Profiting Politicians and Lawmakers: Insider Trading and Politics

Insider trading has been known to be an illegal practice for some time. For politicians and lawmakers trading on information not available to the public is really nothing new. However, trading on non-public information for Congress was supposed to theoretically stop in 2012 with the Stock Act that was put in place to prevent these people from taking advantage of their positions for financial gain.

With the recent pandemic of Covid-19, many people on Capitol Hill, including lawmakers and congressional aides, have made questionable financial transactions potentially based on information they received that was not public. The alleged misuse of information for financial gain is clearly a problem both legally and from an ethics standpoint, if just not even morally wrong.

Watching the news the other evening with both statements and interviews from some of the accused for questionable investment trading activity I am going to call their responses for what they are which is pure bullshit. Although using profanity might not be acceptable by some readers, it really is the only word that I could find appropriate to use.  

The problem with Congress, lawmakers and just a high level of politics today is a lot of the members feel they are above the law. It is not just enough that many of these members earn a living comparable to a doctor or lawyer with a nice pension at retirement but they often enrich themselves at the expense of the people they are supposedly representing.

It is time politicians do what they are elected for and that is working for the people that vote for them. The position is one of public service to serve the people. But it is clear that many representatives serve themselves first and it is time they start being held accountable for their actions.

What is insider trading and how do politicians benefit from non-public information?

The simple explanation of insider trading is it’s an illegal practice of trading stock on an exchange to one’s own advantage through having access to confidential information. The issue with the definition of insider trading and the individuals working at a high level of politics is that they may often be exposed to information that has not been released to the public yet. 

House and Senate representatives sit in on important meetings that contain information that can affect the economy either positively or negatively. This information is many times not yet released to the public when they receive it. Both the opportunity and motive to act on this information for financial gain is something several politicians have done. This is particularly the case before the Stock Act in 2012. This act was seen by some as a way to put an end to politicians profiting off the information they know, but this, unfortunately, is not entirely the case as seen recently by the actions of Congress members. 

The Stock Act

The Stock Act or otherwise known as “The Stop Trading on Congressional Knowledge Act” forbid insider trading by members of Congress and it passed in 2012 with bipartisan support. Until this passed it was perfectly legal for congressional members to use non-public information to their financial advantage. Not only was there not a legal problem but it was also common. Several politicians definitely used the information they would learn to their financial gain. 

The Stock Act in place requires high-level politicians to be much more transparent with their finances requiring them to file financial disclosures. This includes filing to disclose stock trades and also terms for home mortgages. The Act also prevents high-rank government members from participating in Initial Public Offerings (IPO’s). 

The interesting thing with the Stock Act is there have been some amendments to it along the way which have been concerning. In 2013 there was an amendment approved unanimously by Congress that top federal employees would not have to publicly disclose their financial holdings online. Thus, this makes it more difficult for the public to see what might be going on. 

While the Stock Act is supposedly in place to hopefully limit or persuade government employees to not trade on inside information they learn not available to the public, the recent investment activity with members of Congress and workers in the Capitol shows not many of them care or take the Stock Act seriously. 

The reasons for the Stock Act maybe not being taken very seriously by members of Congress is because it isn’t easily enforced and proven. Insiders in government have the connections and know-how to bend the law and get around it. After all, they are the people that come up with the laws and vote on them. 

Excuses and Excuses

Not surprisingly learning of the information that members of government made questionable investment transactions the other evening on the nightly news, I am somewhat surprised at their excuses. However, it shouldn’t really be that shocking given a vast majority of these people are narcissistic power-hungry egomaniacs. Their power and wealth it would seem to have made them believe their own stories and excuses. 

Politicians remarkably appear to think that the general public will buy into their explanations for alleged investment activity based on inside information. Personally, what many of these people are selling I am not buying.

One Senator that sat in on confidential meetings for the Coronavirus and then made financial transactions that would appear to be based on this information claims that he only made the decisions based on public information. Is he that much more intelligent compared to the rest of the investing public to get out of investments that would be impacted by a pandemic? The answer is likely not. This same senator was also the one that voted against the Stock Act at the time it was put in place. 

Another Senator that seemed to just magically dump stock following a briefing on the Coronavirus claimed investment decisions for her portfolio are made by third-party advisors without her or her husband’s knowledge and involvement. This politician’s husband’s firm even owns the New York Stock Exchange. Not only would this particular Senator have inside information to trade on, but also the tools to allegedly get away with it. 

