Congressional Stock Trading Under Scrutiny

CHRISTIANE AMANPOUR, CHIEF INTERNATIONAL ANCHOR: And now, turning to here in the United States where congressional insider trading, which is using information that isn’t public for financial gain was outlawed in 2012. But that law didn’t stop members of Congress from buying and selling shares of companies affected by the legislation they write, and that could be set to change. Wall Street Journal Pulitzer Prize-winning reporter Rebecca Ballhaus has been reporting extensively on this issue. And she’s joining Hari Sreenivasan to discuss the moves underway to hold lawmakers and government employees accountable.

(BEGIN VIDEO CLIP)

HARI SREENIVASAN, INTERNATIONAL CORRESPONDENT: Christiane, thanks. Rebecca Ballhaus, thanks so much for joining us. I know that you are part of “The Wall Street Journal’s” second Pulitzer Prize, or this is your second Pulitzer Prize for uncovering a lot of great reporting over the past year about financial conflicts of interest. Let’s focus a little bit more on your recent reporting on how members of Congress or people in government have been trading stocks during this little banking crisis that we’ve been seeing.

REBECCA BALLHAUS, REPORTER, THE WALL STREET JOURNAL: We reported on three lawmakers who had traded bank stocks while also taking part, to varying degrees, in discussions over how to handle the banking crisis. And since we published that story, I think the count is now at least a dozen or so lawmakers who have reported trades in bank stocks. And it ranges from lawmakers who don’t seem to have been that involved in the response to lawmakers who were in private discussions with financial regulators surrounding the closure of various banks and with trading bank stocks at the same time.

SREENIVASAN: So, these kinds of conversations, I mean, we don’t have transcripts of exactly what was said between one person or another, but is that the appearance of impropriety that’s the problem here?

BALLHAUS: I think, at best, it’s the appearance of impropriety. So, to give you an example, there’s a congresswoman from New York, Nicole Malliotakis, who reported — she publicly said that she had private discussions with financial regulator surrounding the closure of Signature Bank. A couple of days later, she reports buying stock in New York Community Bancorp. And a few days after that, a subsidiary of New York Bank — Community Bancorp takes over the deposits of Signature Bank, and that sends their stock up, something like 30 percent. So, her office says that she wasn’t aware that that was happening, that New York Community Bancorp didn’t not come in our discussions with private — with financial regulators. But again, it’s an issue where you sort of have to take peoples’ word for it that it’s not something worse than an appearance problem.

SREENIVASAN: This is a bipartisan problem. I mean, you also focus on Representative Blumenau of Oregon.

BALLHAUS: That’s right. He traded I think three bank stocks at a time where he was co-sponsoring legislation that would tighten restrictions on financial firms. It’s very much a bipartisan problem.

SREENIVASAN: Did the representatives in your most recent pieces reach back out to try to clarify what their positions were or any of their staff have a comment?

BALLHAUS: So, Malliotakis, her office said that she was not aware that New York Community Bancorp planned to take over Signature Bank’s deposits through a subsidiary and then, at no point, had come up in her conversations with financial regulators. So, essentially saying she was not trading on inside information. And beyond that, you know, I think Representative Blumenau’s office also denied any wrongdoing and I believe said a financial adviser was involved in the transaction. But — so, you know, these offices, there’s a lot of ways to sort of add context to these trades and defend the lawmakers, but I think what it comes down to is how it looks when you’re reading these disclosures.

SREENIVASAN: So, there were a lot of reports about this around the pandemic because, as we all live through, there was a massive market correction, very, very precipitous drop in a lot of stocks. And if you knew what sorts of stocks were going to be affected by, say, a nationwide shut down, then you could’ve sold those stocks early and quite a few members were found that — just they had very coincidentally profitable trades.

BALLHAUS: Right. I think that was among the more scandalous moments of this kind of trading over the last several years is when it emerged that several members of Congress had sold off, you know, millions of dollars’ worth of stocks. And one example of that was Richard Burr who sold I think over a million dollars’ worth of stock after attending a closed-door briefing on the threat of the virus. He ended up being investigated both by DOJ and the FCC but was ultimately cleared of any wrongdoing. That was Senator Burr, a Republican, but you also had Dianne Feinstein, a Democrat, who was similarly selling off a lot of her portfolio. So, it’s definitely not concentrated one party or the other.

SREENIVASAN: OK. Now, if this was none members of Congress and say the FCC or another body that’s looking into these kinds of things, would we be investigated for insider trading or having insider knowledge and making a trade that was just coincidently very profitable to us?

BALLHAUS: I mean, that’s always hard to say. Congress is not allowed to insider trade much like everybody else. But I think it is an area where there have been so many scandals that they have sort of stopped getting the same kind of intense scrutiny that they might have once gotten. I think people have gotten much more used to this sort of behavior.

