Nancy Pelosi's congressional stock trading ban has a massive blind trust loophole and is too broad, ethics experts warn

House Speaker Nancy Pelosi and House Minority Leader Kevin McCarthy at a memorial service in Washington, DC on September 21, 2022.
House Speaker Nancy Pelosi and House Minority Leader Kevin McCarthy at a memorial service in Washington, DC, on September 21, 2022.Saul Loeb/AFP via Getty Images
  • House Democrats released the text of their bill to ban lawmakers and other officials from trading stocks.

  • But ethics experts say the bill has a major loophole when it comes to blind trusts, and is too broad.

  • "This was not a good faith effort to actually put something out there that could actually move," said one expert.

House Democratic leaders have released the text of a bill that would ban members of Congress, senior congressional staff, Supreme Court justices, and members of the executive branch from owning or trading individual stocks.

Lawmakers in the House of Representatives now hope to vote on the legislation before the week's end, when Congress adjourns until after the November midterm elections, though their are now fresh doubts as to whether that will happen.

Ethics experts are already warning that the bill, called the "Combatting Financial Conflicts of Interest in Government Act," has a major flaw when it comes to blind trusts.

Experts at the nonpartisan Project on Government Oversight zeroed in on a provision within the text that allows for the creation of blind trusts that do not comply with existing regulations currently outlined in the Ethics in Government Act, which the bill would amend.

In a lengthy Twitter thread, Walter Shaub — a senior ethics fellow at the Project on Government Oversight and the one-time director of the Office of Government Ethics — made the case that the bill would allow the creation of "fake" blind trusts, citing former President Donald Trump's use of a "half-blind trust."


Broadly speaking, a blind trust is a financial arrangement wherein people turn over their assets to be managed by an independent entity to prevent a conflict of interest. Several previously-introduced bills to ban stock trading allow for lawmakers to place their stocks into a blind trust, rather than fully selling off existing stock holdings.

The House leadership bill, backed by House Speaker Nancy Pelosi and released by the Committee on House Administration, allows the ethics committees in the House and Senate — as well as the Office of Government Ethics in the White House and the Judicial Conference for the Supreme Court and federal judiciary — to approve blind trusts "notwithstanding" existing law, which provides detailed criteria for qualified blind trusts.

"The problem with this bill is it creates a completely separate process and doesn't have any particular rules or requirements around it," Dylan Hedtler-Gaudette, government affairs manager at the Project on Government Oversight, told Insider. "You'd be able to create any kind of a trust you want to, put anything you want into it, and call it a blind trust, even though there wouldn't actually be any way to prove that it is, in fact, a blind trust."

Hedtler-Gaudette also criticized other aspects of the bill, including the lack of a definition for what exactly constitutes a "diversified" fund, such as an index or mutual fund, which lawmakers would be allowed to invest in under the House leadership bill.

"You could have a 'defense index fund' that's all defense stocks," he said, referencing the practice of members of the House and Senate armed services committees trading the stocks of weapons and defense systems manufacturers. "I mean, it's not just one company, so it's diverse, right?"

Insider's "Conflicted Congress" investigation has identified several instances of conflicts of interest related to lawmakers holding stock in defense contractors.

Since 2021, Insider and other media organizations have identified 72 members of Congress who have violated the disclosure provisions of the Stop Trading on Congressional Knowledge (STOCK) Act, an existing law passed by Congress in 2012 to curb insider trading, defend against conflicts-of-interest, and enhance public transparency.

Citizens for Responsibility and Ethics in Washington (CREW), another watchdog group, took a slightly more measured approach to the House leadership bill, praising the overall strength of the legislation while urging a fix to the loophole issue and a narrowing of the legislation to encompass just Congress.

In an analysis released Wednesday, the group called for removal of text that "would create a loophole that would weaken the blind trust rules that CREW worked so hard to get included in this legislation."

Kedric Payne, the vice president, general counsel, and senior ethics director at the Campaign Legal Center, told Insider that the Pelosi-backed legislation is a "good bill that addresses many of the concerns we had" but said it was "not perfect," pointing to the broad, sweeping nature of the bill.

