[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]




                                                        
              EXAMINING STOCK TRADING REFORMS FOR CONGRESS

=======================================================================

                                HEARING

                               before the

                           COMMITTEE ON HOUSE
                             ADMINISTRATION
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               ----------                              

                             APRIL 7, 2022

                               ----------                              

      Printed for the use of the Committee on House Administration
      
      
      
      
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                       Available on the Internet:
         http://www.govinfo.gov/committee/house-administration
         
         
         
         
         
              EXAMINING STOCK TRADING REFORMS FOR CONGRESS
              
              
              




                                

 
              EXAMINING STOCK TRADING REFORMS FOR CONGRESS

=======================================================================

                                HEARING

                               before the

                           COMMITTEE ON HOUSE
                             ADMINISTRATION
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 7, 2022

                               __________

      Printed for the use of the Committee on House Administration
      
      
      
      
      
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
      
      


                       Available on the Internet:     
     
         http://www.govinfo.gov/committee/house-administration
         
         
         
                            ______

             U.S. GOVERNMENT PUBLISHING OFFICE 
47-699               WASHINGTON : 2022         

         
         
                   COMMITTEE ON HOUSE ADMINISTRATION

                  ZOE LOFGREN, California, Chairperson
JAMIE RASKIN, Maryland               RODNEY DAVIS, Illinois,
G. K. BUTTERFIELD, North Carolina      Ranking Member
PETE AGUILAR, California             BARRY LOUDERMILK, Georgia
MARY GAY SCANLON, Pennsylvania       BRYAN STEIL, Wisconsin
TERESA LEGER FERNANDEZ, New Mexico


                            C O N T E N T S

                              ----------                              

                             April 7, 2022

                                                                   Page
Examining Stock Trading Reforms for Congress.....................     1

                           OPENING STATEMENTS

Chairperson Zoe Lofgren..........................................     1
    Prepared statement of Chairperson Lofgren....................     5
Hon. Rodney Davis, Ranking Member................................     9
    Prepared statement of Ranking Member Davis...................    11

                               WITNESSES

Jacob Straus, Specialist on the Congress, Congressional Research 
  Service........................................................    16
    Prepared statement of Mr. Straus.............................    18
Liz Hempowicz, Director of Public Policy, Project on Government 
  Oversight                                                          33
    Prepared statement of Ms. Hempowicz..........................    35
Donald Sherman, Senior Vice President and Chief Counsel, Citizens 
  for Responsibility and Ethics in Washington....................    47
    Prepared statement of Mr. Sherman............................    49
Donna Nagy, C. Ben Dutton Professor of Business Law, Indiana 
  University Maurer School of Law................................    59
    Prepared statement of Ms. Nagy...............................    61
Jennifer J. Schulp, Director of Financial Regulation Studies, 
  CATO Institute.................................................    73
    Prepared statement of Ms. Schulp.............................    75

                        QUESTIONS FOR THE RECORD

Jacob Straus, Specialist on the Congress, Congressional Research 
  Service, responses.............................................   111
Liz Hempowicz, Director of Public Policy, Project on Government 
  Oversight, responses...........................................   123
Donald Sherman, Senior Vice President and Chief Counsel, Citizens 
  for Ethics and Responsibility in Washington, responses.........   145
Donna Nagy, C. Ben Dutton Professor of Business Law, Indiana 
  University Maurer School of Law, responses.....................   160
Jennifer J. Schulp, Director of Financial Regulation Studies, 
  CATO Institute, responses......................................   224

                       SUBMISSIONS FOR THE RECORD

February 17, 2022, Jacob R. Straus, Stock Trading in Congress: 
  117th Congress Proposals to Limit or Prohibit Certain Financial 
  Transactions, submission.......................................   239
Campaign Legal Center group letter to Speaker Pelosi and House 
  Administration, submission.....................................   243
Gonzaga University School of Law, The Shortsightedness of Blind 
  Trusts, submission.............................................   246
April 18, 2022, Project on Government Oversight letter to House 
  Administration, submission.....................................   287
April 7, 2022, National Taxpayers Union letter to House 
  Administration, submission.....................................   292
April 7, 2022, Krishnamoorthi, Ocasio-Cortez, and Neguse letter 
  to House Administration, submission............................   294
March 17, 2022, The Wall Street Journal, Dozens of Federal Judges 
  Had Financial Conflicts: What You Need to Know, submission.....   307
June 18, 2020, Kelner, Koski, Bailey, The Challenges of 
  Prosecuting Congressional Insider Trading, submission..........   311
Ayala, Marianne, Insider, 59 Members of Congress have violated a 
  law designed to stop insider trading and prevent conflicts-of-
  interest, submission...........................................   315
February 22, 2022, Schulp, Jennifer, Banning Lawmakers From 
  Trading Stocks Won't Fix Congress, submission..................   317
Leonard, Kimberly, Republican Rep. Rodney Davis doesn't trade 
  stocks. But that doesn't mean he's ready to stop other Members 
  of Congress who do, submission.................................   325
April 4, 2022, Stock Act at 10: Lawmakers reflect on what 
  worked--and what needs fixing--with Congress' conflicts-of-
  interest law, submission.......................................   334


              EXAMINING STOCK TRADING REFORMS FOR CONGRESS

                              ----------                              


                        THURSDAY, APRIL 7, 2022

                          House of Representatives,
                         Committee on House Administration,
                                                    Washington, DC.
    The Committee met, pursuant to other business, at 9:09 
a.m., in Room 1310, Longworth House Office Building, Hon. Zoe 
Lofgren [Chairperson of the Committee] presiding.
    Present: Representatives Lofgren, Butterfield, Aguilar, 
Scanlon, Davis, Loudermilk, and Steil.
    Staff Present: Jamie Fleet, Democratic Staff Director; 
Khalil Abboud, Deputy Democratic Staff Director; Caleb Hays, 
Minority General Counsel and Deputy Staff Director; Dan Taylor, 
Deputy Staff Director and Chief Counsel; Kulani Jalata, 
Elections Counsel; Sean Jones, Professional Staff Member; 
Andrew Garcia, Staff Assistant; Tim Monahan, Minority Staff 
Director; Elliot Smith, Minority Professional Staff Member; 
Kyle Parker, Chief of Staff for Representative Butterfield; and 
Elizabeth Arevalo, Legislative Director for Representative 
Leger Fernandez.

