Even a looming scandal wouldn’t deter some of Congress’ most eager stock traders.
Rep. Tom Price (R-Ga.), President Donald Trump’s nominee to be Health and Human Services secretary, was under siege, the harsh lights of a Senate hearing upon him. News reports showed he had bought shares in a tiny biotechnology company while sitting on committees that could influence the firm’s prospects. A colleague, Rep. Chris Collins (R-N.Y.), had tipped him off to the investment.
A Washington Post editorial called Price “a walking, talking example of the ways in which congressional ethics requirements are too lax.” Sen. Chris Murphy demanded: “Tell me how it can possibly be OK that you were championing positions on health care issues that have the effect of increasing your personal wealth?” Sen. Ron Wyden (D-Ore.) asked him, “Doesn’t this show bad judgment?”
But what many saw as a scandal, others saw as an opportunity. On the very day that Wyden was decrying Price’s bad judgment, Rep. Doug Lamborn, Republican of Colorado, bought shares of the same tiny Australian company, Innate Immunotherapeutics. Within two days three more members also bought in — Republicans Billy Long of Missouri, Mike Conaway of Texas and John Culberson of Texas. Conaway added more shares the following week.
These brazen decisions to gobble up shares of a little-known firm at the very moment when such trading was being decried as an abuse of power reflects Congress’ anything-goes culture around stock investments. In the pursuit of wealth, even obvious conflicts of interest are routinely ignored by members who feast on daily trades. Long, for instance, serves on a committee overseeing Obamacare, and Conaway is a deputy House whip.
The health care lawmakers who invested in Innate Immunotherapeutics are hardly alone in trading in companies that have a major interest in federal legislation, according to a three-month investigation and examination of all stock trades by members of Congress.
POLITICO found that 28 House members and six senators each traded more than 100 stocks in the past two years, placing them in the potential cross hairs of a conflict of interest on a regular basis. And a handful of lawmakers, some of them frequent traders and some not, disproportionately trade in companies that also have an interest in their work on Capitol Hill.
The investigation found that:
House and Senate members who are active traders insist their buying and selling is a normal part of managing their finances, as with any American who wants to save for retirement or put their kids through school. But their colleagues don’t seem to agree. The clear majority of lawmakers avoid potential conflicts of interest by buying mutual funds, putting their portfolios in blind trusts or simply staying out of the stock market.
POLITICO found that 384 House members and senators who served in the 114th Congress made no stock trades over the past two years. Meanwhile, the lawmakers who are active in stock trading conducted a total of more than 21,300 trades during the past two years, but a small group of very wealthy lawmakers accounted for a significant share of those trades.
Texas Republican Rep. Mike McCaul — whose wife, Linda, is the daughter of Clear Channel communications founder Lowry Mays — reported approximately 7,300 stock transactions in an array of industries over the two-year period. Oregon Democratic Rep. Kurt Schrader, who sits on the House Energy and Commerce Committee, has made a substantial number of trades so far this year in companies that have an interest in the committee’s health and energy work, including Exxon Mobil, Marathon Oil and Gas, Conoco Philips, Pfizer and Eli Lilly. Schrader has made close to 700 stock trades over the past two years.
In some cases, these very wealthy lawmakers own significant stakes in private companies that are affected by their legislative work. Conaway maintains partial ownership in oil and gas companies that stand to benefit from energy-related bills he’s sponsored in Congress. GOP Kentucky Rep. Hal Rogers traded dozens of stocks while serving as chairman of the House Appropriations Committee, which affects a broad array of policy areas. Rogers also maintained partial ownership of a small bank and collected at least $100,000 in dividends from the bank while chairing the committee, which is on the front lines of deciding whether to roll back Dodd-Frank regulations on banks. Under congressional rules, owning companies and sitting on corporate boards is permitted so long as members don’t draw a salary. Rogers didn’t respond to requests for comment.
Ethics-concerned lawmakers and experts who have labored for years to persuade Congress to regulate itself over apparent conflicts of interest were surprised by POLITICO’s findings because Congress passed a law designed to curb lawmaker insider trading and stock trades just five years ago. They had assumed 2012’s Stock Act, which created new disclosures about the stock trades and for the first time explicitly barred lawmakers from insider trading, had deterred most lawmakers from engaging in conflicts of interest. At the time the bill was passed, many thought the simple fear of exposure and political embarrassment would stop the conflicts of interest.