SREENIVASAN: And what is sort of Congress’ response to this? I know there are individual members in the Senate and in the House that are trying to do something about it.

BALLHAUS: Well, what’s interesting is that there are so many members of both parties who have proposed bans on a stock trading out right and there are differences in the kinds of proposals that have been introduced. Most dealing — most of the differences deal with what kind of blind trust lawmakers could put their holdings in. But for the most part, several members of both parties support banning members of Congress from trading and holding individual stocks and would require them to put their investments in some kind of a trust. And that would really help this issue, because, right now, there are no rules other than the ban on insider trading, there are no rules that require lawmakers not to trade in stocks that could be affected by their work or in areas where they might have some sort of private knowledge of what’s coming. And Congress is, of course, in a unique position to be able to have a sense of what’s coming for a particular industry or company. Congress is unique among the — at least compared to the executive branch in that it faces no rules that determine whether they can trade in something that they’re working on.

SREENIVASAN: So, if there is some bipartisan agreement that there should be something done about this, what’s the resistance in Congress? What — is there are rationale? Is there an argument on why legislation like this is not going forward?

BALLHAUS: It’s a good question. I mean, I think there are a couple of issues. There — the argument against having a ban like this is, number one, people argue that it would deter lawmakers from running for Congress if they feel like they have to sell all their stocks or put them all into trust and otherwise, aren’t able to trade. The other argument is that if members of Congress are not able to trade stocks, that would, in some ways divorce them from the economic interests of their constituents. So, those are some of the arguments that have been put forward. But I think beyond that, it’s also just an issue of coming to an agreement on what a ban should look like. So, this past fall, House Democrats introduced a proposal that would ban stock trading, would require you to put your — would require lawmakers to put their holdings in a blind trust, but that proposal actually drew a lot of criticism from some ethics groups who said that the rules for creating a blind trust were so weak that it would actually make the current system worse. And so, I think some of the disagreements centers on what should these trusts look like.

SREENIVASAN: There’s been this philosophy for a while that sunlight is the best disinfectant and, you know, what if I just disclosed that I purchased some shares, that that transparency is enough in itself to avoid the conflict of interest or the appearance of a conflict of interest. But the way that that’s reported of when you bought a share and when you have to tell the public, I mean, there’s still a lag there.

BALLHAUS: Right. There is a lag, and Congress is also of the three branches of government, has historically been the one where these disclosures are the easiest to get because they are now posted online. But there is a delay. And I think more importantly, we’ve now had so many different scandals related to lawmakers creating stocks and nothing’s really happening that I think that argument has sort of become diluted, because if members of Congress know that they’re very likely not going to face any consequences for trading in a stock that might look bad but not, you know, necessarily be insider trading, there’s not really a disincentive for them to make those kinds of trades.

SREENIVASAN: You’ve also been looking into not just members of Congress, but the other branches as well. I mean, we are seeing both in the judicial, as well as the executive branch, people getting caught up in this and, you know, it being revealed after the fact that they might have had trades that were unduly profitable.

BALLHAUS: Right. So, I spent most of last year looking at the executive branch of government, that that was a really interesting case because unlike Congress, federal agency employees have rules that say they’re not supposed to trade in stocks of companies that could be affected by what they’re working on. So, when they first set out, we kind of expected that we weren’t necessarily going to find all that much because the rules are so much stricter than they are for Congress. But what we found really did not — show that there was a lot of, sort of, questionable trading. So, I mean, for starters, the disclosures that we — that are supposed to be public, that you’re supposed to be able to review were incredibly difficult to get. It’s been — we started requesting these forms for more than 50 agencies in January of last year and we still have not received the disclosures from some agencies. And more importantly, I think that these disclosures show there’s rampant trading and stocks that are affected by the work of agencies and that the ethics officials are really sort of narrowly interpreting these rules to say you have to be kind of the deciding voice on an issue that would affect company in order for it to count as a conflict.

SREENIVASAN: Now, your investigation, Capital Assets, looked at 2,500 employees across 50 different federal agencies. Were there any specific agencies or groups where it was particularly egregious?

BALLHAUS: Yes. There were a couple that really stood out. One story that we did early on was on the FTC, where we found a number of officials trading stocks in companies that were involved in mergers or other reviews by the FTC. We also found that officials were trading stock in major tech companies that have received a lot of scrutiny from the FTC in recent years. And in particular, we found many trades in Facebook at the time when the FTC was investigating Facebook. Beyond that, I think the EPA had a lot of trades in energy and oil and gas companies that would be affected by the agency. The same was true of the Energy Department. And like with Congress, we also found some instances of officials trading in the early days of the COVID pandemic that — in ways that appeared to be quite well-timed given what they might have known about what was coming.

