But there it is, starting on the proposal’s third page: a list of exceptions. All the investment vehicles lawmakers could still trade, including mutual funds and exchange-traded funds, which can be full of all kinds of investments, including stocks. As former Wall Street executives and regulators told me, such investment products can be structured to jack up returns, so there’d still be plenty of opportunity to turn a nice profit based on market-moving details revealed in a committee hearing.

–Whitney Curry Wimbish, staff writer

Plenty of Room for Lawmakers to Profit Under Proposed Stock Ban

Certain rich lawmakers are losing their minds over a proposed congressional stock-trading ban that a bipartisan group of senators advanced last month. They argue that forbidding them from using their inside knowledge to play the market will make public office “unattractive” and drive those who serve into poverty.

“Anybody want to be poor?” asked Sen. Rick Scott (R-FL), one of the richest people in Congress, whose health care company defrauded Medicare and Medicaid in the ’90s when he was its chief executive. “I don’t.”

But Wall Street insiders said Scott and his fellow wealthy electeds have little cause to worry. The proposal leaves plenty of room to profit off insider information, so much so that they described it as inadequate and “stupid,” and called carve-outs that can be traded under the terms of the bill, including corporate bonds, “insane.” These exceptions, they said, make the legislation a ban in name only.

The HONEST Act, which stands for “Halting Ownership and Non-Ethical Stock Transactions,” would ban all members of Congress, their spouses, and their children from directly investing in securities, commodities, futures, options, and trusts, starting 90 days after the law’s enactment. It would require that they divest any assets of those types by the start of their next term in office.

Versions of this legislation have been debated for years, and there’s a parallel effort in the House. But the Senate bill, led by Sens. Josh Hawley (R-MO), Jeff Merkley (D-OR), Jon Ossoff (D-GA), and Gary Peters (D-MI) and building off a Merkley effort from last session called the ETHICS Act, surprisingly passed the Republican-led Homeland Security and Governmental Affairs Committee and could set a marker in Congress for a concept that is very popular and constantly invoked in campaign ads. But politicians in those ads vow to once and for all end corrupt self-enrichment, not to pretend to do so in easily escapable ways.

Stock-trading bans intend to halt the periodic incidents of members of Congress executing big trades right before a major policy shift, like Rep. Rob Bresnahan (R-PA) selling clean-energy stocks and buying stock in fossil fuel companies right before final passage of the GOP mega-bill, which reverses tax credits to renewables. Bresnahan, a freshman, has made 598 stock trades so far this year. Even more notorious were trades lawmakers like Sens. Richard Burr (R-NC) and Kelly Loeffler (R-GA) made at the height of the COVID-19 pandemic, capitalizing on information before it was public as hundreds of thousands of people dropped dead. (Loeffler is currently the head of Trump’s Small Business Administration.) Three years ago, The New York Times found that almost a fifth of lawmakers bought stocks that coincided with their committee appointments.

The HONEST Act would increase penalties from $200 to $500 for failing to make required disclosures under the Stop Trading on Congressional Knowledge (STOCK) Act, which lawmakers on both sides of the aisle have repeatedly violated since its enactment in 2012. Rep. Markwayne Mullin (R-OK) is one of the most recent to do so, according to a disclosure covered by Notus, which showed he failed for more than a year to report hundreds of thousands of dollars’ worth of trades he and his wife made.

The proposal would also apply to future presidents and vice presidents, though not to Trump or JD Vance. The original version did incorporate Trump and Vance until Trump got angry about it, calling Hawley a “second-tier Senator” in the process. The most prominent House version focuses only on congressional stock trading.

The proposal would still allow lawmakers to invest in mutual funds and exchange-traded funds as long as they are “diversified,” which it defines as an investment vehicle that “does not have a stated policy of concentrating its investments in any single industry, business, or single country other than the United States.” But it is silent about derivatives, leverage, or holding periods.

That means lawmakers could use inside information to invest and get back out once the returns hit. Mutual funds, which trade once a day, would require they hold an investment for just that long.