"It should just be focused on Congress," Payne said. "It's kind of like using an axe for something where you use a scalpel. I mean, it gets the job done, but it is going to cause a mess."

Payne also said the blind trust loophole was a "small risk," but that in an optimistic scenario, "that language allows this law to grow for future circumstances that you just can't be prepared for."

"But worst case scenario is that someone could abuse that provision and strip out all of the current features that a blind trust must have in order to avoid conflicts of interest," he added.

Democratic Reps. Alexandria Ocasio-Cortez and Abigail Spanberger
From left, Democratic Reps. Alexandria Ocasio-Cortez of New York and Abigail Spanberger of Virginia speak on banning stock trades for members of Congress at news conference on Capitol Hill, April 07, 2022 in Washington, DC.Kevin Dietsch/Getty Images

'This was not a good faith effort'

The "Combatting Financial Conflicts of Interest in Government Act" was drafted by Committee on House Administration Chair Zoe Lofgren, a California Democrat who's close to House Speaker Nancy Pelosi, in a largely insular process in the months following an April hearing on the subject.

Asked about the outside advocates' concerns about blind trust provision, a committee spokesperson told Insider that it's intended to "provide rulemaking flexibility to supervising ethics offices to contemplate new and improved forms of qualified blind trusts in the future."

The spokesperson added that the committee "continues to receive feedback" on the bill and "will evaluate further refinements as a regular part of the legislative process."

But if some good-government groups and members of Congress who've written their own stock bans sound miffed, it's because they are: they were shut out of the bill-writing process.

"I think they're going to do something that's like, riddled with problems, and then we're going to have to solve the problems," Democratic Rep. Abigail Spanberger of Virginia, who has pushed her own bipartisan stock-ban legislation and wasn't involved in Pelosi's preferred bill, told Insider earlier this month. "If I'm guessing, that's my guess."

Spanberger's Republican co-sponsor, Rep. Chip Roy of Texas, released a letter on Wednesday evening excoriating Pelosi and Lofgren for their "cram-down from the top" approach to legislating.

"I will oppose this bill for a variety of reasons and do so unapologetically," Roy wrote.

Meanwhile, Democratic Reps. Raja Krishnamoorthi of Illinois and Angie Craig of Minnesota — both of whom pushed their own stock-ban bills — told Insider on Wednesday evening that they hadn't yet reviewed the text.

Other liberal Democrats, such as Sen. Elizabeth Warren of Massachusetts and Rep. Alexandria Ocasio-Cortez, have previously called for aggressive measures against lawmakers trading stocks.

Hedtler-Gaudette, for his part, told Insider that a "bad and backwards" drafting process led to this point.

"They haven't consulted with subject matter and technical experts," he said.

"That tells me that this was not a good faith effort to actually put something out there that could actually move," he said.

Gabe Roth, the executive director of the Supreme Court watchdog group Fix the Court, issued a statement against including the judiciary in the bill, saying it "seems like a tactic aimed at slowing down or stopping the whole project."

Roth also noted the recent passage of other transparency measures, including the Courthouse Ethics and Transparency Act, which brings federal judges and the Supreme Court into compliance with the STOCK Act, just like members of Congress. That bill is set to fully take effect later this fall.

Not all ethics experts, however, are criticizing the bill.

Aaron Scherb, senior director of legislative affairs for Common Cause, generally praised the legislation as strong, if imperfect, particularly in its proposed increases in penalties for violating the law.

"It would go a long way to give more than just a slap on the wrist to people who don't comply with the STOCK Act, which should really help compliance overall," Scherb said.

He also said he's glad the bill strengthens rules for all branches of the government, not just Congress, and that he's not concerned that it includes Supreme Court justices — a provision that some government reformers say will "poison" the bill among Senate Republicans who might otherwise be inclined to support it.

"The House shouldn't project what might or might not happen in the Senate," he said.

Senate Democrats, led by Sen. Jeff Merkley of Oregon, have indicated that the Senate won't take up stock-ban legislation until after the midterm elections.

Dave Levinthal contributed to this report.

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