How Congress Gets Rich from Insider Trading

Congress Members Can Trade on Insider Information

• Republican Congressman Spencer Bachus effectively bet that the stock market would drop.

• For every percentage point that the NASDAQ dropped, his investment would go up by 200%.

• This is what's known as shorting the market, and it was actually a brilliant bet.

• Bachus was sitting in a private meeting with top officials of the US Treasury and Fed the day before he made the brilliant trade.

• In this meeting, Bachus was told that it was a matter of days before there was going to be a meltdown in the global financial system.

• Bachus's short on the market wasn't breaking any rules, it was totally legal.

"It was almost as if he could see the future" (33)

List of Lawmakers Known for Insider Stock Market Trading

• We have rules to stop certain people who have special insider information about the economy from gaming the system with their knowledge like the insider trading laws.

• These laws basically prohibit people from using non-public information to sell investments like stocks.

• An insider is anyone who possesses insider information because of his or her relationship with a company.

• Lawmakers who investigate and talk to businesses all the time know information that only a few people know.

• Historically, insider trading laws that affected CEOs didn't apply to members of Congress.

• Here is a list of the lawmakers that are some of the best in the country at making trades based on insider information:

  • Democrat Senator Dianne Feinstein

  • Republican Senator Jim Inhofe

  • Republican Senator Richard Lugar

  • Republican Senator Kelly Loeffler

  • Democrat Congressman Jared Polis

• All of the stocks that lawmakers buy and sell are public information.

"There are all sorts of insider trading happening in Congress" (118)\

"The American people should know that a member of Congress is never leaving a classified briefing and calling their stockbroker" (125)

Insider Trading Laws

• We passed laws called insider trading laws to stop people from gaming the system with their knowledge.

• These laws prohibit people from selling investments like stocks by using non-public information.

• CEOs aren't allowed to sell a bunch of their stock the day before releasing an earnings report that shows that their company's profits are down, which will likely trigger a drop in the stock price.

• However, there's a group of people in our society to whom these rules kind of don't apply, lawmakers.

• Historically, Congress has had no restrictions when it comes to trading stocks.

• People who hold a special insider information about the economy have rules to follow so that there is fair competition in the market.

Senators' insider trading

• A study conducted in the 90s analyzed senators' trades over four years.

• The study found that senators consistently had abnormal positive returns, outperforming some of the best investors in the country.

Background on the Stop Trading on Congressional Knowledge Act

• The act bans Congress from buying and selling stocks based on insider information

• It requires them to disclose all of their trading activity

Lawmakers who made savvy trades despite the Stocks Act

• Despite passing the Stocks Act in 2012, lawmakers still made wealth

• This video shows a list of lawmakers who went on to continue to make savvy trades in the market while still being privy to private and privileged information about the economy

Republican Senator Richard Burr

• In January 2020, Burr, as chairman of Senate Intelligence Committee, was briefed on secret information about how bad the Coronavirus pandemic was about to get

• According to an FBI document, days later, Burr discussed some of that non-public information with someone via text

• Minutes after this call, Burr logged into his trading account and sold $110,000 worth of stocks

  "All of this whole entire row are all sales. This guy is selling, sell, sell, sell."

• Burr moved over a million dollars from stocks into Treasury securities

• Burr also passed his private info to his brother-in-law in a call that lasted only 50 seconds. And the very next minute, his brother-in-law called up his broker and dumped between $97,000 and $280,000 in shares

• The SEC and Department of Justice investigated this, but ultimately dropped the matter

• Burr might be convinced that he did all of this based on publicly available information, and that he is just a really smart investor

Congressman Ro Khanna's Financial Disclosures

• Congressman Ro Khanna's financial disclosures contain dozens and dozens of pages.

• These disclosures show that since 2019, Congressman Khanna's family has made at least 10,500 trades involving nearly 900 companies.

• Most of these trades were done through a trust that belongs to his wife and kids.

• Of the 897 companies traded by his family, 149 of them were ones that Khanna likely had non-public information about due to his role as a congressman who sits on a bunch of committees.

• The New York Times did an investigation that found loads of instances where Khanna's wife and kids were trading in companies that were being actively investigated by Khanna himself at the same time.

• "So yeah, feels off to me."

Nancy Pelosi's Marriage to an Investor

• Nancy Pelosi is married to an investor.

• The story told in these financial disclosures is one of Nancy Pelosi being married to a very, very good investor, especially during financial turmoil in America.

• In the two years following the 2008 financial crisis, the Pelosis' estimated net worth grew from $31 million to over $100 million, up 220%, all while the S and P 500 fell by 13%.

• The Pelosis also did super well during the pandemic, seeing their net worth jump from $106 million to $171 million within two years, an increase of 60% during the pandemic.

• The very fact that a professional investor lives in the same home as the woman who is at the center of the American legal and regulatory system presents a major conflict of interest.

• "But I know it's tricky because I believe that people should be able to do what they want with their money. But when we pay our lawmakers to handle special information, it feels off to me when suddenly those lawmakers are making bank during financial meltdowns."

The Pelosis and Google Stock

• The Pelosis sold $3 million worth of Google stock just a few weeks before the DOJ announced that it was suing Google for anti-trust reasons, like right before their stock tanked.

• Did Pelosis know that the DOJ was going to investigate? We don't know.

• The timing was fishy, and there are plenty more examples of insider trading by politicians.

