Stock Trading in Washington DC: More of Everything Is Needed

By Jim Toes, STA

Earlier this week, the Pulitzer Prize Board announced the 2023 winners of its coveted and prestigious awards for excellence in journalism. Among the recipients were staff for the Wall Street Journal, who received recognition in the category of Investigative Reporting for bringing to light the financial conflicts of interest among officials at federal agencies – specifically, by identifying those who bought and sold shares in companies they regulated.

The seven-part series reviews more than 315,000 trades reported by approximately 12,000 senior career employees, political staff, and presidential appointees. The series details the inconsistencies in conflict-of-interest policies across government agencies and how much of this activity, while technically disclosed, is never made available to the public. The breadth of data is meaningful, and the anecdotal examples lead to the conclusion that there is more here than just an appearance of impropriety.

This is not the first-time government officials charged with safeguarding the public’s interest have been accused of this unethical behavior. In 2011, author Peter Schweizer published his book, Throw Them All Out, in which he chronicled in great detail the existence of “crony capitalism” and its “corrosive effect on politics, our economy and our character.” While Mr. Schweizer did not receive a Pulitzer, his work, which focused heavily on trades by Congressional members during the mid-2000s financial crisis, did lead to a 60 Minutes profile and eventually resulted in Congress passing the Stop Trading on Congressional Knowledge Act (STOCK Act) in 2012.

What is different this time, according to the WSJ series, is that while the STOCK Act applies to all federal officials, it is not equally administered or enforced. The various federal agencies have discretion on what is demanded among their staff. Much of the public attention is focused on members of Congress, and less so on employees of three-letter federal agencies like the FDA, FCC, IRS, and others.

Today, there is a lack of confidence on the efficacy of the STOCK Act to instill public trust that government officials who are privy to material and non-public information will not use that knowledge to benefit themselves at our expense. That said, it has been effective in bringing transparency to activity where there was previously none. It remains clear that more needs to be done in order to achieve the goal of not just ensuring there are no occurrences of insider trading by government employees, but also eliminating the appearance of it.

Legislation currently being considered in Congress ranges from an all-out ban on trading to a “more of everything” approach. This means more uniformity in the administration and enforcement of Conflicts of Interest Policies across federal agencies, more resources to the Office of Government Ethics so they can better perform their role, more education so the public can understand the difference between discretionary trades executed by a financial advisor verses trades executed directly by the employee, and more transparency in the form of public disclosure on trading activity by federal employees. 

While the final outcome is yet to be determined, we need clear rules that apply to all federal employees who have access to material non-public information, and those rules must be uniformly enforced. Occurrences or appearances of insider trading erode the public trust in government and undermines our democracy by destroying the reputations of government and its institutions.