Deborah Daniels: Let’s ban insider trading by members of Congress

Serving in Congress can be expensive.

Members receive an annual salary, currently, of $174,000. They are not reimbursed for living expenses. Thus, unless they move their families to Washington, they must pay for residences in both their home state and D.C.

In exchange, members receive certain perks. The government pays about 70% of the premium for their health insurance, which they can buy off the Affordable Care Act exchange. Their official travel back to their districts is paid for; and official foreign travel is also paid for by the government.

Additionally, while the typical private sector worker no longer has access to a pension for life after retirement, members of Congress have a good deal on that front.

Their pension vests after only five years of service; and the formula for computing the pensions means that someone who has served 20 to 30 years may receive $60,000 to $100,000 per year for life after leaving Congress. They also have access to a version of a 401(k) that includes an annual government contribution.

These benefits, while generous, are somewhat understandable given the sacrifices made by those who serve. But there also exist multiple opportunities for self-enrichment that could attract the ethically challenged.

Many citizens wonder how some members manage to leave Congress with a small fortune given the size of their salary.

Here’s one answer: there are no restrictions on the use of insider information in relation to stock purchases. A senator or congressman who has access through his official duties to information not available to the general public can buy stocks just before they soar in value and sell them just before they tank.

Insider trading is against the law — but this congressional activity is not well-regulated.

The recently-developed prediction markets provide another fruitful and poorly-regulated opportunity for anyone with insider information. Platforms such as Polymarket and Kalshi allow users to place bets on a certain thing occurring or not occurring at some point in the future.

The danger of someone using information to which others are not privy to make a quick buck is obvious.

In January, a U.S. Special Forces soldier who possessed classified information about the upcoming invasion and ouster of Venezuelan President Maduro allegedly won $400,000 betting that the invasion would occur and Maduro would be ousted. This was not only unjust enrichment, but also a national security risk. He has since been charged criminally.

Equally astonishingly, three political candidates have been detected betting on their own races. One actually bet on whether he himself would enter a Senate primary.

In response, the U.S. Senate adopted a resolution last month banning senators and their staffs from trading on the prediction markets.

This is an important first step.

But the House has taken no such action, and the ability of members to engage in insider trading on the stock market has not been dealt with at all.

These huge loopholes in congressional ethics should be closed immediately. There is no excuse for allowing members of Congress to engage in activity that would bring jail time for regular citizens (think: Martha Stewart).

I’m pleased that Sen. Todd Young of Indiana has taken a strong position urging that Congress pass legislation to ban congressional insider trading.

He says that about 200 members of Congress currently own shares in publicly traded companies. Many of them sit on committees that oversee those industries, and there are several examples of suspiciously-timed trades in those stocks.

Kudos to Young for championing this legislation. It should be broadened to include the prediction market.•

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Daniels is a retired partner of Krieg DeVault LLP, a former U.S. Attorney and assistant U.S. attorney general and former president of the Sagamore Institute. Send comments to [email protected].

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