Now they aren’t so sure.
“I’m deeply concerned,” said Minnesota Democratic Rep. Tim Walz, an early supporter of the Stock Act who does not himself trade stocks. “If you buy stock and then do something that changes that stock, you’ve got to know what’s going on.”
In December, Congress approved the 21st Century Cures Act, a bill stocked with $6.3 billion in new funding for medical research and faster drug approval. In the months leading up to the vote, more than 1,000 lobbyists flocked to Capitol Hill to make their case for what should be included in the legislative package. It was a rare opportunity to dramatically increase the amount of federal money going into pharmaceuticals. It was also, as it turned out, a time when some of the members who contributed to the writing of the bill boosted their own portfolios of drug stocks, POLITICO found.
Whitehouse, Collins, Price and Fleischmann all invested in pharmaceutical companies over the months that the bill was being pulled together. Price traded and held multiple medical stocks, including McKesson, while contributing to the 21st Century Cures Act. Collins sat on the boards of multiple medical companies and bought and sold health care stocks while authoring parts of the bill.
Whitehouse, the veteran Democrat on the Health, Education, Labor and Pensions Committee, began a series of purchases in health care stocks related to the bill in mid-November, through his own accounts and family accounts. At the time, negotiators were wrestling over the final version of 21st Century Cures and hoping to vote on it in a matter of weeks. Eager to battle prescription-drug addiction in his home state of Rhode Island, Whitehouse pushed leaders to include funding to fight opioid abuse, as well as health IT legislation. Both of Whitehouse’s measures were eventually included in 21st Century Cures.
Ten days before lawmakers announced their breakthrough agreement on the bill, Whitehouse, through his and his family’s accounts, bought shares in Gilead Sciences, Abbott Laboratories and McKesson, a pharmaceutical and health IT company. It was the third time that fall that he had bought McKesson shares. The three companies, which combined to spend more than $7.2 million on lobbying in 2016, had all been lobbying Capitol Hill on the 21st Century Cures Act. In the case of McKesson, the company also reported having lobbied on Whitehouse’s IT bill.
Health care negotiators released the final version of 21st Century Cures on a Friday. The following Monday, Whitehouse purchased more stock in Gilead, as well as shares of the pharmaceutical company Amgen. In just over a week — with lawmakers racing against the December recess — the bill was approved by Congress. Ten days after President Barack Obama signed it, Whitehouse sold some of his stock in Gilead, Amgen and Biogen.
Asked about the trades, Whitehouse said his stockbroker acted without his knowledge.
“I don’t decide on, neither am I even informed of, trades that are made in my account,” Whitehouse said. “I would find out when the filing goes out. I wouldn’t know anything about it at the time, and, frankly, I don’t know anything about it now.” Whitehouse’s office provided a letter from his financial adviser that said his account was managed without his input, and he was not alerted of trades in advance.
It’s a common refrain from lawmakers engaged in trades while considering legislation that would benefit their investments — their stockbrokers manage their accounts without their input. That’s what Price claimed about some of his trades at his confirmation hearing as Health and Human Services secretary. It’s also what Conaway, the House majority deputy whip, said about his purchases, which included the little-known Australian firm that caused Price so much trouble, Innate Immunotherapeutics.
Asked whether his investments presented conflicts of interest, Conaway said he didn’t see any potential conflicts and doesn’t have control over his trades.
“We have professional traders who make trades either on their own, because they have the authority, or with my wife,” Conaway said. As for his purchase of shares in the nuclear company Entergy, which stood to benefit from the storage facility he advocated, he said, “That’s not something I authorized personally.”
Schrader, of the House Energy and Commerce Committee, also said he did not personally direct his investments. “These trades are not self-directed decisions. I check in with my team of advisers periodically for updates on my portfolio, but I am not making the day-to-day decisions,” Schrader said in a statement.