• "But it's not just these financial meltdowns and recessions where they do well."

Insider Trading in Congress

• Members of Congress are able to use their insider knowledge to invest in stocks.

• For example, Nancy Pelosi has made successful trades based on information she has access to as a lawmaker.

• Pelosi's success has inspired others to copy her trades.

• When asked about allegations of insider trading, Pelosi defended the practice by saying it is legal and people should be able to participate in a free market economy.

"No, to the second one... we are a free market economy, they should be able to participate in that."

• While it may be legal, it is not a fair market when some people are able to use information that affects the market to get rich.

• Lawmakers are unlikely to change insider trading laws as they are the ones benefiting from lobbying.

Congresswoman Marjorie Taylor Greene

• Marjorie Taylor Greene invested in Lockheed Martin and Chevron just before Russia invaded Ukraine.

• Her investments made her a good amount of money.

• It is unclear if Greene had public information or insider knowledge when making these trades.

• Lawmakers profiting from war and the military industrial complex is a topic explored in another video.

Senator Kelly Loeffler

• Loeffler attended a private CDC Senate Health Committee briefing with colleague Richard Burr.

• Within hours of the meeting, Loeffler and her husband sold off between $50,000 and $100,000 of stocks.

• In the following weeks, Loeffler sold between $1.2 million and $3.1 million in stocks just before the market crashed on February 20th.

• Loeffler was investigated, but nothing came of it.

• There is a debate about whether lawmakers should be forced to hold on to their stocks even if they know the economy is going to crash.

Senator Dianne Feinstein

• Senator Feinstein is among the senators who reportedly sold stocks after receiving information about the severity of the COVID-19 pandemic.

• She sold between 1.5 and $6 million in stocks right after a confidential briefing on the pandemic in January 2020.

• When questioned about this, Feinstein stated that her husband was responsible for the trading and that she had no influence over it.

• However, it seems unlikely that a husband and wife would not discuss such important information, even accidentally, in day-to-day conversation.

• The FBI questioned Feinstein but ultimately closed the investigation, as they did for all other senators in similar situations.

"It's just a natural conflict of interest."

Former Senator David Perdue

• Former Senator David Perdue engaged in suspiciously timed trades during his time in office.

• He traded 2,596 times in a single term and was found to regularly buy and sell stocks in companies that fell under the Senate Oversight Committee, which he was on.

• For example, he made a bunch of trades in FireEye, a cybersecurity company that had just landed a $30 million contract with the federal government.

• Most of these trades took place while he was sitting on the cybersecurity panel, which could have given him non-public industry and business information about companies like FireEye, in which he owned stock.

• Perdue also traded in several financial institutions, such as JP Morgan Chase and Bank of America, which he was supposed to be overseeing as a member of the Senate Banking, Housing, and Urban Affairs Committee.

• These actions clearly represent conflicts of interest and raise ethical concerns.

"Like conflict of interest, regulating the companies that you are personally invested in."

Weakness of the Stocks Act

• The Stocks Act was passed in 2012 to prohibit insider trading by members of Congress.

• However, the legislation is very weak and difficult to enforce.

• Even if someone is caught breaking the law, the fine is often negligible.

• This lack of accountability and transparency is a major issue in the American political system.

"The legislation is incredibly weak... the fine is laughable."

Congress Insider Trading

• Members of Congress are not punished for violating the Stock Act, particularly the disclosure provision.

• In theory, violating the Stock Act could result in 15 years of prison time, but not a single lawmaker has faced any consequences.

• There have been at least 78 instances where Congress has violated the law very overtly.

• The penalty for failing to report stock purchases is as low as $200.

"You can make tens of millions of dollars with privileged information, and what's the penalty for failing to report these purchases? It's a joke."

Stocks Act

• The Stocks Act was never intended to prevent members of Congress from making a few extra dollars here and there with their insider information.

• Members of Congress should be able to participate in the free market economy.

• Lawmakers themselves know that this is a problem and not a good look.

"But I'm actually for banning stock trading. Members of Congress should not be selling individual stocks, put it in a blind trust, trade in mutual funds."

Banning Stock Trading

• It's not hard to see why banning stock trading among members of Congress is not happening anytime soon.

• Congress would have to regulate Congress.

• The Speaker has employed stall tactics in order to keep delaying any bill that would ban members of Congress from selling stocks.

"The Speaker put forth really a bill destined to fail, and the speaker has employed stall tactic after stall tactic in order to kind of keep delaying what's potentially a vote on any bill that would ban members of Congress from selling stocks."

Optics of Insider Trading

• Trust in democracy is delicate, and the optics of insider trading actually matter.

• Even if no wrongdoing is technically present, it still undermines trust and looks bad.

"Trust in our democracy is delicate, and the optics actually matter. When we erode that trust, we erode our democracy."

Pelosi Act

• In January, a Republican Senator introduced the Prevent Election Leaders from Owning Securities and Investments Act, which spells Pelosi.

• Acronyms like this have fun optics but don't actually do anything.

"Man, if there's one thing that our elected officials seem to be good at, it's these acronyms that have like really fun optics, but like don't actually do anything."

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• In a world with a lot of information, it's important to be critical thinkers

• The team aims to help people be more informed and smarter about how the world works

"trying to be critical thinkers in this day and age of lots of information, some of it true, some of it not."

Conclusion

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