       OPENING STATEMENT OF HON. ZOE LOFGREN, CHAIRPERSON

    The Chairperson. The Committee on House Administration will 
come to order. I want to say good morning to everyone.
    As we begin, I want to note, we are holding this hearing in 
person but also in compliance with the regulations for Remote 
Committee Proceedings pursuant to House Resolution 8. Members 
and witnesses were provided an opportunity to participate 
remotely if necessary. None of the witnesses are doing so for 
this proceeding. And, of course, we have the Members who are 
here at the dais personally. I am very pleased to see everyone 
here. I note that we are holding this hearing in compliance 
with the most recent guidance issued by the Office of the 
Attending Physician.
    At this time, I ask unanimous consent the chair be 
authorized to declare a recess of the Committee at any point 
and that all Members have five legislative days in which to 
revise and extend their remarks and have any written statements 
be made part of the record.
    And, hearing no objections, that is so ordered.
    The Chairperson. For all of us who are fortunate enough to 
work in public service, a guiding principle should be that a 
public office is a public trust. Without the public's trust and 
confidence, government loses its legitimacy.
    That principle was of paramount importance to the Founders. 
As ``The Federalist Papers'' put it, ``The aim of every 
political constitution is, or ought to be, first to obtain for 
rulers men who possess--I would add women as well--most wisdom 
to discern, and most virtue to pursue, the common good of the 
society; and in the next place, to take the most effectual 
precautions for keeping them virtuous whilst they continue to 
hold their public trust.''
    Since the founding, this has remained a vital underpinning 
of our democracy and informed periodic reforms to address 
shortcomings in standards of conduct for public officials.
    For example, this week marked the 10th anniversary of the 
enactment of the STOCK Act. That measure, which President Obama 
signed into law on April 4, 2012, amended the Ethics in 
Government Act of 1978 and imposed new financial disclosure 
requirements, among other provisions.
    Overwhelming bipartisan majorities decided then that the 
existing statutory framework to combat government corruption, 
improve financial disclosure and transparency, and curb 
financial conflicts of interest in government had to be 
strengthened--or, as the Founders might have put it, that more 
effectual precautions were necessary to keep our public 
officials virtuous while they continued to hold their public 
trust.
    Accordingly, the STOCK Act enhanced public disclosure 
requirements by introducing a requirement to report securities 
transactions throughout the year closer in time to the 
transactions rather than just the following year on an annual 
statement.
    Among other things, the STOCK Act also affirmed that 
insider-trading prohibitions apply to Federal officials and 
clarified that all Federal officials have a duty of 
confidentiality and trust to the United States and its citizens 
with respect to material nonpublic information that they derive 
from their positions.
    These were important steps forward. A friend to many of us, 
the late Chairwoman, Representative Louise Slaughter, was the 
primary champion of the STOCK Act and worked for years to see 
it passed into law, and it is fitting that Congress named the 
law in her honor.
    The 10th anniversary of the STOCK Act would, on its own, 
provide a good opportunity to review how officials have 
complied with the law and whether there are ways it could be 
updated.
    Unfortunately, there have been examples in all branches of 
government that further reforms are needed. Consider the 
following examples, brought to light by government oversight 
and ethics groups, several of whom are represented here today, 
in public reporting.
    Reporting by the Insider and other publications found that 
a Member of Congress failed to file the periodic transaction 
reports required by the STOCK Act on time.
    Reporting has also questioned whether Members engaged in 
improper trading activities or have financial conflicts of 
interest. In the early weeks of the pandemic, several Senators 
bought and sold millions of dollars in stock after attending 
closed-door, confidential briefings with top national security 
and health experts on the pandemic and the looming economic 
shutdown. This included selling stocks that would soon take a 
hit after the stock market plunged and buying stock in 
industries that received a boom due to the pandemic, such as 
remote-work technology, telemedicine companies, car companies 
manufacturing ventilators, and pharmaceutical makers developing 
vaccines.
    The Department of Justice reportedly reviewed the trading 
activity of several Senators, and, according to the Securities 
and Exchange Commission, it is still investigating one 
Senator's trading activities and related conduct.
    Also early in the pandemic, the Chief of Staff to then-
President Trump sold between a quarter of a million dollars and 
a half a million dollars in publicly traded securities the same 
day that President Trump said the economy was doing, quote, 
``fantastically.'' The next day, the value of those holdings 
plummeted.
    At the Federal Reserve, multiple senior officials, 
including presidents of two of the Fed's twelve Reserve Banks, 
engaged in large financial transactions when the Fed was 
playing a key role in decisions about the Nation's economy 
during the pandemic.
    Even before the pandemic, though, there were other 
troubling signs. The wealthiest President and the richest 
Cabinet in modern history, which included a significant number 
of billionaires, also exposed how the law's disclosure 
requirements are out of date and particularly inadequate for 
the super-rich who become government officials.
    In one case, a former Member of the House was investigated 
by both the Department of Justice and SEC for insider trading 
and other violations related to his actions in sharing insider 
information about a failed clinical trial of an Australian 
biotech company. He ultimately pleaded guilty to conspiracy to 
commit securities fraud and false statement charges, and he was 
sentenced to 26 months in prison, but former President Trump 
pardoned him, and he was released.
    One Trump Administration Cabinet Secretary, a billionaire, 
repeatedly came under criticism from the Office of Government 
Ethics for failing to abide by his ethics agreement and for 
repeated errors in his financial disclosure reports--errors 
significant enough that OGE determined it could not certify his 
reports. In the meantime, he reportedly made between $53 
million and $127 million while heading the Commerce Department. 
And, as CREW showed, it is possible that he earned even more 
than that, but we don't really know how much more due to the 
outdated loopholes in the disclosure laws.
    Last month, a Federal judge imposed a penalty of more than 
$60,000 against a former Trump White House official after 
finding that she knowingly failed to file a financial 
disclosure report, as required by law, for more than a year, 
despite repeated warnings about her obligation to do so.
    In the Judicial Branch, as work by good-government groups 
and reporting by The Wall Street Journal has revealed, there 
have been widespread problems with financial conflicts of 
interest and failures by judges to recuse themselves. According 
to those reports, between 2010 and 2018, more than 130 Federal 
judges improperly heard hundreds of court cases in which they 
or their family members held stock in a party to the 
litigation. Under Federal law, Federal judges are required to 
recuse themselves from cases in which they or their spouse or 
minor child have a financial interest in the subject matter or 
a party.
    Plus, the problem could be even worse than that. The 
judiciary is literally years behind in making judges' financial 
disclosures publicly available. Only this year will judges' 
annual financial disclosure filings covering 2019 finally be 
available. 2020 still won't be ready. By contrast, when a 
Member of the House files a financial disclosure report, the 
Clerk must make it publicly available within thirty days.
    Across the entire Federal Government, there have been 
significant and troubling stories about financial conflicts of 
interest in relation to stock trading and ownership. Together, 
these stories undermine confidence that the American people 
should be able to have in the faith and the trust that they put 
in the integrity of public officials and our government. 
Members of the public may ask, are our public officials acting 
in the public interest or their private financial interest?
    Considering these events, the Speaker of the House tasked 
the Committee on House Administration with conducting a 
comprehensive review of deficiencies in our financial 
disclosure system and a review of various legislative proposals 
introduced by Members to address financial conflicts of 
interest in Congress, including those that aim to restrict 
stock trading and ownership.
    Our hearing today is a continuation of our review of the 
diverse legislative reform proposals. While there is growing 
bipartisan consensus that reforms are necessary, there remain 
significant policy questions about the appropriate approach and 
the details.
    Today, we will have the opportunity to hear from well-
respected experts in government ethics and securities law and 
regulation about what has prompted a significant momentum for 
financial-conflict-of-interest reforms, the details, 
variations, implications of various introduced bills, and 
specific policy recommendations for reform.
    It is our hope that this hearing today will bring us closer 
to developing a consensus on recommended policy reforms that 
will combat financial conflicts of interest and restore public 
faith and trust in our government.
    Frankly, I have been asked by several reporters, what is 
the work product that is going to emerge from this hearing? I 
have been honest to say, we don't know. We have a series of 
experts who are going to help us understand the intricacies of 
these issues and will help us in formulating good policy that 
will buck up trust in the American Government. We do thank the 
witnesses for their participation.
    I would now recognize the Ranking Member--or, did you want 
to go to Mr. Steil?
    Mr. Davis. Only for the questions.
    The Chairperson [continuing] The Ranking Member for any 
statement he may wish to make.
    [The statement of the Chairperson follows:]
    
