The NPR Politics Podcast - Do Lawmakers Have More Insight Into Stocks Than The Public? TikTok Users Think So.

Episode Date: September 23, 2021

Seven House lawmakers are facing ethics complaints for violating the Stock Act, which polices insider trading, because of a recent bipartisan trend of lawmakers ignoring disclosure requirements. They say it was an accident. Plus, TikTok accounts are using public disclosures to tell followers when to buy and sell stock based on what congressmembers do. It's a clear sign of the distrust the public has in their officials. This episode: White House correspondent Tamara Keith, congressional correspondent Deirdre Walsh, and investigative correspondent Tim Mak.Connect:Subscribe to the NPR Politics Podcast here.Email the show at [e-mail] the NPR Politics Podcast Facebook Group.Listen to our playlist The NPR Politics Daily Workout.Subscribe to the NPR Politics Newsletter.Find and support your local public radio station.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Hey y'all, this is Graham in Bar Harbor, Maine, where I just quit my job to go get a master's in public policy. But before that, I'm going to ride from Bar Harbor, Maine to Anacortes, Washington. This podcast was recorded at 1.38 p.m. on Thursday, the 23rd of September. Things may have changed by the time you hear it, but hopefully I'll be a little bit farther towards the West Coast. Anyway, here's the show. Congratulations. You can listen to a lot of podcasts on that ride. Indeed. Hey there, it's the NPR Politics Podcast. I'm Tamara Keith. I cover the White House. I'm Deirdre Walsh. I cover Congress. And today we are joined by NPR investigative correspondent Tim Mack. Hey, Tim. Hey there. So Tim and Deirdre, you have both long covered how

members of Congress trade stocks and how sometimes their trades track a bit too close for comfort to what is happening in the Capitol or what they learn in classified briefings. And trading stocks by members of Congress is something that's governed by the Stock Act. Tim, could you give us a quick background about how that came about and what it actually requires? So the Stock Act is a law that was passed and signed in 2012. And what it does is it requires more disclosures by federal lawmakers when they trade, they purchase, they sell stocks. It also criminalizes trading on inside information. Over the last 20 years, there have been rules about trading on inside information and whether lawmakers need to make financial disclosures.

But the Stock Act modernized it, made it more frequent, and tried to create a more transparent process. And by having to disclose what they're doing, in theory, it would give them pause, for instance. So yesterday, Deirdre, an ethics group filed complaints against seven members of Congress, bipartisan, for not reporting their stock trades like they're supposed to. And Deirdre, you have been doing some reporting on what happened there. Right. So the Campaign Legal Center is an outside nonpartisan group that promotes transparency in government. And they looked at all 535 members of Congress's financial disclosure forms, annual disclosure forms they have to file every year.

And they found some discrepancies from 2019 to 2020. And they decided to file ethics complaints against seven House lawmakers for failing to file the required reports that Tim mentioned under the Stock Act. Members of Congress have to file a regular report within 45 days of any transaction that's valued over $1,000. And these members, according to this outside group and the complaints they filed, failed to do that. The four Democrats out of the seven were Tom Suozzi of New York, Cindy Axne of Iowa, Bobby Scott of Virginia, and the Guam delegate, his name is Michael San Nicholas. The three Republicans named in the complaint were Warren Davidson of Ohio and Roger Williams and Lance Gooden, both of Texas. Five of these lawmakers, Axne, Davidson, Gooden, San Nicolas and Williams, all sit on the House Financial Services Committee.

And in Swazi's case, he didn't file any transaction reports for over 300 transactions going back to 2017. So, I mean, members are told that at orientation, any transaction over $1,000 got to file this report. Yeah, so there's like two sets of reports. quick reports so that you'd get a near real time, not that near, but a clearer picture of what they're trading on around the time that they're trading. Exactly. The whole point is to provide transparency to show whether or not any of their financial activity is related to any kind of potentially non-public or inside information they might be learning as part of their jobs. Not filing the paperwork, having a complaint filed against you, it sounds potentially sketchy, is it? Well, we reached out to the lawmakers who were named in the complaints.

You know, a couple of them said, essentially, my bad, I neglected to file the report on time going forward. I plan to file all my reports appropriately and I'm in the process of doing that. Another member said, my investments are handled by outside advisors and essentially they failed to file the forms, but it's on me and I will file them now. One member actually said that the clerks that he did file, Warren Davidson, he did file his report. They actually sent me a copy of it with the timestamp on it and said the house clerk failed to post it publicly. And it was the clerk's office's fault. And they're taking it up with them to make sure that it gets posted. And we called the clerk's office to check on that. So there is a lot of, you know, you know, we understand the rules. And this was an oversight,

a couple people we haven't heard back from yet. But, you know, I think that members of Congress should know they go to ethics orientation before they are sworn in. And this is part of the drill, you have to file these forms. Now, Tim, this is not the first time that lawmakers have run afoul of the Stock Act. Back in the early days of the pandemic, you reported on some senators that got in a little bit of trouble. Well, that's right. Like a lot of the cynicism about lawmakers and stock trading, at least over the last couple years, originate around the time the COVID pandemic started. So just before or just around that time, a number of senators got a classified briefing on the possible impacts of the coming pandemic.

