Josh Hawleys PELOSI Act Turns Spotlight On How Members Of Congress Regularly Beat The Stock

News broke Wednesday that former House Speaker Nancy Pelosi (D-CA) had disclosed the sale of between $1.5 million and $3 million worth of shares in Googles parent company, Alphabet, just a few weeks before the Department of Justice announced an antitrust lawsuit against the tech giant.

Nancy and her husband Paul, who is often the person actually making the trades, have been accused multiple times in the past of using her position in the federal government to make advantageous moves in the stock market. The couple sold their Nvidia stock, albeit at a loss, right before the U.S. government announced new restrictions on the sale of computer chips to China and Russia, while Paul bought $6 million in tech options as Congress debated antitrust measures against Big Tech companies.

Coincidentally, the day before the news broke about the Pelosis stock trades, Republican Missouri Sen. Josh Hawley reintroduced The Preventing Elected Leaders from Owning Securities and Investments Act, otherwise known as the PELOSI Act. The bill, first introduced in 2022, would prohibit members of Congress or their family members from holding or trading individual stocks. Any existing investments would have to be divested or placed in a blind trust for the duration of the lawmakers tenure in office.

A majority of congresspeople are millionaires, and while most were already wealthy before entering Congress, they also tend to have success on the stock market while in office. Although there have been many efforts to rein in congressional stock trading, Hawleys newest push has brought the issue back into the spotlight.

Many congresspeople were already wealthy and held considerable assets before they entered politics. Members of Congress tend to come from professional fields that are relatively lucrative think doctors and lawyers. Some are extremely successful business owners who made the jump over to politics.

For example, Republican California Rep. Darrell Issa is currently the richest person in Congress, with an estimated net worth of $460 million as of September 2022. Before entering the House, Issa made a fortune in the car alarm business in the 1990s. Similarly, the top three richest senators, Rick Scott (R-FL), Mark Warner (D-VA), and Mitt Romney (R-UT) were all successful in private business before attaining public office.

But that doesnt mean lawmakers dont expand their wealth while in office. In fact, some have seen massive gains thanks to fortuitous moves on the stock market.

In 2021, members of Congress and their family members purchased $267 million in assets while sales amounted to $364 million.

On average in 2021, Congress beat the market, according to an analysis by Unusual Whales. SPY, the exchange traded fund that owns all of the stocks on the S&P 500 and one of the most important market measures for investors, saw a return of 13.6%. Meanwhile, both House Democrats and Republicans saw an average return of 14.7% and Senate Democrats saw a return of 15.4%. Only Senate Republicans failed to beat the SPY, with a 13% average return. One congressman saw a return of almost 800%.

Members of Congress have not only been fortunate in picking winning stocks, but they have also had a lot of luck in selling stocks note the Pelosi example above just in the nick of time to avoid massive losses. This level of success has attracted allegations of insider trading, i.e. using knowledge gained from their work in the federal government that is unavailable to normal Americans to make advantageous trades.

Four senators were accused of such malfeasance in the early days of the COVID pandemic. Former Republican Sens. Richard Burr of North Carolina and Kelly Loeffler of Georgia sold millions worth of stock after a closed-door briefing on the possible impacts of the coronavirus. Sens. Jim Inhofe (R-OK), David Perdue (R-GA), and Dianne Feinstein (D-CA) also dumped stock in the early weeks of the pandemic.

The Department of Justice and the Securities and Exchange Commission launched investigations into possible insider trading by the five lawmakers. All of the inquiries were dropped by January 2021. An Insider investigation found that many other Congress members bought or sold stock in vaccine manufacturers Pfizer, Moderna, and Johnson & Johnson during the pandemic.

Between 2019 and 2021, 97 members of Congress almost 20% of all lawmakers in the Legislative Branch reported that they made stock trades in companies that were influenced by their committees, according to an analysis by The New York Times.

There are already laws on the books to prevent insider trading, most notably the STOCK Act passed in 2012. A critical part of the law requires members of Congress to promptly disclose any stock trades made by them or close family members. According to an Insider report from early January, 78 members of Congress have recently failed to comply with the law and properly disclose stock trades, according to an Insider report from early January.

Congresspeople who violate the law face a fine, but it is usually only $200 and the penalty has been waived altogether several times by the House Ethics Committee. Two current members of the eight-person Ethics Committee were identified in the Times analysis as having traded stocks in companies influenced by their committees and were among the 78 lawmakers who failed to comply with the STOCK Act.

For too long, politicians in Washington have taken advantage of the economic system they write the rules for, turning profits for themselves at the expense of the American people, Hawley said of the PELOSI Act in a news release. Lawmakers who violate the proposed act would be forced to forfeit any profits from the investments to the American people and lose the ability to write off any losses on their taxes.

The first iteration of Hawleys bill, which lacked the acronymic jab at the former House Speaker, stalled in the Democrat-controlled House in 2022. Democrats also scrapped another proposal to regulate lawmakers stock trades just a few days before the 2022 midterms elections, with then-House Majority Leader Steny Hoyer claiming that there wasnt enough time for representatives to study the proposal.

Almost simultaneously with Hawley, Reps. Chip Roy (R-TX) and Abigail Spanberger (D-VA) introduced a bill banning members of Congress from trading individual stocks for the third time. They previously introduced the bill in 2020 and 2021.

Given the poor track record of bills regulating congressional stock trading, both in getting passed and actually being enforced, chance of meaningful reform is dim. And in the meantime, members of Congress will most likely continue to beat the market.