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     OPENING STATEMENT OF HON. RODNEY DAVIS, RANKING MEMBER

    Mr. Davis. Yes, don't give Steil the glory of my opening 
statement here, Madam Chairperson. First questions, yes, but, I 
mean, please.
    Nice to see you too, Ms. Spanberger. I saw you walk in. 
Welcome.
    Thank you, Chairperson Lofgren. I am glad we are holding a 
hearing on this very important topic. The public has spoken, 
and the demand is clear: Americans want more certainty that 
their elected Representatives are acting in good faith with 
their financial decisions.
    Today provides a unique opportunity to bring together 
experts from across the political spectrum to assess proposals 
on how best to move forward to increase transparency and 
accountability across Congress. I look forward to these 
discussions, and I am confident this hearing will serve to 
inform us as we move forward in the legislative process.
    I would like to begin by discussing some of the financial 
transparency measures already in place.
    The intent of the 2012 STOCK Act is good. It was meant to 
create a public disclosure system for Members of Congress to 
report their trades in a timely manner. However, as we have 
witnessed on multiple occasions since its passage, the STOCK 
Act has deficiencies, and compliance with its requirements is 
not as straightforward for Members as it should be. We have 
given the STOCK Act ten years, and it is time for Congress to 
take another look at this issue.
    According to Business Insider, at least 59 Members have 
reportedly violated the requirements of the STOCK Act since 
2019. These alleged violators come from both sides of the 
aisle, making this a bipartisan issue that requires a 
bipartisan response.
    Given the broad distribution of these alleged violations 
across the various ideological groups in Congress, I am 
confident that the majority, if not all of them, weren't 
malicious but inadvertent, illustrating a failure on multiple 
levels.
    This particularly concerns me because it suggests that we 
are not adequately educating our incoming Members on their 
responsibilities to comply with the STOCK Act. It is the 
responsibility of this Committee to ensure Members are aware of 
their responsibilities when they come to Congress, and I pledge 
to fix this lapse for new Republican Members. I would ask the 
Chairperson to join me in this initiative for any incoming 
Members of her party.
    While the legislative fixes we discuss today are a critical 
step forward, I would like to say also that this Committee 
should hold further discussions on how best to educate and 
assist all Members, especially freshman Members, with 
compliance issues and questions so that we can achieve the 
transparency that the American people demand.
    The public and our Members deserve better from this 
Committee, and, as Ranking Member, I will do everything I can 
to fix that. I am sure the Chairperson will agree with this 
sentiment, and I welcome the opportunity to work together on 
this bipartisan issue.
    Regarding potential STOCK Act updates, I am excited to hear 
from our witnesses today. Since this issue has captured the 
attention of the public, we have seen a wide range of proposals 
for reform. These suggestions are diverse both in their 
proposed requirements and with their enforcement mechanisms to 
ensure compliance.
    Now, I don't really have many stock holdings other than 
retirement, but, in anticipation of this hearing, I spoke with 
my financial advisor from my home district. He is from my home 
district in Illinois. I wanted to get a better sense of how 
some of these proposals would affect Members, especially 
middle-class Members.
    He raised the concern that blind trusts, for example, can 
be cumbersome and expensive, would create perverse incentives, 
and do not provide the level of transparency that some assume 
they would. For example, most financial firms won't even take 
on a client for a blind trust unless they meet certain asset 
holdings and activity requirements. I don't meet either of 
those requirements today, and I would guess that is true for 
many Members. But these cost restrictions would put us in a 
situation where these perverse incentives might force Members 
to engage in more market trading to meet blind-trust minimums 
and other requirements.
    I hope we can address some of these concerns here today, 
because I am sure many Members of Congress share them with me. 
I am hopeful that the Majority will take this opportunity to 
work together to build a bipartisan solution instead of 
proceeding with a knee-jerk reaction that sends a one-party 
bill immediately to the Floor.
    I look forward to our expert witnesses' testimony and 
further discussion, and I hope we can leave this hearing with a 
better understanding of the ramifications of any proposed 
solution as we embark on working together, hopefully, to craft 
bipartisan legislation.
    Thank you. And, with that, I yield back.
        [The statement of Mr. Davis follows:]
        