And if you think back to February 2020, it wasn't quite clear to everyone, to the public, how serious of an impact this pandemic could have. And so Senate Intelligence Committee Chairman, then Senate Intelligence Committee Chairman Richard Burr, privately warned a group of his well-connected constituents back in February 2020 about how dire the pandemic was going to be. He also sold up to $1.72 million worth of personal stocks on a single day that same month. And this combined with a number of other interestingly timed, we'll put it, interestingly timed transactions, sales after these classified briefings by a number of lawmakers led to a lot of skepticism about, hey, what are these lawmakers doing? Are they trading based on this inside information they have as a

result of being elected officials? So I think I know the answer here, but what happened with Senator Burr's case? So Senator Burr was eventually investigated by the Department of Justice, but he was not ultimately charged with any crime. It's really, really difficult to prosecute a sitting member of Congress for a crime like insider trading because they have written into the Constitution certain rights as to their internal communications and their official actions. So ultimately, he wasn't charged, no lawmakers were charged with insider trading. So I want to sort of bring it back to that complaint filed against those seven lawmakers that we were talking about at the beginning of the pod. What consequence is there for not filing your paperwork on time or completely ignoring this law? Well, these outside ethics groups are worried that this is part of a trend,

that members of both parties saw what happened when Burr and other senators disclosed their trades and then ended up being reviewed by the Justice Department. So some members are filing late, like sometimes months late, in one case over a year late. And then this latest round is we have members who are just not filing at all. They don't really have any real immediate consequences. They have the threat that, you know, one of the ethics committees in the House or Senate could decide to take up an investigation. But that process is super slow. And in the almost 10 years that the Stock Act has been around, there hasn't been one member of Congress that's been formally sanctioned for any kind of violation. They do have to pay a $200 fine for a late report. But a $200 fine, if you're making, you know, 10s or hundreds of 1000s of dollars on trades is not really a big hardship for a lot of members of Congress who are,

you know, a lot are very wealthy. All of this could lead to cynicism, which is where we head in the next part of the podcast, we're going to take a quick break. And when we get back, how TikTokers are using congressional stock activity to guide their investment decisions. You heard that right. And we're back. So I think it is fair to say that some members of Congress may not love having to disclose their financial investments every time they make a move. But it turns out some savvy TikTokers really love it. TikTokers are watching the disclosure forms filed by House Speaker Nancy Pelosi and her husband, and then using the information about those investments on those forms to inform their

own financial decisions. Shouts out to Nancy Pelosi, the stock market's biggest whale. Apparently, she's decided to go very heavy in tech stocks. So I'm going to show you guys which ones she bought. Nancy Pelosi just bought some more stocks. Per her filing, she just went big on NVIDIA, bought more shares, bought more leap calls. And of course, the stock goes up 5% today. So I've come to the conclusion that Nancy Pelosi is a sidekick and she can guess when a stock is going to pump. So what is going on here? OK, first, these investments that are disclosed by Speaker Pelosi are actually being made by her husband, who is an investor. So her

office says she has no prior knowledge or subsequent involvement with some of these investments. But what TikTokers are doing, what young retail investors are doing, are that they're taking advantage of the Stock Act requirement that requires lawmakers to disclose their trades within 45 days. So there are a number of people who are just obsessing over congressional stock disclosures when they come out. There are people who have formed entire websites that pull these disclosures and analyze and distribute the information to other people. There's even this person, Chris Josephs, he's the co-founder of an app, which one of the functions of the app is that you can now get a push notification every time Pelosi's disclosures are released. So this is a lot of a kind of, you know, you speak to some of these investors and their mentality is, you know, hey, if you can't beat them, join them. that if lawmakers may be trading based off of inside information or non-public information, we might as well trade and keep up with them.

I think Tim's story proves that the public doesn't really think Congress did much when they did pass the Stock Act almost 10 years ago. I mean, I think this is the perception that there's a different standard for members of Congress and other investors and that members of Congress are benefiting or are making money on inside information. And that's why there's this whole cottage industry to copy their trades. I mean, this is driven by incredible cynicism. Absolutely. I mean, I think it's this little piece here, this conversation about stocks is part of a deeper rot, a deeper issue between the electorate and elected officials, right?

In order to pursue this kind of trading strategy, you would have to start with the presumption that elected officials are corrupt to begin with, and that by trading what they're trading, you might be able to benefit in the ways that they're benefiting based on information that they're getting in, say, classified briefings or understanding what kind of legislation is coming down. Here's the big question. Is this investment strategy actually a good strategy? This is the interesting part of it.

Despite all the cynicism, there isn't that much recent evidence that shows that lawmakers are good stock pickers. You know, there were studies like 15 plus years ago that said that lawmaker trades outperformed the S&P 500. But more recently, if you look at academic research that's been done over the last 10 years or the last few years, what you find is that, like, by and large, lawmakers do not make good stock picks. What the research does show, though, is that people are paying attention to congressional stock disclosures. I talked to one professor at Augusta University who found in his research that when these stock disclosures

get released, put out in the public on the web, the stocks that were traded or bought get a bump in price, an unusual bump in price, and actually trade higher than you'd otherwise expect them to. Do you have any sense of how something like this would affect the thinking of members of Congress about their stock activity and whether they should be trading individual stocks? Well, I mean, I think there's still a debate about whether that's a good thing or not. I don't know how it would move markets. I do know that one thing members of Congress are acutely attuned to is if they slip up and there's a negative headline about them possibly

being involved in some kind of scandal related to their stock trading. That ends up becoming a campaign issue for them. And that's what they really want to avoid. All right. Well, we are going to leave it there for now. Tim, thank you for coming back on the pod and sharing your reporting. Thanks for having me anytime. Bye, Tim. I'm Tamara Keith. I cover the White House. I'm Deirdre Walsh. I cover Congress. And thank you for listening to the NPR Politics Podcast.