SREENIVASAN: You know, in your investigation — I’m just reading a quote from you about the FTC, the Federal Trade Commission, in recent years, has opened investigations into nearly every major industry. It’s launched antitrust probes into technology companies, examined credit card firms and move to restrict drug, energy, and defense company mergers. At the same time, senior officials at the FTC disclosed more trades of stocks, bonds and funds on average than officials at any other major agency in a “Wall Street Journal” of review of financial disclosures going back from 2016 to 2021. I mean, you know, how did they take up a special interest in tech companies, and what did that do to their influence?

BALLHAUS: I think what was clear from that was just that the rules were not being enforced in such a way that there was any disincentive to be trading in tech companies because what ethics officials were really looking for were officials who were taking a leading role in a matter that could affect a company. And they weren’t kind of looking at this broader pattern of, we have all these officials who are trading tech companies while we’re supposed to be the agency that’s, you know, making sure we’re keeping a tight check on the tech industry. It wasn’t really that holistic of a view, it was much more narrowly targeted on what exactly is this person doing and what exactly are they trading?

SREENIVASAN: You mentioned the EPA as well and you found 200 senior EPA officials, nearly one in three, reported investments in companies that were lobbying the agency. What are these investments look like?

BALLHAUS: What we found was — one of the officials we highlighted in our story was that a senior official who’s trading repeatedly in oil and gas and energy companies. And his ethics official, at some point, flagged his trades and — to ask, you know, whether there was a conflict there, and the answer they got was that his role was much more administrative in nature and that he was not, you know, determining the outcome of various regulations. And therefore, that it wasn’t a problem. And so, I think that’s an example of the kind of the narrow view that some ethics officials across the government are taking, is looking at, you know, specifically, do we think that they’re working on a thing that could have a major outcome and not on does this look bad?

SREENIVASAN: There’s an attempt, I think, on Nick Langworthy from New York, a Republican here, who said that he would introduce legislation to try to put different parameters around federal agencies from trading in their sector. Is that going to improve things? Is that not enough? What do you hear?

BALLHAUS: Well, I think like with the bans on congressional trading, we’ve seen a number of lawmakers in both parties introduce legislation that would either ban stock trading among executive branch officials or like Representative Langworthy would require agencies to impose tougher restrictions. And I think a mixture of that would certainly improve the situation, because I think, as it is, you have this idea that sunlight is the greatest disinfectant but you’re not really able to view most of these forms in real-time. And when you do view them, you just see so much trading in the industry that that agency is supposed to be regulating.

SREENIVASAN: You know, Nancy Pelosi has famously been criticized for the trades that her husband has made. And interestingly — well, to put it mildly, a strange group of bedfellows and Representative Alexandria Cortez- Ocasio and Representative Matt Gaetz are both co-sponsoring a piece of legislation to try and prevent lawmakers and their families from profiting off of insider information. I mean, do you see that gaining any momentum, any meaningful momentum in trying to restore faith in government, as they would like to say?

BALLHAUS: I mean, I think, as you say, anytime you have such an unusual mixture of lawmakers and, I mean, on the Senate side, you have everyone from Josh Hawley to Elizabeth Warren.

SREENIVASAN: Yes.

BALLHAUS: Anytime you see those people banding together over an issue, I’m more inclined to say it will get some momentum. I think one issue for the executive branch in particular is that some members of Congress feel that it’s important to address their own issues before they move on to the rest of the federal government. And so, you’ve seen some proposals that would restrict trading in both Congress and the judicial and executive branches sort of do them all three at once and others that say, we need to deal with Congress and then we can move on to everything else. So, I think that’s one hurdle that we’re seeing so far.

SREENIVASAN: You know, I know it’s hard to measure our confidence in Congress and exactly what it is that shakes it. But I wonder, the type of reporting you, your team, “New York Times,” other major papers, so many of these scandals have come into play that I wonder what that does to our faith in our lawmakers and our faith in the system?

BALLHAUS: Yes. I think it’s a really important question, because what we heard over and over from readers in response to our (INAUDIBLE) last year was basically, I knew it. And so, I think, you know, it’s not necessarily shocking to readers, instead, it’s really confirming what a lot of them already believed or feared, which is that lawmakers are out for their own private interests rather than the interests of the country. And so, I think you’ve seen broad public support for bans on stock trading for Congress, and I think it really is an issue that seems to be contributing to sort of the eroding public trust.

SREENIVASAN: Rebecca Ballhous from “The Wall Street Journal,” thanks so much.

BALLHAUS: Thank you.