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    The Chairperson. Thank you, Mr. Davis.
    And in just a moment I will introduce today's witnesses, 
but before I do, as a reminder to our witnesses, each of you is 
recognized for five minutes. There is a lighting system and a 
timer in front of you, and when your time is up, we ask you to 
try and wrap up.
    Your full written statements will be made part of the 
record and will inform not only this Committee but members of 
the public.
    The record will remain open for at least five days after 
this hearing for additional material to be submitted, and we 
may also have additional questions for you. If that is the 
case, we would ask that you respond to those questions.
    Let me introduce each of our witnesses.
    Jacob Straus is a Specialist on the Congress at the 
Congressional Research Service, where he has worked since 
August 2007. He specializes in American Government and 
politics, with a focus on Congress and other governmental 
institutions.
    He is an Adjunct Professor on governmental studies at Johns 
Hopkins University and an Adjunct Professor at the University 
of Maryland, Baltimore County in the Political Science 
Department. Prior to that, he served as an Assistant Professor 
of political science at Frostburg State University.
    He holds a Ph.D. in political science from the University 
of Florida, an M.A. in political science from the University of 
Florida, and a B.A. in government and politics from the 
University of Maryland.
    Liz Hempowicz serves as Director of Public Policy for the 
Project on Government Oversight, sometimes referred to as 
``POGO.'' She is an expert on whistleblower protections, 
conflicts of interest, ethics, the Freedom of Information Act, 
separation of powers, and the National Emergencies Act.
    She develops and advances policy solutions to combat 
corruption and promote openness and accountability in 
government, and she strategizes the best way to translate POGO 
report findings to legislative reforms or executive action. She 
has participated in efforts to improve the Inspector General 
Act, the National Emergencies Act, lobbying and congressional 
ethics rules, whistleblower protections, the Freedom of 
Information Act, and other government accountability issues.
    She graduated from the University of Bridgeport with a 
bachelor's degree in international political economy and 
diplomacy and earned her J.D. from American University's 
Washington College of Law.
    Donald Sherman, welcome. He serves as the Senior Vice 
President and Chief Counsel for Citizens for Responsibility and 
Ethics in Washington, otherwise known as ``CREW.''
    He is a leading policy advisor on racial justice and 
equity, government ethics, and congressional investigations and 
oversight. He has served in various roles in the House, Senate, 
and the Executive Branch, including as Special Assistant to the 
President for Racial and Economic Justice at the White House, 
Senior Counsel to Ranking Member Claire McCaskill on the Senate 
Homeland Security and Governmental Affairs Committee, and Chief 
Oversight Counsel to the late Representative Elijah Cummings, 
then-Ranking Member of the House Committee on Oversight and 
Government Reform.
    Mr. Sherman began his career on Capitol Hill as Counsel on 
the House Ethics Committee when I chaired that committee and 
where he investigated allegations of ethical violations by 
Members of Congress and staff. Prior to that, he practiced law 
in Washington, D.C., for Crowell & Moring LLP and served as a 
law clerk to the Honorable Neal E. Kravitz of the District of 
Columbia Superior Court.
    He graduated from Georgetown University with a degree in 
American studies and earned his J.D. from Georgetown University 
Law Center.
    Donna Nagy is the C. Ben Denton Professor of Business Law 
at Indiana University's Maurer School of Law. She joined the 
law faculty in 2006 and teaches and writes in securities 
litigation, securities regulation, and corporations.
    Her scholarship includes co-authoring two books, one on the 
law of insider trading and a casebook on securities litigation 
and enforcement. She has written numerous Law Review articles 
on topics including the selective disclosure of government 
information, government officials and financial conflicts of 
interest, insider trading, and fiduciary principles.
    She is a member of the American Law Institute and served as 
an appointed member of the ABA Corporate Laws Committee. She 
also served a three-year term as a member of the National 
Adjudicatory Council of the Financial Industry Regulatory 
Authority. Before teaching, she was an associate with Debevoise 
& Plimpton in Washington, D.C., where she specialized in 
securities enforcement and litigation.
    She received her B.A. from Vassar College and her J.D. from 
NYU University Law School.
    Finally, Jennifer Schulp is the Director of Financial 
Regulation Studies at the Cato Institute's Center for Monetary 
and Financial Alternatives, where she focuses on the regulation 
of securities and capital markets.
    Prior to joining Cato, Ms. Schulp was the Director in the 
Department of Enforcement at the Financial Industry Regulatory 
Authority, where she represented FINRA investigations and 
disciplinary proceedings relating to violations of Federal 
securities laws and self-regulatory organization rules.
    Before joining FINRA, Ms. Schulp was a litigation associate 
at Gibson, Dunn & Crutcher, and she clerked for the Honorable 
E. Grady Jolly of the U.S. Court of Appeals for the Fifth 
Circuit. She received her J.D. from the University of Chicago 
Law School and her A.B. in political science from the 
University of Chicago.
    As all can see, we have a very distinguished panel of 
witnesses before us. We do thank you.
    We will now hear from you for five minutes each, and we 
will start with you, Mr. Straus.

      STATEMENTS OF JACOB STRAUS, SPECIALIST ON CONGRESS, 
     CONGRESSIONAL RESEARCH SERVICE, WASHINGTON, D.C.; LIZ 
  HEMPOWICZ, DIRECTOR OF PUBLIC POLICY, PROJECT ON GOVERNMENT 
   OVERSIGHT, WASHINGTON, D.C.; DONALD SHERMAN, SENIOR VICE 
 PRESIDENT AND CHIEF COUNSEL, CITIZENS FOR RESPONSIBILITY AND 
 ETHICS IN WASHINGTON; DONNA NAGY, C. BEN DUTTON PROFESSOR OF 
    BUSINESS LAW, INDIANA UNIVERSITY MAURER SCHOOL OF LAW, 
   BLOOMINGTON, INDIANA; AND JENNIFER J. SCHULP, DIRECTOR OF 
 FINANCIAL REGULATION STUDIES, CATO INSTITUTE, WASHINGTON, D.C.

