Just weeks after House Democrats introduced a bill that would require senior officials and members of Congress to sell much of their stock before taking office, the need for such legislation has come to the fore.
According to an investigation by The Wall Street Journal, thousands of federal officials in their respective government agencies were found to have made decisions that directly affected the stocks they owned or traded.
While critics have long suspected that officials don’t always follow the strictest ethical guidelines when it comes to trading, the journal’s findings show the problem runs much deeper than expected.
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Accessing the data was a challenge
Under current law, senior officials are required to report their trading activities and are not allowed to use their knowledge of labor matters to bolster their financial holdings. The Ethics in Government Act of the 1970s required senior federal officials to publicly disclose their personal finances.
And while this information was supposed to be publicly available, the Wall Street Journal still found it difficult to access these disclosure forms. The Journal reports that it has made several Freedom of Information Act requests to obtain the forms. And many agencies never provided the information at all.
However, the newspaper received more than 31,000 financial disclosure forms between 2016 and 2021, submitted for its investigation by 12,000 officers, political staff and those appointed by the President.
The results of the paper are striking. Senior officials reported on trading in company stocks just before their agency announced decisions that would directly affect that company or its industry. They also reported owning shares in companies that lobbied their agency.
What the investigation found
The newspaper noted that more than 60 officials from multiple agencies — including the Federal Trade Commission and the Department of Justice — “reported trading in company stocks just before their departments announced coercive actions, such as indictments and settlements, against those companies,” it said the magazine .
At the Environmental Protection Agency, more than 200 senior officials — almost one in three, according to the Wall Street Journal — said they “have investments in companies that lobbied for the agency.”
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Every year between 2016 and 2021, EPA employees and their family members owned, on average, between $400,000 and nearly $2 million in stocks in oil and gas companies, according to the Journal.
And it was no better in the Ministry of Defense. Overall, according to the Journal, officials said they owned “an average of $1.2 million to $3.4 million in stocks in aerospace and defense companies.”
This is a long-standing problem
Reporting and abusive trading has long been a problem. Members of Congress have come under heavy criticism in recent years for appearing to use their inside knowledge of what is happening in an industry to make money.
Under the Stop Trading on Congressional Knowledge Act of 2012, members and employees of Congress are prohibited from using knowledge gained through their official positions to influence which stocks they own and trade. But many were critical, saying the law didn’t go far enough.
House Democrats’ bill would aim to address this by ensuring that senior officials, employees and their families are banned from engaging in active investments.
But it may take some time before this law is passed, if it is passed at all.
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