Members of Congress like to use “blind trusts” to show that they eliminate conflicts of interest when it comes to their finances. This opens the door for excuses like “I didn’t know” or “I don’t make any of those investment decisions.” The issue with this is the laws can be open to interpretation. Members of Congress and just politicians, in general, have so many contacts with people both insiders and outsiders. This is particularly the case when it comes to staff members and lobbyists. 

The excuses politicians make when they allegedly trade on information not known to the public makes it difficult to investigate all of the communication leads relating to the information they have and acting on it for financial gain. They know this and many times will trade on non-public information even while realizing it might raise questions. The burden of proof can be challenging with insider trading and this can especially be the case when the people that need to be investigated are the ones being bought by Wall Street through generous political contributions.

Not Buying It

The two examples above are not the only politicians that were recently accused of alleged inappropriate financial transactions related to the Coronavirus pandemic. There are more and also even staff members who are sometimes guilty of trading off inside information. 

There is a reason studies have shown Congressional members tend to be a little luckier when it comes to the stock market. A previous study by The Journal of Financial and Quantitative Analysis even showed that most US Senators tend to beat the market by 85 basis points each month. Do Senators just have better financial managers? Are they just better at investing compared to the public? I would have to say the answer is likely no. 

Many politicians claim they are in office to serve the people. They claim enjoyment from serving the public. This in many instances is only further from the truth. Most people that go into a high level of politics do it for power, greed, and insider information. They do it for the contacts and information. 

There is a reason members of Congress often leave much wealthier than the day they took office. It is not because they served the public. It is not due to helping the people that elected them. The reason is from the result of connections and inside information. The result is not only getting rich while in office but also reaping the benefits of a job waiting for them in the private sector when they leave the government. A position again with good connections and a high level of earnings. 

Political Insider Trading Should Be a Concern

If politicians making financial transactions off of insider information for financial gain doesn’t concern you, it should. This is particularly the case with politicians trading off of the pandemic we are currently experiencing. While many people are now out of work with an unknown financial future, the people in Washington are living it up and making sure they themselves are taken care of. It’s not the people several politicians are concerned about. It is not the people they serve who they want to ensure are going to be okay. Many are only concerned with themselves. 

While you may be one of the unfortunate people that lost a job or can’t make ends meet right now during the pandemic, just look at what some of these people in politics earn. Now think about members of Congress looking to ensure their financial well-being on top of what they are paid during a time of concern for most Americans. 

Examples of Congress Earnings

Most Senators and representatives are said to earn a salary of $174,000. This might not be completely out of line in comparison to other professionals, such as a doctor or lawyer. However, they also get other allowances and perks in addition to a generous pension at retirement. 

Being in a high level of politics not only pays off while you are there, but a pension and some type of consultant job in the private sector as a semi-retirement role can also be there to make those retirement years even more comfortable. 

Don’t Just Let It Go

Interestingly since the news broke of the questionable financial activity for many members of Congress it seems the stories have started to fade into the background. This is somewhat understandable with everything going on around the world at this time. Yet, we can’t just let it go. There needs to be investigations into how many of the politicians that learned of the consequences to the economy along with world populations regarding the Coronavirus made financial transactions to their benefit before the public was truly informed. 

The claims of blind trusts or just being more educated on public news while acting on it is not a good excuse. Don’t let the stories of Congress and insider trading just go. These people need to be investigated for if not illegal behavior then just ethically not acting in the best interest of the public. Politicians that gained financially from the pandemic should either be prosecuted or resign when found guilty. 

If you are not familiar with the information in this article, do some more research and you will find it disturbing. Do not let it go. Reach out to government representatives and demand investigations into illegal financial activity by your representatives. 

Bottom line…

We the people can’t let our elected officials get away with illegal, unethical, or just morally wrong actions. They need to be held accountable and they should be. 

The real issue is big business, Wall Street, and the very wealthy have designed the system so it is rigged. These are the people that are the big donors to politics and they have had control for some time. This is likely one of the reasons insider trading within Washington has been allowed for so long. Start taking notice and begin voting more often. 

If there is one thing for certain as a result of the recent pandemic, the world is going to be a much different place when it is all over. This not only needs to include a different outlook on the world as a whole but also there needs to be a change in politics. People need to be held accountable and it should not matter who they are. 

As Harry Truman once said, “You can’t get rich in politics unless you’re a crook.” Take a look at the politicians representing you. They should be taken care of for serving the public, but there is no reason they should be able to take advantage of the people they serve or profit at the public’s expense. Politicians need to be held accountable.