                   STATEMENT OF JACOB STRAUS

    Mr. Straus. Chairperson Lofgren, Ranking Member Davis, and 
Members of the Committee, on behalf of the Congressional 
Research Service, thank you for the opportunity to appear 
today.
    My testimony focuses on two areas: current financial 
disclosure and periodic transaction reporting requirements; and 
legislative proposals introduced during the 117th Congress to 
limit or prohibit certain financial transactions by Members of 
Congress and covered congressional employees.
    Federal Government officials and employees, including 
Members of Congress, when taking official action, are expected 
to, quote, ``place loyalty to the Constitution, laws, and 
ethical principles above private gain.''
    Using this guiding principle, the Ethics in Government Act, 
as amended, including by the STOCK Act in 2012, requires 
covered officials, including Members of Congress and certain 
congressional employees, to file annual financial disclosure 
statements that report income, gifts, liabilities, and property 
and make periodic transaction reports that disclose the 
purchase or sale of certain financial assets.
    Further, the STOCK Act affirms that Members of Congress, 
congressional employees, and other Federal officials are not 
exempt from insider-trading laws.
    In the 117th Congress, as of March 1, 2022, CRS identified 
fourteen bills or resolutions that proposed limitations on 
Members of Congress and other covered congressional employees 
from engaging in certain financial transactions. Broadly, these 
measures propose to amend the Ethics in Government Act and/or 
the STOCK Act, create new law, or amend House rules to prohibit 
the holding, purchasing, selling, and or actively managing 
certain types of assets.
    Currently, Congress does not prohibit the ownership of 
specified financial assets, but certain targeted restrictions 
do exist in some Executive Branch agencies.
    With regard to the legislative proposals before Congress, 
six points are pertinent.
    First, to address Member and covered individuals' financial 
holdings and transactions, several legislative proposals would 
either amend the Ethics in Government Act, the STOCK Act, or 
both. Others would create new law.
    Second, each of the legislative proposals would generally 
prohibit covered officials from holding, purchasing, selling, 
and/or actively managing certain types of assets.
    Third, a number of the proposals would allow or require a 
Member of Congress to place covered assets in a qualified blind 
trust that is approved by the official's supervising ethics 
office, the House Ethics Committee for the House of 
Representatives. Qualified blind trusts separate the covered 
official from day-to-day decisionmaking about their holdings, 
which could serve to remedy potential conflicts that might 
arise from officials' actions that could impact their 
individual holdings.
    Fourth, four of the proposals would expand public access to 
information in the financial disclosure statements and periodic 
transaction reports.
    Fifth, ten of the fourteen legislative proposals would 
change available penalties for noncompliance. Within these 
proposals, two basic penalty strategies are suggested: fine 
individuals for noncompliance and/or publish the names of 
individuals who are found in violation of the law on a public 
web page.
    Finally, two legislative proposals would amend House Rule 
XXIII, the House Code of Conduct, to add a new section that 
would prohibit Members from trading stocks.
    In closing, these legislative proposals include a range of 
options to limit or prohibit certain financial activities. 
Policymakers may wish to consider the scope of these proposals, 
the benefits of proposals, any potential administrative 
adjustments that might be necessary to implement a modification 
of ethics laws, and the potential costs to covered officials to 
comply with the proposed laws. My written testimony raises 
questions that might be considered.
    Should Congress choose to act, it could implement a 
particular measure as introduced or incorporate various 
concepts from several different measures. Each choice likely 
has advantages and disadvantages that CRS is available to 
discuss further.
    Thank you again for the opportunity to testify. I look 
forward to your questions.
    [The statement of Mr. Straus follows:]
    
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    The Chairperson. Thank you very much for your testimony and 
your willingness to continue to work with us as we sort through 
the various proposals.
    Ms. Hempowicz, you are now recognized for five minutes.

                   STATEMENT OF LIZ HEMPOWICZ

    Ms. Hempowicz. Chairperson Lofgren, Ranking Member Davis, 
and Members of the Committee, thank you for inviting me to 
testify today about addressing conflicts of interest in 
Congress as they relate to the owning of individual stocks.
    There is no denying that this issue has captured public 
attention in a unique way. In fact, a strong majority of voters 
from both major political parties support the congressional 
stock ban. A FOX News poll recently found seventy percent of 
those surveyed favored banning Members of Congress and their 
immediate family and staff from trading stocks.
    Those numbers didn't come out of nowhere. An avalanche of 
eye-opening press coverage has demonstrated a congressional 
stock-trading problem that ranges from seemingly benign missed 
public disclosure deadlines to criminal insider trading.
    In response, there are now entire online communities 
dedicated to tracking congressional sales, not only to hold 
Members accountable, but because many Members of Congress 
outperform the market and an enterprising few in the public 
want in on the action.
    It is no wonder that the polling reflects an overwhelming 
desire for change. Congress is listening. More than 125 Members 
are now co-sponsoring legislation intended to address at least 
some aspects of this problem. It is encouraging to see elected 
officials so in tune with what their constituents want.
    And so, now, Congress is poised to restrict stock trading 
by lawmakers with bipartisan support, and we are here to help 
hammer out the details.
    The details are everything. There are several competing 
bills in both chambers of Congress, and when we see legislation 
advance, it will either be a first step towards creating real 
ethics rules for Members of Congress or mere window dressing 
for legalized corruption.
    So, I want to spend the few minutes I have with you today 
talking about what we at POGO see as some of the important 
bright lines for you to consider as you move forward.
    First, as a floor, we recommend that you require Members of 
Congress to divest conflicting assets, with the option to put 
any remaining assets in a blind trust that is subject to new 
public disclosures.
    The logic here is simple: Members of Congress have access 
to nonpublic information and the power to move markets. We must 
eliminate opportunities for insider trading and insulate 
Members from even the perception that they are making decisions 
based on the benefits to their own financial interest rather 
than the public interest.
    Second, to be meaningful, these requirements must cover 
spouses and minor children. Again, the reasoning is simple: It 
is a safe presumption that married partners discuss their work 
dealings and that a minor child's affairs are under some 
modicum of their parents' supervision. Now, in both cases, that 
means the spouse or child also has the same access to market-
moving information that the public is so concerned about being 
misused. In a less generous reading, exempting spouses or minor 
children would supply an easy, opaque way for a corrupt Member 
to hide self-dealing and make any added restrictions totally 
moot.
    Third, the new standards cannot exempt assets that were 
owned before taking office. Unless Members of Congress are 
willing to recuse from votes or committee assignments based on 
their financial holdings prior to taking office, an exemption 
for previously held assets creates a potential conflict without 
serving any discernible public policy objective.
    I want to be clear: POGO wants a much stricter ban than any 
of those you are considering today. We would limit the holdings 
that Members, their spouses, dependent children, and senior 
staffers can own to diversified mutual funds and U.S. Treasury 
bonds, with narrow exemptions applicable only in truly unusual 
circumstances.
    Today, we have focused our bright lines on improvements to 
the law that will enhance accountability and public trust 
related to concerns about insider trading. And there is 
incredible momentum for these reforms that would respond 
directly to one of the public's most acutely expressed 
institutional concerns.
    Now, some have suggested that Congress should slow down 
this current effort so that it may include reforms to the 
financial-conflicts-of-interest systems that apply to the 
judiciary and the Executive Branch. You face the very real 
possibility of passing no reforms if you slow down now. I urge 
you to focus first on passing restrictions for Congress and 
then use that momentum to pass additional and, yes, critically 
necessary conflicts-of-interest reforms to the other branches 
of government.
    I want to close with this thought. The reason we are having 
this conversation today isn't because of any one scandal or 
missed STOCK Act filing deadline. We are here because the 
barrage of the many different examples across both chambers and 
parties has given the public an overwhelming perception that 
Congress is engaged in corrupt behavior when Members are 
allowed to freely own individual stocks.
    My colleagues at the Project on Government Oversight stand 
by, ready to aid in your efforts in addressing this problem 
however we can.
    Thank you again. I look forward to your questions.
    [The statement of Ms. Hempowicz follows:]
    