Fleischmann, who purchased stock in two cancer treatment companies, said in a statement that he’s proud to advocate for cancer research after having lost both his parents to the disease.
“There are no longer earmarks in Congress and I do not determine or advocate where NIH’s funds specifically go once they have been allocated,” Fleischmann said. “In regard to my stocks, I treat my investments like a blind trust and was unaware of the transaction since my financial adviser makes the transactions.”
But Whitehouse, Conaway, Schrader, Fleischmann and other lawmakers who bought stocks in firms that stand to benefit from federal legislation haven’t taken the one step that would assure that their investments were truly blind — setting up a blind trust, in which funds are managed independently without the lawmakers’ knowledge.
There is a clear procedure to do so, and eight members — including such veteran lawmakers as Dianne Feinstein, Democrat of California, and Orrin Hatch, Republican of Utah — have taken the step. It’s relatively simple: It requires hiring a manager for the trust, drawing up paperwork and submitting it to the House or Senate ethics committee. Once the blind trust is approved, the trustee takes over the fund and, over time, makes decisions on buying and selling assets. The lawmaker doesn’t participate at all.
If members choose not to set up a blind trust, ethics specialists say, their claims of not being involved in their investments inevitably ring hollow.
“If you’re really not going to be involved, then put it in a blind trust and let a truly independent adviser — not a family relative — make those decisions for you,” said Larry Noble, general counsel at the Campaign Legal Center. “When they say, ‘Well I didn’t know my broker was going to buy it,’ you have to start parsing words. You didn’t know he was going to buy it that day? Or, you’ve never had a conversation with your broker about buying that kind of stock?”
And then there’s the even easier path of buying mutual funds that aren’t tied to a particular industry. In such investments, fund managers make the decisions to buy and sell.
“The best way to proceed for members or staff of Congress is to invest in mutual funds or other similar investment vehicles to avoid any questions or appearances that might arise around whether nonpublic information was used for stock trades,” said attorney Robert Walker, former counsel for the House and Senate Ethics committees. “It might lead to a boring investment life, but that’s the more prudent ethical and political course.”
Now, after seeing how members are continuing to trade stocks despite the potential conflicts of interest, ethics specialists are convinced there need to be tougher laws.
There’s “an urgent need” for Congress to take another look at its rules surrounding potential conflicts of interest, said Indiana University professor Donna Nagy, who has written extensively on lawmaker stock trades.
“The public shouldn’t even have to ask the question of whether members of Congress have had their activities influenced by their own personal investments,” Nagy said. “In the executive branch, it is a federal crime.”
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Indeed, if Whitehouse, Collins or Fleischmann worked at the White House or a federal agency, they could face an investigation simply for working on the health care bill while holding stocks that had an interest in the bill — regardless of whether those holdings had any effect on their decisions.
But Congress isn’t nearly as tough on itself as the rest of the government.
When the need for tougher conflict-of-interest laws has been broached in the past, lawmakers have often offered two rationales for opposing them: It would be difficult to avoid conflicts of interest given the range of interests that are affected by legislation, and disclosures would have the necessary deterrent effect.
When former Washington state Democratic Rep. Brian Baird first proposed new restrictions on lawmakers’ stock trades in 2006, some members went so far as to object on the grounds of the Constitution’s speech and debate clause, which protects lawmakers from being sued over what they say or do in Congress, in order to protect members from being persecuted for unpopular beliefs. Others said it would be too burdensome to have to file all their trades with the ethics offices.
Baird saw another reason why lawmakers opposed the plan: “There’s a subset that believes themselves to be entitled. They think of themselves as ethical innately,” Baird, who left Congress in 2011, said recently. “If that were not the case, why was there so much resistance to the Stock Act?”
Baird wanted to make insider trading illegal for lawmakers, and make it easier for the press and others to find and spotlight members’ stock trading. He proposed requiring lawmakers to quickly disclose their stock trades, and mandating that political intelligence operatives — who specialize in relaying Capitol Hill information to Wall Street investors — register like lobbyists do.
