A Bipartisan Bill Would Ban Top Feds From Trading Stocks

Executive branch officials have access to sensitive information that could influence stock trades and create conflicts of interest in policy making and regulation writing, the lawmakers who introduced the bill noted.

Executive branch officials have access to sensitive information that could influence stock trades and create conflicts of interest in policy making and regulation writing, the lawmakers who introduced the bill noted. Matteo Colombo / Getty Images

Violators would potentially face hefty fines.

A bipartisan pair of lawmakers is looking to create a new prohibition of stock trading for the top civil servants in government, saying it would avoid conflicts of interest and unfair advantages.

The Dismantling Investments in Violation of Ethical Standards through Trusts (DIVEST) Act, introduced by Reps. Michael Cloud, R-Texas, and Jared Golden, D-Maine, would ban the roughly 7,000 federal employees in the Senior Executive Service, as well as their spouses and dependent children, from holding, purchasing or selling an individual stock. The measure would exempt mutual funds, exchange traded funds, Treasury bonds and direct job compensation awarded to spouses and children. 

SES employees already face requirements to disclose the specifics of their finances, which are reviewed by agency ethics officials, under the 2012 Stop Trading on Congressional Knowledge (STOCK) Act. Still, the lawmakers said falling trust in government has created a “moment to raise the standards for public servants.” While existing efforts to ban stocks have focused on lawmakers themselves, Cloud and Golden said executive branch officials also have access to sensitive information that could influence stock trades and create conflicts of interest in policy making and regulation writing.

“A great disservice is done to our nation when public servants are able to profit off access to sensitive information while working on behalf of the American people,” Cloud said. “We must do all we can to ensure government officials are serving Americans, not their own stock portfolio.”

Existing employees would have six months from the bill’s passage to divest their stocks or move them into a blind trust, while new employees would face the same window to do so after they are onboarded. Employees would be permitted to defer capital gains taxes that they might otherwise owe from the required sales. 

Senior executives and their family members who fail to comply with the ban would have to turn over any profits they make to the U.S. Treasury, and they would not be able to write off any losses. Agency ethics officials could also subject the employees to fines of up to 10% of the value of the stocks they unlawfully held. The supervisors would have to certify their compliance annually and those certifications would be posted on a public website. After significant controversy, Congress amended the STOCK Act to prevent senior executives’ financial disclosures from being publicly posted.  

“No matter what party is in power, we should have no doubt that our government officials are working for the American people, not trying to make a quick buck for themselves,” Golden said. “While we continue to push for a ban on Members of Congress trading stocks, we also need legislation like the DIVEST Act to address the potential for corruption in the executive branch.”

Congressional leadership is expected next month to put forward and hold votes on legislation that would create a similar divest-or-blind-trust requirement for members of the House and Senate. 

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