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    The Chairperson. I thank you very much.
    Mr. Sherman, you are now recognized for five minutes.

                  STATEMENT OF DONALD SHERMAN

    Mr. Sherman. Chairperson Lofgren, Ranking Member Davis, and 
Members of the Committee, thank you for the opportunity to 
appear before you today to address the ethics problems created 
when Members of Congress and their families own or trade 
individual stocks and other securities.
    I am especially grateful for this opportunity to testify 
before Chairperson Lofgren, who thirteen years ago hired me to 
join the non partisan staff of the House Ethics Committee.
    My organization, Citizens for Responsibility and Ethics in 
Washington, is a nonpartisan, anti-corruption watchdog 
committed to ensuring that government officials act ethically 
on behalf of the people they serve.
    It is with this purpose in mind that I encourage Congress 
to embrace comprehensive legislation that satisfies three 
principles: one, prohibiting Members from owning and trading 
stocks and other similar commodities or securities; two, 
extending this prohibition to Members' spouses and dependent 
children; and three, incorporating a clear civil penalty that 
is a significant deterrent and easy to administer.
    In addition to these priorities, Congress must also ensure 
that any relevant oversight and enforcement bodies have the 
authority and the resources necessary to do their jobs 
effectively and to provide the public with real transparency.
    The ethics problems posed by Members of Congress owning and 
trading stocks are not theoretical. At the beginning of the 
pandemic, a moment when public confidence in our government was 
critical, Congress was rocked by scandal.
    Reports of Senators making significant financial 
transactions following private briefings about the coronavirus 
pandemic was just the tip of the iceberg. At least 75 Members 
of Congress owned shares in COVID-19 vaccine makers Pfizer, 
Moderna, and Johnson & Johnson in 2020. These Members were 
asked repeatedly to vote on legislation that impacted these 
companies' share prices.
    Similar issues have been spotted in other sectors. For 
example, fifteen Members that sit on committees overseeing U.S. 
military policy have financial ties to military contractors 
worth nearly $1 million.
    These facts are both egregious and, sadly, unremarkable.
    One reason for this litany of questionable conduct is the 
weakness of our current legal regime. The STOCK Act, passed in 
2012 to ensure that Members do not trade on nonpublic 
information gained through their government jobs and to enforce 
public transparency of their holdings, has failed to police 
this kind of behavior. Exposing STOCK Act violations has proven 
difficult, in part because periodic transaction reports and 
financial disclosures are hard to access.
    Still, the near-constant drumbeat of repeated and reported 
violations is a death by a thousand cuts for the credibility of 
this institution.
    Since the passage of the STOCK Act, there have also been 
significant changes that give individual Members even greater 
ability to affect the market. Members now have a much larger 
presence on social media, enabling them to impact corporate 
stock prices with a single tweet. Congress has expanded the 
power of committee chairs to issue unilateral subpoenas, and a 
growing number of Members are conducting oversight from their 
personal offices. Congressional rules need to change to help 
address Members' expanded ability to influence the market.
    Banning Members from owning or trading individual stocks 
would address several problems, including: the actual conflicts 
of interest that arise when they take official actions that 
impact a company or industry where they or their families have 
a direct financial stake; the appearance of financial conflicts 
of interest; and the public outrage over Members appearing to 
trade on confidential information.
    A ban is necessary because, unlike other officials in other 
branches of government, recusal is not a viable option for 
Members of Congress. Yet both the Executive and Judicial 
Branches have higher standards. Merely placing individual 
assets into a qualified blind trust will not fully address 
these concerns absent a requirement to sell the original 
assets.
    The ban must also extend to Members' spouses and dependent 
children to ensure that Members can't simply circumvent the law 
by transferring their individual assets to a close family 
member.
    Finally, the ban must include an enforcement mechanism that 
is both clear and significant enough to serve as a deterrent. 
For example, the legislation should not create a standard of 
intent that would make enforcement unlikely.
    While it is understandable that some Members may have 
questions about the impact of these reforms on their own or 
their families' interests, these concerns are not more 
important than the public's right to know with certainty that 
the people they choose to write their laws are acting on their 
behalf and not in the service of their own financial interests.
    In closing, the public is right to hold their 
Representatives in Congress to the highest ethical standards 
and to demand accountability when those Representatives fail to 
live up to them. Wide bipartisan majorities are demanding that 
Congress make changes to address Members' buying and owning 
stock in industries that they oversee. Banning this practice 
will help to restore public faith and bolster confidence in our 
democracy.
    Thank you for the opportunity to address the Committee 
today. I look forward to your questions.
    [The statement of Mr. Sherman follows:]
    
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    The Chairperson. Thank you.
    We will turn now to Professor Nagy for five minutes.