The bill languished for more than five years after Baird first introduced it, but the Stock Act’s fortune started changing in late 2011 when a “60 Minutes” episode spotlighted dubious trades made by lawmakers. Its subjects included House Minority Leader Nancy Pelosi, who had participated in a profitable IPO for Visa while Congress was considering legislation that would have hurt credit card companies. Within days, lawmakers leapt into action and added their names as cosponsors by the dozen. House Majority Leader Eric Cantor, keen to put new checks on Pelosi, joined reform-minded Democrats to lead the charge. The Stock Act was swept into law by the following April.
The final bill barred lawmakers from insider trading, as Baird had proposed, and required members to report all trades within 30 days. The political intelligence component was stripped from the bill by Cantor.
Since its passage, the Stock Act appears to have deterred some lawmakers from making trades. Pelosi, one of the House’s wealthiest members, sold Visa shares and bought Apple and Disney, among 16 trades she made over the past two years.
But the bill’s enforcement mechanisms have been hard to implement. So far, no one has been convicted of insider trading under the Stock Act. And when the Securities and Exchange Commission sought to enforce the act in recent years, it ran up against sweeping opposition in Congress.
That case involves a former Ways and Means Committee staff director, who allegedly leaked information that Medicare reimbursement rates were about to rise in 2013. The tip found its way to a political intelligence firm, Height Securities, which sent information to hedge funds that rushed to buy stock in Humana, a company that benefited from the rate hike.
When the SEC subpoenaed documents and interviews related to its investigation, House counsel refused to comply. “At least some, and perhaps all” of the information requested by the SEC is protected under the speech and debate clause, counsel argued in a letter. The committee’s rebuff set the SEC on a two-and-a-half-year court struggle over the documents that was settled this spring when the two sides reached an out-of-court compromise.
The case demonstrated that “the speech and debate clause is going to be a virtually impenetrable barrier to ever proving one of these cases, even assuming there was insider trading as they defined it,” said Stanley Brand, former House general counsel and lawyer at Akin Gump.
That could effectively knock out the biggest deterrence to conflicts of interest. But even if it didn’t, some ethicists and lawmakers pointed out, most conflicts of interest don’t rise to the level of insider trading, anyway.
For example, during a trip to his home state of Illinois last January, Kinzinger, who has represented the exurbs of Chicago since 2011, went downtown to address a group of business executives. His after-lunch topic was national security, a subject near and dear to his heart as a former Air Force pilot. The hosts of the luncheon — a small security and research firm called Prescient Edge — were soon to be of personal interest to Kinzinger, too: When the private company sought to raise money later that year, Kinzinger invested between $15,001 and $50,000, filings show.
Kinzinger’s investment opportunity wouldn’t be available to most of his voters. And Kinzinger, from his perch on the House Foreign Affairs Committee, remains invested in a company that receives contracts from the Defense Department, including $148,468 in 2017.
Kinzinger spokesperson Maura Gillespie said in an email that “the congressman was made aware by his financial adviser of a capital raise by the Prescient Edge and so he cleared his investment through [the ethics committee] before buying stock.” Gillespie added that “should Prescient have business before the [Foreign Affairs Committee], then he would of course recuse himself, in accordance with ethics.”
Meanwhile, the notion that members would police themselves closely because of fear of voter backlash has rarely materialized. Lawmakers’ stocks can become campaign issues, but they are rarely the deciding factor in a race. Especially in the House, a significant group of lawmakers represent safe districts where their reelection campaigns rarely grab headlines. Kinzinger, for one, ran unopposed in 2016.
“The public can’t be expected to learn about every one of these things. The press can’t be expected to cover all of them,” Noble said. “And if we think [trading stocks] undermines that they really have their constituents at heart, then it should be prohibited.”
Corker, whose seat in red-state Tennessee is considered secure, has made a number of large stock trades over the years. As for his trade in between $500,001 and $1,000,000 in Chesapeake Energy, which he bought shortly before Congress announced its agreement to lift the oil export ban and sold shortly after, Corker spokesperson Micah Johnson said that the senator made the sale to avoid a potential conflict of interest.
“Prior to the vote . . . out of an abundance of caution and to avoid even the appearance of a conflict of interest, Sen. Corker sold his shares at a significant loss,” Johnson said. (Three days after Obama signed the bill, Corker again bought Chesapeake Energy stock, which he soon sold at a profit.)
