Insider Trading Bans for Congress Gain Momentum

Plus: how to choose a bottle of wine for Valentine's Day

Feb 13, 2022

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On the morning of January 24, 2020, the second positive COVID case in the United States was confirmed in Chicago. The first two cases in Europe, both in France, were identified on the same day. After 14 suspected cases in the United Kingdom all turned out to be negative, the U.K.’s Chief Medical Officer released a statement saying, “We all agree that the risk to the UK public remains low, but there may well be cases in the UK at some stage.” Back in the United States, five of the largest airports in the country had just started screening passengers returning from Wuhan, China. Just over 2,000 passengers are screened in the early days from about 200 flights, but no positive tests are immediately confirmed.

On that same day, January 24th, 2020, a group of United States senators had a closed-door briefing with Dr. Anthony Fauci and others to discuss the emerging virus and its potential impact on the country and its citizens.

What Happened Next

Senators emerged from the meeting with as many questions as answers, as truly the situation was in flux at the time. On the one hand, officials were warning of the imminent likelihood of more COVID-19 cases in the United States. On the other, the CDC issued a statement on January 24th itself, saying, “The CDC believes that the immediate risk to the American public is low at this time, but the situation continues to evolve rapidly.”

One thing did happen in the weeks, days, and even hours that followed: some of the senators who were in that private meeting on January 24th started to liquidate shares of stocks that were likely to be impacted by the impending global pandemic:

Senator Kelley Loeffler from Georgia sold over $1 million in stocks through February 14th. Her first sale was on January 24th itself, the very day of the closed-door hearing. She also purchased stock in companies she thought would be impacted positively by the pandemic, including video-conferencing company Citrix, which traded around $122/share when she bought it on February 14th but had risen to over $150/share by July 2020. On March 20th, The Daily Beast reported, “The 15 stocks that Loeffler reported selling have lost more than a third of their value, on average, since she reported offloading them. She initially reported many of the transactions as sales of stock owned by her husband. Last week she amended the filing to note that most of them were jointly owned.”
Senator James Inhofe from Oklahoma sold $180,000 of stock on January 27th and $50,000 on February 20th.
Senator Diane Feinstein from California sold at least $1.5 million in stock from January 31th to February 18th.
Senator Richard Burr from North Carolina sold between $628,000 and $1.72 million in stocks on February 13th. He was also receiving classified briefings on the Coronavirus as the Chair of the Senate Intelligence Committee during the time and although he was stating publicly that the country was ready to face the challenge, he told a private luncheon on February 27th that the Coronavirus was more aggressive “than anything that we have seen in recent history,” according to audio obtained by NPR.

In fairness, all four senators adamantly disputed that they did anything wrong, with explanations ranging from their investments being held in blind trusts that they have no control over to that they made these particular investment decisions based on publicly available data. Senator Richard Burr even called for an investigation into his own activities.

All of these examples speak to an ongoing challenge in Washington D.C.: the fact that elected officials and their top staffers are privy to non-public information that they can then use to profit from (or avoid losses they might have otherwise sustained). And the problem is not unique to Congress. According to a Wall Street Journal investigation, 131 federal judges failed to recuse themselves in 685 cases from 2010-2018 in which they or a family member had a financial interest. More recently, President Biden’s top science advisor, Eric Lander, failed to properly disclose his up to $1 million holdings in BioNTech, the company that partnered with Pfizer on one of the first viable COVID vaccines.

What Should Be Done

Insider trading based on non-public information is already illegal in this country. Moreover, there are disclosure rules and conflict of interest guidelines for elected officials and judges. In 2012, the STOCK Act was passed by Congress (“Stop Trading on Congressional Knowledge” - who doesn’t love a good acronym by the way), which affirms that members of Congress are not exempt from insider trading laws and institutes various disclosure rules. The Act passed Congress by a 96-3 vote and was signed into law by President Obama. Interestingly enough, one of the three senators to vote no at the time was Senator Richard Burr.

The problem with the STOCK Act, however, is that it is rarely enforced and when it is the penalties are pitifully low, often as non-consequential as a $200 fine. Business Insider recently identified 55 examples of violations of the STOCK Act by members of Congress in 2021, some of which generated small fines but many others of which did not have any penalties whatsoever partly because no one was aware of them until the Business Insider investigation itself.

It appears now, however, that momentum is building for either updates to the STOCK Act or new legislation altogether. A group of Democratic and Republican members of Congress have put forth the Bipartisan Ban on Congressional Stock Ownership Act, which would ban members of Congress and their spouses from trading individual stocks and would establish penalties up to $50,000 per occurrence. Other similar proposals including one jointly sponsored by Texas Republican Chip Roy and Virginia Democrat Abigail Spanberger would do the same. Per Rep. Spanberger in an interview with NPR, “It's not just enough to know what members are buying or selling, it's that they shouldn't be buying or selling.” And from Rep. Roy, “If you are buying calls on Google ... how can the American people have confidence that you're going to make a truly objective policy decision on the size and scope of Google with respect to antitrust questions, for example?” These comments from Reps. Spanberger and Roy are spot on.

I should also note that here in Maine, my own Congressman, Rep. Jared Golden, has vocally supported such measures, including by sending a letter to House leadership urging for an immediate vote. He joins the growing list of rank-and-file members of Congress on both sides of the aisle who are calling for immediate changes.

This past December, Speaker of the House Nancy Pelosi said in a politically tone-deaf interview that she did not support proposals to ban stock trading by individual members of Congress, offering, “We are a free-market economy. [We] should be able to participate in that.” She has since softened her tone, however, likely in the face of widespread public support for such bans and growing pressure from members of Congress of all political stripes.

