Summary: Allow Congress to be kept honest in stock trades through citizen lawsuits.
Problem: Lawmakers have an unfair advantage over the average citizen when it comes to trading stocks or securities—the advantage of early or more complete information. Trades conducted with recourse to such information damage investors and should not be permitted. On the other hand, it seems excessive to exclude all federal lawmakers from all markets entirely; they must be allowed to invest and grow their wealth (and, more pertinently, will never pass a law denying themselves this freedom). Furthermore, oversight of any rule governing individual investment of its members by Congress, through an ethics committee or otherwise, is itself is subject to abuse both in its selective- and in its non-enforcement and this self-oversight must therefore be considered of zero or negative value.
Appearance. On top of corrupt trades damaging other investors, the problem of legislators becoming wealthy affects the public even when all investing is conducted completely ethically. A legislator/investor who, over time, builds wealth using markets creates the perception of corruption, which undermines the trust of the American people in its institutions. This proposal eliminates this perception while protecting the members of Congress from suspicion and accusations of corruption where none exists.
Purpose. This proposal is a common-sense (and, I believe, simple and complete) solution to this dilemma.
Uniqueness. This proposal is set apart from similar ideas in a couple of ways:
- Trades Allowed. This proposal does not seek to deprive legislators from access to markets, which is a poison pill guaranteed to stop any such policy in its tracks.
- Outsourcing the Enforcement. Tied in with the problem stated above is the fact that mere “house rules,” policies, or guidelines that apply to members of Congress must be enforced by other members of Congress and are therefore guaranteed to become political in nature, and almost never rigorously applied. This proposal solves this.
Proposal:
- Notice. Members of Congress (and spouses, dependents, etc.) will be considered “insiders” as this term applies to transactions involving stocks or publicly traded security, for purposes of notice. This will mean, at minimum, that the members must share with the public which stock they intend to buy or sell and the quantity, well in advance of such a transaction. This may be extended to real estate deals, partnerships, and other forms of investment if those examining the proposal deem it wise and necessary. The acquisition or granting of options to purchase such securities or to enter into such investments must also be similarly disclosed, as otherwise they would be used as a means of sidestepping the rule.
- Disclosure. The purchase or sale (or upon taking office, the ownership or control) of private securities must likewise be made public before it occurs.
- Trusts or Anonymized Agents. Care must be taken to make this rule to apply to trusts of which the member is a grantor or beneficiary but which may not involve ownership or control, and to other similar arrangements, possibly including blind trusts to the extent to which these are deemed to be part of the problem.
- Penalties. Any member of Congress failing to provide the notice required before a covered transaction or disclosure of a private transaction will forfeit all profits of the undisclosed transaction. The money or stock will be seized and donated to a basket of charities that will be decided upon, periodically by Congress, for this and perhaps other purposes. The nature of the charities can change but the composition of the basket and each charity’s weight in the basket must be subject to a bipartisan selection process. The basket is expressly not created for the purpose of receiving public money.
- Enforcement. Criminal enforcement of this proposal is subject to all the problems of the corrupt political influences that plague any law enforcement official trying to watchdog the nation’s powerful legislative bodies. The penalties should therefore be civil. The problem with this is that the members would make this incredibly difficult through rewarding courts who deny standing to sue. This, the key section of the proposal, is therefore that each member of Congress (and, as mentioned, their families, and perhaps certain staff positions as well) be required by law to enter into a standard contractual agreement in order to take office. This contractual agreement explicitly extends standing to any party damaged by the member’s transactions and agrees to the limits and penalties above. The public will, through lawsuit, enforce the proposal, and no enforcement action need or may be either brought or avoided by the affected member or other members of Congress, except when exercising their rights as private citizens.
- Defense against abuse. Proof of the member’s adherence to the notice and disclosure provisions of the contract shall be grounds for summary dismissal of any such lawsuit, with attorney’s fees and reasonable punitive damages for frivolous cases being borne by the plaintiff.
- Publication. A website will be created as the central repository of all records and disclosures made by members of Congress pursuant to this agreement, and will be a series of spreadsheets containing the disclosures and other pertinent records in as simple a form as possible. The information will be updated daily. With every update, the changes made will be stored and visible. This may even be just a Google sheet. We don’t need to spend $330 million to build a federal website to handle this.
- Discovery. Should any member of Congress attempt to hide ownership in any security or private company and thus seek to avoid disclosure that would otherwise be required, there will be a standard SEC whistleblower award of 30% of any recovered amount given to whistleblowers uncovering malfeasance by any member of Congress with regard to the requirements of this proposal, which results in asset seizure.
Members of Congress must be allowed to trade. They must also be kept honest. History has demonstrated that the vigilance of neither their colleagues nor the SEC is sufficient to keep them so. The American people must therefore be empowered to do so directly, while allowing their legislators to trade and benefit from the prosperity of our nation as they work to unleash it.