Senators strike bipartisan deal for ban on stock trading by members of Congress

https://www.cnbc.com/2024/07/10/senators-strike-bipartisan-deal-for-a-ban-on-stock-trading-by-members-of-congress.html

by donsupreme • 2 years ago

128 53 2 years ago

cnbc.com

jqpabc1233• 2 years ago

Any effort by Congress to police itself is really just political theater for consumption by the unsuspecting voter.

How to sidestep this ban? Setup an anonymous trust or holding company in Wyoming or overseas.

giantg23• 2 years ago

I thought there was a recent law in the past few years that required any entity holding securities to provide entity ownership data to the SEC.

jqpabc1233• 2 years ago

The entity in this case won't necessarily be a typical securities "holding" company. Legally, it may be the owner of the securities.

It's possible to make it very difficult to prove who ultimately controls the company.

0cf8612b2e1e3• 2 years ago

I am curious why it would work this time. The STOCK act was written a decade ago.

https://en.m.wikipedia.org/wiki/STOCK_Act

delecti• 2 years ago

Because this will remove intent and knowledge from consideration. Under the STOCK act, you have to prove they're trading based on non-public information. Under the new bill, they just can't trade stocks, period. Any trading is immediately an offense.

greentxt2• 2 years ago

Or speculate on real estate or non-covered securities of which I am sure there are many. Or buy crypto, or Art, or ...

viraptor2• 2 years ago

All of those are fine. It's not to prevent them from investing, but to prevent some form of insider trading (does that name still apply for people who know about policy / funding changes ahead of time?)

lukas0992• 2 years ago

Ideally the legislation would be about the same as for company insiders, no?

orblivion• 2 years ago

Any effort by Congress to police itself is really just political theater for consumption by the unsuspecting voter.

I heard an interesting proposal to have a bill that grandfathers in sitting members of congress. That way they get credit for changing the system but they don't lose the benefits themselves. It's ugly but it's more likely to eventually get the job done.

nojvek• 2 years ago

Nothing stopping the next congress from reversing it.

It's the same deal with supreme court. They call the shots in between the lines.

andrewla3• 2 years ago

I'm doubtful -- this is like saying you can sidestep the law against murder by not getting caught.

Obviously some of this will depend on how the legislation is drafted, but there's a difference between whether those actions shield you from prosecution or if they just make it harder to detect.

Most likely those sidesteps will be seen for what they are, and when prosecutors become aware of them they will still investigate and prosecute for violating the statute. Under current law there are members of Congress that have been plainly guilty of insider trading and yet prosecutors have declined to prosecute (the article mentions this explicitly for COVID-19 insider trading). It is entirely possible that there will be a lack of prosecutorial enthusiasm, but hopefully this will have a chilling effect on some of the most flagrant cases (cough Pelosi).

alexjplant• 2 years ago

I have some play money in the $NANC Democratic Whales ETF [1] that "invests in equity securities purchased or sold by Democratic members of Congress and their spouses". It's up 23% YTD and is beating the S&P500. Incept date is roughly 18 months ago... I wonder if the greater attention brought to their financial activities is prompting this move? The cynic in me is disappointed because it could mean the end of my corruption-fueled beer money gravy train while their activities continue in a more clandestine fashion.

As an aside: this post is not meant as a partisan criticism. I don't invest in the Republican equivalent $KRUZ because last time I checked it wasn't doing as well as $NANC.

[1] https://www.subversiveetfs.com/nanc

0cf8612b2e1e3• 2 years ago

I have always wondered how this would perform. The caveat in my mind has been that there is a (significant?) lag between when the trade is made, and when it must be reported. If there is a strong buy/sell signal, I have assumed it would be cold by the time I had access to that information. Also thought a limitation of the STOCK act was that partners (?) did not have to report their data, so a savvy representative could hide their trades through direct family.

It would be fun to compare the two parties portfolios. Are there ideological companies which are helping/hurting the overall performance? One group is better at timing?

MOARDONGZPLZ2• 2 years ago

There can be a lag, but not always. Sometimes it’s just a day or so between trade and reporting. Seems like one way to derisk would be to evaluate the time between trade and reporting plus whether anything significant has happened in that timeframe.

For example, Senator buys a stock, stock jumps and plateaus a week later, buy is reported a month later would mean don’t add this to ETF.

carabiner• 2 years ago

NANC so far is tracking the NASDAQ very closely. I wonder if it's just overweighted by Pelosi's holdings (really her husband who's a sophisticated investor).

Edit: It might just be better to buy a NASDAQ index fund. NANC expense ratio is 0.75%, double that of most index funds. Then again NANC doesn't have as much history.

Alupis• 2 years ago

really her husband who's a sophisticated investor

It's not hard to be a sophisticated investor when your spouse is one of the decision-makers influencing major stock movements - a la CHIPS Act.

It would be naïve to believe spouses never discuss pending legislation that might financially benefit them both.

renewiltord• 2 years ago

Yeah, Warren Buffett compared to the Pelosis. Nancy Pelosi does this as a part-time job and kills it while simultaneously fulfilling her primary duties. We should be grateful that she didn't decide to get into managing a fund.

satvikpendem• 2 years ago

18 months is nothing though, a true statistical analysis would look at all of the stocks held by Congress members for decades, if that data is even available.

Aurornis• 2 years ago

I never understood the obsession with Nancy Pelosi specifically (not by you, but by the people who named that ETF and all of the news headlines) in the context of senate trading.

Her recent returns are high, but they’re right up there with several other Republican and Democrat lawmakers: https://x.com/unusual_whales/status/1742207287966777673

It’s even stranger that inception date of the $NANC ETF was after she announced she was stepping down as Democratic Party leader.