Needless to say I support such bans. When you consider the wide breath of issues Congress deals with, the amount of privileged information they receive, and the raw power and influence elected officials can have over individual companies not to mention entire industries, there are simply too many conflicts of interest. And even though the majority of all member of Congress might handle their transactions properly and fully disclose all of the pertinent details, the perception of (and opportunity for) impropriety will always exist unless changes are made.

Incidentally, one member of Congress was actually punished for insider trading. In 2017, Rep. Chris Collins from New York learned of a failed test for an MS drug during its clinical trials directly from the CEO of the company during a White House picnic. He called his son, who then sold all of their holdings, as did the son’s fiancee, her parents, and a number of others. The stock soon dropped 92%. In January 2020 (ironically enough, the very month as the now-infamous January 24th meeting described above), Collins was sentenced to 26 months in prison and ordered to pay a $200,000 fine.

We have seen a rapidly decaying trust in our institutions including (and perhaps, especially) our institutions of government over the last twenty-five years. This breakdown in trust erodes the very fabric of our nation and undermines our cohesiveness and meaningful faith in our leaders. For the sake of the integrity of the offices they hold not to mention the transparent and conflict-free execution of their responsibilities, stock trading by individual members of Congress, their top staffers, and their close family members should be banned. Members of Congress should still be allowed to invest, of course, but those investments should be held in blind trusts where the member does not have any say or influence over the investment decisions. If investments were not held in a blind trust, it should be required that the investment options be limited to index funds, ETFs, mutual funds, or other diversified investment vehicles, a policy that would prevent members of Congress from profiting off of the market movements of any one stock. I hope that the recent momentum for such rules and requirements carries through to new legislation that is swiftly enacted.

How to Buy a Bottle of Wine

I asked Eric Mihan, who along with his wife owns Bangor Wine & Cheese, some questions people might have on their mind for Valentine’s Day (or just in general!):

So you want to buy your significant other a bottle of wine for Valentine's Day. Where is the best place to start?

First, go to a reputable shop. Doesn't have to be mine, but staring at a grocery store shelf is not, to me, a good way to buy wine, ever. Personally, I'd start with: Tell me about the person. Are they a casual wine drinker and you want to have something to enjoy with them as such, perhaps with their favorite dinner? Or is it a "My Valentine is really into wine (or Tuscany, or pairing wine with oysters, or biodynamic farming, or whatever,) and I'd like to get them something special." Reason being, a casual, nice sipping wine is easy to recommend and not mess up, but if someone wants to hone in on a specific style or region, it's best to come armed with as much information as you can get without tipping your hand as to the gift. A good wine merchant can handle either request, of course, but it reduces anxiety on the customer's and retailer's part to know where we're aiming. Buying a gift should be fun, not scary.

What is one recommendation for a classic, can't-miss style that you have in your store right now and what is one recommendation you have for something that is more modern and trendy these days?

Trendy is certainly the push towards "natural wines." But what's amusing is so many of the wines I work with are "natural," and have been for decades. These "natural wines" are farmed using organic and like practices, and have little to no added sulphur dioxide added to preserve the wine, and therefore need careful shipping in cold containers. Lots of the newer ones on the scene can be aggressive on the palate, but I tend to enjoy the wines of the FUSO cooperative, whose "Flora" Rosato (Reg. $15.99) bubbly is our Wine of the Week, and who source from naturally-farmed vineyards throughout Italy.

But in the same vein, as I said, I work with plenty of more traditional wineries that farm naturally and the like, and these wines never appear in the "trendy" articles. For example, the wines of the Perrin family, whose "Nature" line of Cotes du Rhones (Red and White in stock now, $14.99) are affordable and delicious, and certified organic. This family has farmed with natural practices for years, and the high quality of their wines from the CdR to their flagship Chateau de Beaucastel reflect that.

Say you want to spend a little bit more - what is your recommendation for a bottle of wine that is sure to be enjoyed in the $50-$75 range? And what's the sweet spot on that price to enjoyment scale for most people with a moderate budget?

The problem with spending "more" is that you can get a lot of enjoyment for less, and to go higher in price means you're getting more specific in a certain style or region. For example, a nice red Burgundy (Pinot Noir, usually floral and cherry fruit and really pleasant) will run $30-$45, but a bottle from a certain vineyard or village of note with certain characterisitcs (the soil of Pommard, for example is iron rich and the wines have a distinct tang to them) will run you $75 upwards. Is it worth it? Maybe. Again, it's that question of who you're buying for. Would they appreciate the nuance? Or is it better to buy an awesome $30 bottle and some cheese and chocolate with the rest of your budget?

What's a good choice for under $20?

"Easy Like Sunday Morning" choice: Can Blau ($16.99) from the region of Montsant. It's the wine to "slip into" after a long day. Delicious. Smooth.

Your store name is Bangor Wine & Cheese. On your own Valentine's date with your wife, what are you offering her for a pairing? Or do you save the cheese for another time and offer chocolate instead?

Pairing is individual, but I do love to offer the idea of a soft cheese, a hard cheese, and a small side of either salumi or other cured meat, along with some almonds or such to go with a nice bottle. Say a 1/4 pound of each. It's easy and presents well...always nice to look good with minimal effort! And of course we offer the delightful chocolates (while they last...they do tend to move quickly) of Savour Chocolatier from Veazie, Maine, and those are always a hit. But I find, if you're going sweet with the food portion, go either bubbles or a deliberately matched dessert wine or opulent red perhaps, not just a dry table wine. Sometimes the acidity of a dry wine doesn't pair well with sweets.

Thanks, Eric! Be sure to check out Bangor Wine & Cheese on Facebook or visit them here in Bangor at 86 Hammond Street.

Have a great week, everybody!

The Sunday Morning Post

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