.
Members of congress, meanwhile, act on non-public political information, not quite the same thing.
The difference was sufficient to create what then-Senator Joe Lieberman called an “ambiguity” in the law. Khuzami’s testimony confirmed that if members of congress weren’t explicitly exempt from prosecution, they had effectively been exempted, by tradition.
The STOCK Act did ultimately pass and it did significantly reduce the amount of trading by officials. However, some key provisions, like registration requirements for “political intelligence” firms that specialize in relaying inside government information to Wall Street investors, were stripped out of the final bill.
Worse, a year after passage, congress quietly instituted two “reforms” that clawed back the STOCK Act.
The law originally applied to members of congress as well as much of the executive branch. However, in 2013 congress voted by unanimous consent to reduce the number of executive branch officials affected from 28,000 to 67. It also severely watered down disclosure requirements.
Craig Holman of Public Citizen, who advised Slaughter’s office on the wording of the original law, notes it originally contained a publicly-accessible database to allow for easy monitoring.
“I specifically put in the terms searchable, sortable, and downloadable,” Holman recalls now.
After the 2013 change, however, activists like Holman could only get access to disclosures by PDF. “It used to be that I could go on-line and request all stock trades made in the last 30 days,” Holman says. “Today I have to go through each filing, all 535 members, to find out who traded recently.”
The “amended” disclosure system made it possible for some members to hide in plain sight, and continue trading in enormous volumes. Holman estimates that two thirds of members of congress avoid trading, but a third continues to do so with the same vigor.
There are many examples. Tennessee’s Bob Corker, a former Senate Banking Committee member, has come under fire multiple times for his stock-trading habits. Rhode Island’s Sheldon Whitehouse traded 10 pharmaceutical stocks before a medical research bill he’d worked on was made public. Texas congressman Mike McCaul reported 7,300 trades across two years.
New York’s Chris Collins ultimately pleaded guilty to insider trading charges in 2019 (Public Citizen earlier called for an investigation into Collins), but he is the extreme exception. Moreover, the “political intelligence” business continues to thrive.
The coronavirus trading scandals may finally inspire enough public outrage to provoke change.
“I am raising those discussions this week,” says Holman, who published an op-ed this week calling for a return to the original disclosure system mandated by the STOCK Act. Holman also called for passage of the Political Intelligence Act, which would mandate registration of “political intelligence agents.”
However, as the history of the STOCK Act shows, new laws only work if governments decide to enforce them. The history of enforcement involving members of congress is not good, even when the law favors it.
“Even the most stringent laws are going to be impotent in a climate of ethical laxity and weak enforcement.” says Steven Aftergood of the Federation of American Scientists, an organization which has issued reports on the subject. “It may be that instead of better laws what we really need are better public officials.”
The Burr scandal shows how difficult it is to effect meaningful reform in Washington. If not just one but many members of congress feel sufficiently bulletproof that they’re not scared of trading against a pandemic, how will the government ever deal with less obviously grotesque issues?
Correction: An earlier version of this story referred to Collins and from Georgia. He’s from New York.