I guess the name triggers controversy, so the people pushing these products use whatever sells.

twothreeone2• 2 years ago

Yeah, collecting fees is easy money.

chucksta• 2 years ago

I assumed it was because she was speaker at the time at least when this popped off recently.

nicodemus26• 2 years ago

It's due to her specific comments as Speaker of the House when leading a vote to dismantle prohibitions established during the Obama admin.

when asked whether lawmakers and their spouses should be prohibited from trading stock while in Congress, Pelosi said, “No,” adding that “this is a free market.”

https://apnews.com/article/business-nancy-pelosi-congress-86...

It's also because her family profits disproportionately:

Pelosi's husband, investor Paul Pelosi, frequently trades significant numbers of stocks. With her husband's assets considered, Pelosi ranks among the wealthiest members of Congress, an Insider analysis found.

https://www.businessinsider.com/we-are-free-market-economy-p...

majormajor• 2 years ago

If one party is doing worse and the other is doing better that could be a sign that there's not much to it. They're generally going to have access to similar information/groups/etc. Otherwise a theory that one party is "better at corruption" vs "if you grab subsets of people at random some of the sets will be above-average" is dubiously-supported.

https://www.fa-mag.com/news/how-to-invest-like-members-of-co... Per this, KRUZ is lagging the S&P 500 YTD.

And in fact the case it makes is actually less convincing? "In total, 37 members of Congress beat the S&P 500 in 2023, according to stock and options data company Unusual Whales." 37 members of congress is a small subset.

xboxnolifes• 2 years ago

As a counter-point, $QQQ is also up 23% YTD and seems to track a similar up and down as $NANC. People primarily investing in tech are getting tech returns.

Most of the returns for both are from $NVDA, which is up 172% YTD.

zombitack2• 2 years ago

Can't they still be prosecuted by the SEC for insider trading? /s

lukas0992• 2 years ago

I know you said /s, but are members of Congress legally "insiders" for companies? I'd think the simplest solution would be to write a law stating that they are, for any company they are writing laws about, considering writing laws about, etc.

zombitack2• 2 years ago

I think they're insiders if they know something's about to happen the general public isn't privy to that will affect the market. I don't think you need to be part of a company to be an insider. For instance, you could be part of a regulatory board knowing you were about to open up restrictions on something that would enable a company to make money in a sector it was previously outlawed from and it would be only natural to invest in that company before the regulatory change went public.

andrewla3• 2 years ago

Anyone who uses material non-public information to trade stocks is guilty of insider trading under current interpretations. If a member of Congress does so then they are also guilty. The question becomes whether you can prove this and whether a jury will convict on it; to date law enforcement has generally declined to prosecute these cases (as mentioned at the end of the article about COVID trading)

The SEC also requires that "insiders" make certain filings well in advance of trading stocks, but that is a separate issue.

andrewla3• 2 years ago

The SEC can pursue civil action for insider trading, but insider trading is also a criminal offense prosecuted by the various Attorneys General and investigate by law enforcement.

I'm not aware of any successful prosecutions for insider trading for members of Congress; the article does mention the FBI's investigations in the wake of COVID-19 that ended with prosecutors declining to make any charges.

robbyiq9992• 2 years ago

I'd suspect there's loopholes here, the trading will instead be done by a hedge fund on behalf of the congress member(s)

_DeadFred_• 2 years ago

A hedge fund isn't granted immunity from insider trading charges like Senators are.

robbyiq9992• 2 years ago

This law isn't classifying anyone as insiders. I don't think there's an intention in the bill to ban trading by doing so.

binary1322• 2 years ago

usually when I see the phrase “strike bipartisan deal” I assume it is something nefarious

this headline sounds nice

where’s the nefarious angle?

jfengel• 2 years ago

The nefarious angle is that this isn't actually going to pass. It's already July. Congress basically doesn't work at all in August or October, and there are a bunch of "state work periods" on top of that. And then there's the election.

This "bipartisan deal" is a bunch of Senators. It still hasn't passed the Senate, much less gone to the House, much-much-less gotten wrangled in reconciliation.

There's a possibility it'll be picked up and actually worked on during the "lame duck" session after the election. But most likely, this is the last you'll ever hear of it. Unless you live in one of their states, and you go to a campaign rally, where they tell you about the great thing they're working on.

binary1322• 2 years ago

That makes sense, thanks for contextualizing

janalsncm• 2 years ago

Ok, so there’s not a ton of info in the article about the actual bill itself. Only the caption on the image lists the name: the ETHICS Act.

If you check S.1171 you can see it is in the Committee on Homeland Security and Government Affairs. It may die there if nothing else happens.

If you think this is an important bill, you can contact the members of this committee. They are listed here: https://www.hsgac.senate.gov/about/committee-members/

You should inform them that this is important to you, and if they don’t take action on this you will not vote for them or donate to their campaigns, and will support their opponent instead.

This last bit is controversial but important. Politicians care about staying in office. If you will be supporting a candidate regardless, your opinion doesn’t matter to them. So you need to tie their election to something that matters to you.

tines2• 2 years ago

Reposting from a child comment:

I don't know why anyone is talking about insider trading. I don't give a shit if the congresspeople do insider trading.

What I care about is that if congresspeople can trade at all, they have a conflict of interest in doing their legislative duties. They are incentivized to pass laws that will benefit corporations and make the stock market rise. That's what is unacceptable about Congress trading.

Banning trading totally is the only thing that matters.

banish-m4• 2 years ago

Won't stop lobbyists, spouses, their financial advisors, or them from taking gold bars. 95% are still crooks, or campaign finance reform would've passed years ago. This is a performative ruse.

RickJWagner• 2 years ago

It's about time.

Senators strike bipartisan deal for ban on stock trading by members of Congress

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