                    STATEMENT OF DONNA NAGY

    Ms. Nagy. Chairperson Lofgren, Ranking Member Davis, and 
Members of the Committee, thank you for inviting me to testify.
    I have been teaching and writing about corporate and 
securities law for more than 27 years. For nearly half of that 
time, I have also been writing about government ethics.
    What first drew me to that field were the controversies 
that resulted in the STOCK Act of 2012. I had the great 
privilege of testifying about insider-trading law in the House 
and Senate hearings that preceded that legislation.
    In connection with today's hearing, what I can also bring 
to this table are my years of studying how conflicts of 
interest undermine the legitimacy of decisionmaking by 
officials entrusted with power.
    Whether the decisionmaking occurs by corporate directors 
inside a boardroom or by lawmakers here in the Capitol, 
financial conflicts of interest contribute to a corrosive 
belief that those entrusted with power are making self-serving 
decisions that may not be in the best interest of those they 
have been elected to serve.
    My testimony today strongly supports your efforts toward 
reform, and I have four points to highlight.
    The first emphasizes a key difference in the many bills I 
have reviewed. Whereas some seek to restrict the ownership of 
certain investments by Members of Congress, others seek to 
restrict only the trading of such investments during 
congressional service.
    In my view, trading restrictions alone will not be an 
effective solution to the conflict-of-interest problem that is 
plaguing Congress. Successful reform must also reduce 
lawmakers' opportunities for personal gains in their investment 
portfolios when they sponsor, support, oppose, and vote on 
legislation.
    So, I urge this Committee to focus on ownership and not 
merely trading. What is most needed, in my opinion, is a 
Federal statute that prohibits Members of Congress and their 
spouses and dependent children from owning the securities of 
individual, publicly traded companies.
    My second point contrasts the lax conflict-of-interest 
restraints that currently operate in the Legislative Branch 
with the very strict anti-conflict laws that Congress has 
enacted for officials in the Executive and Judicial Branches.
    To be sure, ethics rules in both chambers prohibit Members 
from deriving personal financial benefit from congressional 
service. But longstanding interpretations permit and facilitate 
a lawmaker's ability to work and vote on legislation likely to 
affect their own investments so long as they are not the sole 
beneficiaries.
    The lack of parity among the three branches underscores the 
urgent need for reform.
    My third point refutes the notion that public disclosure of 
personal investments coupled with the discipline of the 
electoral process can adequately deter these troubling 
financial conflicts.
    Neither annual ownership disclosures nor specific 45-day 
transaction reporting has managed to deter lawmakers from 
owning and trading hundreds of millions of dollars in stock in 
companies subject to their oversight. If anything, it has made 
the perception of corruption worse, because, thanks to 
journalists and good-government groups, the American public now 
sees even more quickly how frequently and extensively some 
lawmakers are benefiting from their legislative activity.
    Moreover, self-interested legislative activity affects the 
entire country, whereas only voters in a Member's district or 
State can have a say in whether conflicts are serious enough to 
warrant an electoral defeat.
    My final point relates to insider trading. Notwithstanding 
the clarity brought about by the STOCK Act, investigating 
suspicious trading by congressional officials has proven to be 
more challenging for the SEC and the DOJ than most may have 
supposed a decade ago. The Constitution's Speech or Debate 
Clause puts in place a very high hurdle for obtaining evidence 
that relates to what a congressional official learned through 
legislative activity, and, without evidence, prosecutions are 
not possible.
    This hearing constitutes a monumental step toward bringing 
about real and profound change. I am truly honored to be a part 
of it. I look forward to your questions, and I stand ready to 
be of whatever help I can as the legislative process 
progresses.
    Thank you very much.
    [The statement of Ms. Nagy follows:]
    
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    The Chairperson. Thank you very much.
    And now we have our final witness, Ms. Schulp. We will 
welcome your testimony for five minutes.

                STATEMENT OF JENNIFER J. SCHULP

    Ms. Schulp. Thank you.
    Chairperson Lofgren, Ranking Member Davis, and 
distinguished Members of the Committee on House Administration, 
my name is Jennifer Schulp, and I am the Director of Financial 
Regulation Studies at the Cato Institute's Center for Monetary 
and Financial Alternatives. Thank you for the opportunity to 
take part in today's hearing.
    As you know, the questions raised by Members of Congress 
trading stocks are not new. A decade ago, the STOCK Act 
clarified the applicability of insider-trading prohibitions to 
lawmakers and required periodic disclosure of stock 
transactions, but concerns have persisted about lawmaker stock 
trading.
    Although recent polling shows widespread public support for 
banning lawmakers from owning or trading stocks, such measures 
are too broad for preventing insider trading and too narrow to 
effectively address the question of financial conflicts of 
interest. Because financial conflicts of interest present 
complex tradeoffs not easily solved by a simple prohibition, it 
is better to focus on increasing transparency through 
disclosure.
    Despite headlines to the contrary, there is little evidence 
that unlawful insider trading is widespread on Capitol Hill. 
Recent research looking at post-STOCK Act trading data has 
found that lawmakers do not reap outsized returns, including 
for investments in areas where lawmakers hold committee 
assignments. Yet questionable trading has fed a public 
perception that lawmakers have financial advantages.
    Analyzing lawmakers' trading is more than fair and has been 
made possible in part by the STOCK Act's reporting 
requirements. But current law already delineates when such 
trading is unlawful. It does not follow that all stock 
ownership or trading should be prohibited just because no STOCK 
Act prosecutions have been brought. This is especially true 
where there is no evidence of widespread insider trading.
    Moreover, taking prophylactic action to combat insider 
trading does not address the actual issue. There is reason to 
believe that those calling for congressional stock-trading 
reform are not motivated by a crisis of faith in the markets 
but, rather, a lack of trust in lawmakers. A focus solely on 
individual stocks distracts from the broader issue, that the 
public perceives lawmakers to be using their positions for 
financial gain.
    Members of Congress are uniquely positioned to not only 
have access to information impacting stock values but also the 
ability to influence those values directly and indirectly. But 
this complication exists not only for individual stocks but for 
mutual funds, exchange-traded funds, crypto holdings, business 
interests, and other financial interests. Individual stock 
restrictions address only a narrow portion of these potential 
conflicts and, as such, may do little in the long term to 
enhance voters' trust in Congress.
    The question, then, is how to manage this multitude of 
potential conflicts. While it is tempting to say that conflicts 
should be eliminated, this solution is not practical across the 
range of potential financial conflicts of interest that 
lawmakers face.
    Importantly, seeking to eliminate a particular conflict, 
such as trading in individual stocks, may have unintended 
effects on the quality of representation that voters receive, 
either by discouraging some from running for office or by 
decreasing the connectedness between Representatives and the 
impact of their decisions.
    Disclosure provides a more complete solution, bringing the 
conduct of lawmakers into the light, discouraging questionable 
trading, and providing voters with information about the 
conflicts of interest that their Representatives face.
    The STOCK Act provides a good foundation for this 
transparency, but it has fallen short of its potential, and 
enhancements should be considered to provide additional 
transparency.
    The first place to focus is on ensuring that penalties for 
noncompliance are consistently applied. It is worth examining 
whether the penalty framework is sufficiently deterrent and 
considering public reporting of delinquent disclosure. It is 
also worth considering whether aspects of reporting can be 
automated to ease compliance burdens.
    Second, the disclosure requirements themselves could be 
improved--for example, by shortening the long lag between the 
execution of a trade and the deadline for disclosure.
    Enhancing transparency permits voters to choose whether the 
conflicts faced by their elected Representatives are 
problematic even if the trading itself is perfectly legal. 
Empowering voters with information limits unintended 
consequences of restrictions and puts the choice in the hands 
of voters, where it belongs.
    Thank you, and I welcome any questions that you may have.
    [The statement of Ms. Schulp follows:]
    
