In this Money Rehab episode, Nicole Lapin explores insider trading and conflicts of interest within the U.S. government. Lapin and Senator Kirsten Gillibrand discuss how members of Congress achieve investment returns that significantly outperform the S&P 500, and examine the STOCK Act's limitations in preventing lawmakers from profiting on non-public information.
The episode delves into several cases of suspicious trading activity among politicians, including strategic stock moves by prominent Congress members that coincided with major policy changes. It also covers the rise of investment platforms and ETFs that allow retail investors to mirror congressional trading patterns, as well as the broader implications of judicial conflicts of interest and weak oversight in both Congress and the Supreme Court.
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Kirsten Gillibrand points out that Congress members achieve investment returns 17% higher than the S&P 500, suggesting these superior returns might stem from access to non-public information rather than investing skill. Nicole Lapin explains that while the STOCK Act requires Congress members to disclose their trades and prohibits profiting from non-public information, enforcement remains weak.
A 2021 Wall Street Journal investigation uncovered that about 10% of federal judges violated rules by presiding over cases involving companies where they or their families owned stock. The Supreme Court operates under even looser standards, with no real-time trade disclosure requirements and a largely voluntary code of ethics.
According to Gillibrand, while one in three Congress members trade stocks, only one in seven properly disclose their trades. Lapin notes that the penalty for non-disclosure is merely a $200 fine, an amount too small to serve as an effective deterrent given the potential profits from trading.
Several high-profile cases have raised concerns about the use of non-public information. Marjorie Taylor Greene made strategic trades just before major policy changes, including purchases in tech companies before Trump's Liberation Day tariffs announcement. Nancy Pelosi's husband sold $150,000 in Visa stock shortly before an antitrust lawsuit announcement, though Pelosi denies sharing sensitive information.
Investors can now track congressional trading through platforms like Capital Trades, which aggregates lawmaker stock disclosures. Some ETFs, such as NANC and KRUZ, even allow investors to mirror Democratic and Republican trading patterns respectively. Traders can also monitor unusual options activity and SEC filings for potential indicators of insider trading activity.
1-Page Summary
The issue of insider trading and conflicts of interest within the United States government has sparked important conversations regarding the integrity of federal officials.
Kirsten Gillibrand expresses concerns about trading by members of Congress, pointing out that they have a 17% higher return rate than the S&P 500. She suggests this superior financial performance may not be due to superior investing acumen but could rather be attributed to access to non-public information.
Nicole Lapin clarifies that, under the STOCK Act, congress members are required to disclose their stock trades. This act mandates transparency to mitigate conflicts of interest and makes it explicitly illegal for congress members to profit from non-public information they learn through their duties, essentially prohibiting insider trading.
A Wall Street Journal investigation in 2021 revealed significant lapses in the adherence to conflict-of-interest rules by the judiciary. The journal found that 131 federal judges—a figure that amounts to approximately ...
Insider Trading and Conflicts of Interest in Congress
The conversation reveals a concerning trend of insufficient compliance and negligible repercussions for officials who do not properly report their stock trades.
Discussing the state of financial disclosures within Congress, Kirsten Gillibrand provides a startling statistic: "one in three are trading, one in seven are disclosing." This indicates a significant portion of members do not follow the disclosure requirements set forth for financial transparency.
Nicole Lapin addresses the issue of enforcement and penalties surrounding these requirements. She points out the penalty for non-disclosure of trades—mandated by the STOCK Act—is a mere $200 fine. This nominal fee fails to act as a real deterrent, as it pales in comparison to the potential profits f ...
Lack of Oversight For Officials' Stock Trades
Questions about non-public information are being raised as political figures or their associates make trades shortly before market-moving announcements.
Marjorie Taylor Greene made several strategic financial moves in the days leading up to significant policy changes. Prior to President Trump's rollback of the Liberation Day tariffs, Greene purchased stocks in major companies such as Adobe, Apple, and Nvidia, while also selling US Treasury bills. Additionally, her transaction history includes trades before market-moving announcements where she bought stocks in Amazon, FedEx, JP Morgan Chase, Lululemon, Nike, Qualcomm, and Tesla.
Nancy Pelosi's husband sold $150,000 worth of stock in Visa just ahead of the Justice Department announcing an antitrust lawsuit against the company, sparking speculation about the suspicious timing of the trade. Despite the coincidence, Pelosi defends that she ...
Specific Examples of Potentially Suspicious Political Stock Trades
Political stock activity is increasingly becoming a resource for investors looking to get a strategic edge. Tools designed to aggregate lawmaker stock disclosures such as Capital Trades provide transparency and actionable data, while certain ETFs even replicate Congress members' trades, creating a unique investment opportunity.
Investors now have the ability to peek into the portfolios of members of Congress using platforms like Capital Trades, which consolidate and present lawmaker stock disclosures. This service offers insight into the trading patterns and stock preferences of the nation’s political leaders.
To dive deeper, investors can strategize by identifying trades that occur in close proximity to potentially significant non-public events, such as closed committee meetings or classified briefings. These might suggest the use of insider information. Tools such as Unusual Whales or Cheddar Flow can be utilized to track large or irregular options activities, including zero-day trades that may signal upcoming market moves. Additionally, attentive investors can set up Google News Alerts for SEC filings to scout for Form 4 insider fi ...
Investor Strategies Learned From Political Stock Activity
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