A former aide to a senator who regularly bought and sold stocks linked to his committee work described “a false sense of victimization” among lawmakers who have watched the perks of their job, like gifts and free dinners from lobbyists, get whittled away.
“This feels harmless,” the aide said, but “it’s one more reason why no one trusts Congress.”
In the midst of the controversy over Price’s purchase of Innate Immunotherapeutics, Nagy, of Indiana University, was one of several experts who penned op-eds calling for new rules to prevent lawmakers from holding stocks that conflict with their legislative work. It ran the day Price’s House colleagues began picking up stock in the same firm. At the time, the possibility that other lawmakers might hear those calls and still buy stock in the same firm seemed beyond possibility.
“I had hoped it would have precisely the opposite effect,” Nagy said recently.
It’s highly unlikely that the lawmakers would have come across the firm Innate Immunotherapeutics had Price’s purchase of discounted stock in the company not caused a public uproar. The company has no approved drugs on the market and little name recognition in the U.S.
But Collins is the company’s largest shareholder and sits on its board, and Collins’ family members and chief of staff are also among the biggest investors in the company. Price learned about the company from Collins, though he’s maintained Collins didn’t share any information about Innate Immunotherapeutics that wasn’t public.
Lamborn, Long and Culberson, three of the lawmakers who bought shares in the company, each said they heard of Innate Immunotherapeutics through public channels. Lamborn spokesperson Jarred Rego said his purchase of shares in the company was done “on the open market, at fair market value, after all the media discussion about the company." Long spokesperson Hannah Smith said “Congressman Long did not learn of Innate Immunotherapeutics through a colleague, but rather through the news in January when the company became a daily topic.” Culberson spokesperson Emily Taylor, said: “Representative Culberson has a lifelong friend with multiple sclerosis and is always looking into news stories and breakthroughs on MS treatments.”
In addition, the POLITICO investigation revealed that yet another House member, Markwayne Mullin, Republican of Oklahoma, had bought Innate Immunotherapeutics before the flare-up during Price’s confirmation hearing. Mullin’s office did not respond to requests for comment.
All the members’ investments in Innate Immunotherapeutics were unearthed through the disclosure forms they were required to submit under the Stock Act. But the disclosures aren’t anywhere near as available as they were originally intended to be: Lawmakers envisioned Google-like search data enabling voters to quickly pull up who had traded stocks ahead of market-moving events. But Congress quietly stripped the data requirements out of the law a year after it was passed. Currently, the data is available online but not easily searchable.
Experts like Holman think the idea should be resurrected — and that lawmakers should be required to disclose much more specific information about the value of their assets and trades. Currently, they report trades within a wide dollar range. But the solution that would settle concern about conflicts of interest in the big picture, Holman and others argue, would be either to bar lawmakers from buying and selling stocks entirely, or require them to put their money into broad mutual or index funds.
But lawmakers and aides acknowledge there is no serious discussion on Capitol Hill about taking new steps to curb lawmakers’ conflicts of interest. And arguments about conflicts of interest are now at least loosely tied in the public mind to Trump’s refusal to release his tax returns, inflaming partisan sentiments.
“It’s taken on a different overtone because of President Trump. Now it becomes, ‘You guys are just trying to embarrass him with this disclosure,’” said Walz. “It’s hard to get members of Congress to police themselves and to write these things. We did it because we were naive enough, we hit the right moment in time, and it went through.”
And the members who raged against Price’s trades have yet to follow through with legislative proposals to stop the problem.
Patty Murray, Democrat of Washington, was one of the HELP Committee members who was most forceful in her denunciation of Price, demanding, “Congressman, do you believe it is appropriate for a senior member of Congress actively involved in policymaking in the health sector to repeatedly personally invest in a drug company that could benefit from those actions, yes or no?”
In mid-March, Murray and her husband bought a series of stocks that included the pharmaceutical giants Sanofi, Gilead, Amgen and Pfizer, just as the GOP’s push to replace Obamacare moved into full swing.
The purchases, a Murray aide said, were “for an account managed by a broker without guidance.”
Taylor Gee contributed research to this report.