Members of Congress Crossing Ethical and Legal Lines in Trading Stocks

They ‘believe themselves to be above the fray.’

Nov 23, 2022

With Republicans retaking the House—even if by an extremely slim margin—Rep. Virginia Foxx, North Carolina’s longest-serving Republican, stands to regain her position as chair of the House Committee on Education and Labor and to potentially acquire other positions of leadership in the 118th Congress. This is all standard procedure for the chamber, but Foxx’s case is unique because of her history of ethically dubious stock trading.

Foxx, who also sits on the Committee on Oversight and Government Reform, has earned a measure of notoriety as one of Congress’s more prolific traders. The New York Times noted Foxx’s potential conflicts of interest on three transactions in September, which included buying or selling BP and ExxonMobil stocks after hearing from those companies’ executives in a House Oversight Committee hearing.

Her trading on energy companies has since continued. She disclosed another round of energy industry transactions at the end of October, purchasing shares in Marathon Oil Corporation and FLEX LNG while selling high volumes in Capital Power Corporation and Next Era Energy. In addition, Foxx also sold $50,001 to $100,000 worth of Procter & Gamble.

But these are just the tip of the iceberg. Foxx trades more than almost any member of Congress. She disclosed 101 transactions in the third quarter of 2022, more than five times her activity from the same period last year, according to data compiled by House Stock Watcher. The site estimates her total trade volume—including the amounts of both purchases and sales—to be around $11.7 million since late 2019.

A spokesperson for Foxx did not respond to a request for comment.

Among her congressional colleagues, Foxx is hardly alone. If anything, she typifies the popularity of trading on Capitol Hill; lawmakers appear to be especially keen on closely managing investments relevant to legislative work. Investigations have revealed scores of violations of the STOCK Act—a 2012 law intended to combat insider trading—and some members have even gone to jail for using their access to enrich themselves.

One colleague of Foxx’s, Rep. Michael Garcia (R-Calif.), purchased tens of thousands of dollars in Tesla stock while using his office and public platform to weigh in on electric vehicle policies. He co-chairs the Election Integrity Caucus—a Republican working group dedicated to resolving perceived unfairness in elections. Garcia is also fresh off another critical win that helped secure the House for Republicans, putting him in prime position to move into a more important role.

A member of the House Committee on Science, Space, and Technology, Garcia signed an October 28, 2022 letter to California Governor Gavin Newsom and California Air Resources Board Chair Liane Randolph criticizing the state’s decision to phase out combustion-engine cars in favor of electric vehicles. Just a few weeks prior, Garcia purchased between $50,001-$100,000 in Tesla stock.

Garcia also made Tesla purchases worth tens of thousands of dollars earlier in the year, which he followed up by discussing electric vehicles in news articles and on his campaign Twitter account.

A spokesperson for Garcia did not respond to a request for comment.

While Foxx and Garcia’s actions have so far remained in an ethically murky realm, their congressional colleagues have occasionally broken laws outright and received prison sentences as a result. In January 2020, New York Republican Rep. Chris Collins was sentenced to 26 months for tipping off his son and others about a biotech company’s failed drug trials, which were not yet public knowledge, so they might avoid substantial losses on their investments in the company. (Collins served on its board and was himself a major shareholder.) In December 2020, then-President Donald Trump gave Collins a full pardon, which the White House cited as “at the request of many members of Congress.”

The Power to Move Markets

But a committee chairmanship carries ethical risks that go well beyond opportunities to personally capitalize on inside information. According to Liz Hempowicz, the vice president of public policy and government affairs at the nonpartisan Project On Government Oversight, even the smallest moves by high-ranking members of Congress can have seismic effects on markets.

“Committee chairs, subcommittee chairs, leadership—I think are all privy to not just massive amounts of inside information with the power to predict where markets are moving, but with the power to move markets themselves with the decisions they are personally responsible for making about committee hearings that go forward,” Hempowicz told The Bulwark. “The timings of committee hearings, legislation that will get marked up, that will be voted on, that will be considered by the committees. Even signaling those kinds of decisions has the power to move markets.”

While there are bills floating around Congress to entirely ban stock trading by members of Congress, they stand little chance of passing. Hempowicz, who has testified before the House Committee on Administration on congressional stock trading reforms, is not bullish on any new restrictions making it through.

“If you had asked me three or four months ago, I was brimming with optimism, and at this point, I don’t have as much,” Hempowicz said. “Because practically speaking, while there are a handful of members, probably in both chambers, that have been working on this issue in good faith and wanting to see some change in this space, I think they are a minority and the best chances of getting something enacted this year were before the midterms.”

The problem, Hempowicz added, is that many members of Congress “believe themselves to be above the fray and [that they] look at this [with] the same depersonalized nature” as they view other legislation and areas of government.

There is a willful blindness in lawmakers who put so much trust in their own good intentions that they see no need for stronger restrictions, and encourage the public to simply trust them to avoid corruption instead. As Hempowicz stated, this becomes a problem with far more wide-ranging potential consequences for those entrusted with committee gavels and high positions of leadership, which not only affords access to insider information, but can enable an individual to drive market-shifting events.

Foxx and others are now positioned to take over that potentially lucrative power.