Another possible escape from stock trading

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Mud produces investigative journalism on lobbying and money in politics. The American perspective repost this article.

Following public outrage over recent Congressional stock scandals that look a lot like insider trading, momentum is building in Congress to ban members from trading.

Several bills on the issue have recently been proposed and some of them have steadily accumulated co-sponsors. President Pelosi reversed his position and said she was open to holding a vote on the stockpile ban legislation, and the House Administration Committee scheduled a audience review laws governing congressional stock trading and reforms that could be enacted to improve compliance.

However, several of the proposed stockpile ban bills have shortcomings that would likely limit their effectiveness. Sludge previously wrote about a loophole in some of the proposals that would allow senators and representatives spouses continue to trade stocks. But there is also another gap in some of the bills that relates to the types of investments that would be targeted.

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The two main bills banning stock trading, in terms of the number of co-sponsors, are the Ban Conflicted Trading Act (HR 1579 and S.564) and the TRUST in Congress Act (HR 336). Both bills would prohibit members of Congress from trading in corporate stock, but they would contain the same exemption: they would not apply to widely held investment funds, which are defined in the legislation as a fund that is either listed on a stock exchange or made up of assets that are broadly diversified and where the investor has no control over the assets held by the fund. So, while members of Congress would be prohibited from trading individual company stocks, they would still be allowed to trade products such as mutual funds or exchange-traded funds comprised of lots of company stocks.

This loophole may undermine what the sponsors of the bills describe as their goals: to limit the conflicts of interest that arise when members of Congress make decisions that affect the stocks they trade. While the Conflicting Transactions Prohibition Act and the Confidence in Congress Act would prohibit members of Congress from trading stocks like ExxonMobil or Chevron, it would allow them to continue buying and selling stocks in something as the SPDR Energy Select Sector Funds, which is made up of shares of ExxonMobil, Chevron, ConocoPhillips and 18 other leading oil, gas and energy equipment companies. At least nine House members are invested in this fund, according to a Business Insider database compile the 2020 annual financial information.

Most actions taken by Congress affect entire sectors or industries rather than specific companies. In fact, in many cases, Congress is prohibited from taking action against specific companies because such legislation would likely be considered an unconstitutional bill.

Members of Congress invest in similar exchange-traded funds focused on sectors such as healthcare, finance, technology, utilities, consumer staples, communications services and other sectors. Sludge found in Business Insider data that at least 31 House members held investments in industry-specific exchange-traded funds worth more than $7.9 million combined. In many cases, these sector fund investments appear to pose conflicts with the committee positions of their owners. For example, Rep. Peter Welch (D-Vt.) has up to $250,000 in the Technology Select Sector Fund — an ETF of stocks from Apple, Microsoft, NVIDIA, and more. – while serving on the Communications and Technology Committee. Another example is Rep. Rick Allen (R-Ga.), the senior member of the health, education, labor and pensions subcommittee. Allen has invested up to $50,000 in a healthcare ETF comprised of stocks from companies including UnitedHealth, Johnson & Johnson and Pfizer.

Government ethics advocate Craig Holman of Public Citizen told Sludge he thinks bills allowing members to continue trading industry funds would still be an improvement over the status quo. what.

“Even if members were allowed to continue trading ETFs, these funds are still more diversified than individual stocks and would therefore be a significant improvement over the current system,” Holman said. “But ideal would be to limit members to the even broader category of funds specified in the Warren/Jayapal bill as ‘wide-spread and diversified investment funds’.”

Warren and Jayapal’s bill, called the Bipartisan Ban on Congressional Stock Ownership Act, would only allow members of Congress to trade investment funds that “[do] not have a declared policy of excessive concentration of its investments” and that “[do] not pose a conflict of interest. That bill is much less popular among members of Congress — while the conflicting Trade Prohibition Act and Confidence in Congress Act each have more than 50 House cosponsors, the House version of the bipartisan Congressional Stock Ownership Ban Act has only three co-sponsors so far. . His five Senate co-sponsors include two Republicans, Steve Daines of Montana and Marsha Blackburn of Tennessee. Another bill, the Congressional Stock Trading Ban Act, proposed by Sen. Jon Ossoff (D-Ga.), would also ban trading in industry-specific funds. He has 12 Senate co-sponsors, all Democrats, and no House version.

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