This time, Congress might finally close the stock-trade ethics loophole

In early 2020, Sen. Richard Burr (R-N.C.) sold personal stocks worth between $628,000 and $1.72 million before the market sharply declined. At the time, the chairman of the Senate Intelligence Committee was receiving daily briefings about the covid-19 threat and reassuring the public that the country was prepared. A Securities and Exchange Commission probe into Mr. Burr’s trades resulted in no action. The senator has since retired; he denied wrongdoing and said he traded on public information only. But the affair showed how permitting lawmakers to buy and sell individual stocks corrodes trust in government, raising ample potential for conflicts of interest that could affect how they conduct the public’s business.

Bipartisan coalitions in Congress have been trying to tighten rules on lawmakers’ investing for years. The Stock Act of 2012 prohibits legislators from using nonpublic information — say, what they hear in private briefings — for their own financial benefit. But the law’s penalties are paltry. Also, members of Congress not only have special access to market-relevant information; they also shape laws and regulations that can move markets and affect individual companies. Despite interest across the ideological spectrum in limiting potential conflicts of interest, Congress has never restricted its members from trading individual stocks. That needs to change, and this year, there is a chance it will.

At least a dozen proposals have been introduced in the current Congress. One bill, the result of a bipartisan deal, has made it further than any previous attempt. Last week, the Senate Homeland Security and Governmental Affairs Committee advanced a bill backed by Sens. Jon Ossoff (D-Ga.), Gary Peters (D-Mich.), Jeff Merkley (D-Ore.) and Josh Hawley (R-Mo.).

The ethical hazard to which they’re responding is not just theoretical. Many lawmakers are known to be prolific investors. Social media users track thousands of stock trades congressional members make each year. New exchange-traded funds — investment funds that trade like stocks — mimic lawmakers’ Wall Street strategies.

The new proposal would initially apply to members of the House and Senate, along with the president and vice president, prohibiting them from buying or selling individual stocks. By 2027, the ban would extend to their spouses and dependents, while also requiring those included under the law to divest from some existing investments. The proposal would also raise the fine for improperly trading on nonpublic information from $200 to a month’s salary — about $14,000 — or 10 percent of the value of the relevant investment.

This deal addresses concerns that have hampered previous attempts to enhance the rules. The bill would remove loopholes that could have allowed members to set up what critics call fake blind trusts, or arrangements that let them surreptitiously maintain control over their investments. The legislation also wouldn’t apply to the Supreme Court, which has been a dealbreaker for Republicans, who have also opposed Democrats’ recent efforts to pass a Supreme Court ethics bill.

The details will be subject to amendments. And even if the bill remains intact, Senate leaders will have to bring it to a floor vote. But they have little excuse not to.

On top of the proposal’s policy benefits, the concept enjoys overwhelming public support. A University of Maryland poll last year found that 86 percent of respondents favored a proposal prohibiting members and their immediate family from trading individual stocks, with strong support from voters of both parties.

Critics raise concerns about the application of such legislation to lawmakers’ spouses and dependents, but there’s precedent: An existing Senate rule imposes restrictions on lobbying activities by members’ immediate family. In the case of stock trading, family members are especially relevant because of their ability to make individual trades based on nonpublic information shared by their lawmaker relatives. In one of many such cases, former congressman Chris Collins (R-N.Y.) was sentenced to prison in 2020 for an illegal stock tip to his son. Regardless, if concerns about extending the ban to family members becomes a high barrier to passing the bill, lawmakers should start with at least restricting themselves.

Members of Congress should treat this issue like the low-hanging political fruit it is; when confidence in Congress is staggeringly low, passing this bipartisan deal could deliver some assurance — by signaling to Americans that their elected officials still work for them.