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    The Chairperson. Thank you very much.
    And thanks to each one of our witnesses for very useful 
testimony.
    This is the time when Members can address the witnesses 
with questions. Mr. Steil is recognized, at the request of the 
Ranking Member, to go first for five minutes.
    Mr. Steil. Thank you very much, Madam Chairperson. We have 
conflicting hearings today, and so I appreciate your 
willingness to let me jump in.
    I think where we maybe should begin is: One, what is legal 
and illegal under current law? And two, what are the priorities 
and objectives and goals of putting forth this framework?
    And so, as I look at this--and, Ms. Schulp, I would love 
for you to comment on this--it is to facilitate compliance with 
the law. Under, current law, insider trading is illegal, 
including for Members of Congress. We can have a conversation 
about the enforcement of that. Using information derived from 
one's position here in Congress is illegal under current law. 
We could have a conversation about enforcement mechanisms of 
that.
    And so, compliance with the law I think is a key principle 
that we should be looking at. Ensuring Members' family and 
staff don't take unfair advantage of information gained from 
their congressional work I think is an important topic for us 
to consider as we look at this. And to provide confidence to 
the American people that we follow that, that we avoid the 
appearance of an impropriety. I think those are key principles, 
amongst others.
    Are there other key principles that you think that we 
should consider before I begin my questioning here?
    Ms. Schulp. Yes, I believe that those are the key 
principles here. You are correct----
    Mr. Steil. Okay.
    Ms. Schulp [continuing]. That insider trading is already 
illegal.
    Mr. Steil. Okay. So, then, let's dive in.
    We have heard a series of ways that we can enhance this to 
make sure that we are avoiding the appearance of impropriety, 
that we enforce the law, and we make sure that Members follow 
that law.
    Let's dive in first to the blind trust. Would the blind--
first, what are the compliance costs as it relates to a blind 
trust? What would be the compliance costs for Members in a 
blind trust scenario?
    Ms. Schulp. Compliance costs for blind trusts tend to be 
substantial. Usually, it takes multiple thousands of dollars to 
set one up, and----
    Mr. Steil. Okay. So----
    Ms. Schulp [continuing]. There is an ongoing----
    Mr. Steil. No, no. I am just going to move quickly because 
I am limited on time.
    So, it is substantial. We could decide whether that is good 
or bad, but it is a substantial cost.
    And then would the public have confidence in the execution 
of the blind trust? Meaning, a blind trust is only as good as 
it is blind. Is that a fair assessment?
    Ms. Schulp. That is a fair assessment.
    Mr. Steil. So, the structure of that blind trust, then, 
becomes paramount if Congress chose to go down that path.
    Let's shift gears: a complete stock trading ban, thinking 
about the implementation of that. So, envision a Member of 
Congress coming here. Say she was previously an executive at a 
publicly traded company; she has a significant portfolio. Would 
she then be required to divest that entire portfolio upon 
arrival in Congress?
    Ms. Schulp. Some of the proposals would require that.
    Mr. Steil. And what would happen if somebody had to fully 
divest--if she had to fully divest her portfolio, what would be 
the general implications to her?
    Ms. Schulp. The first is that there could be substantial 
tax consequences for that. And, depending on where the market 
is, there could be substantial losses to her investment.
    Mr. Steil. Or substantial gains, but----
    Ms. Schulp. Yes.
    Mr. Steil [continuing]. Substantial tax implications for 
her upon arrival. That may be a consideration as to whether she 
chooses to run in the first place.
    I think something worthwhile for us to consider is how we 
would begin that implementation for somebody who arrives in 
that capacity.
    Let me shift gears slightly for something I don't think we 
have talked a ton about. I used to work at a publicly traded 
company. I was involved in the enforcement of section 16(a)--
officers, their compliance with securities laws. Our securities 
laws give us a framework with which to understand how publicly 
traded companies deal with this insider information, the 
appearance of impropriety for those insiders as well.
    Do you think that Members should be banned from what I am 
going to call sophisticated trades--swaps, options, shorting 
stocks? Would that improve individual--would that improve the 
public's confidence that Members are not engaging in insider 
trading?
    Ms. Schulp. No. I think it will have little difference on 
the public's confidence on that front.
    Mr. Steil. Okay. I may or may--I may not fully agree with 
that. I think there are some opportunities that we may want to 
consider and look at in that space.
    Let me shift gears, then: in particular, with other ways of 
adjusting the protocols to accomplish the same benefit without 
maybe a full ban of stock, just to explore this space. Would 
minimum holding periods improve the public's confidence in 
Members of Congress abiding by the law?
    Ms. Schulp. It may have some effect.
    Mr. Steil. So, if you had a--say, just for the sake of 
throwing a number out, if you had a ninety-day minimum holding 
period, or remove quick movements in and out of stocks, it 
would be longer than the duration of a publicly traded 
company's financing reporting, it may improve the confidence of 
the American people in Members?
    Ms. Schulp. There may be some effect in that.
    Mr. Steil. May be worth us considering that.
    The other is our current regime has a disclosure after the 
sale of stock. Some public companies have gone forward with a 
disclosure prior to the sale or acquisition--a delayed closing, 
if you will, let's say for sake of discussion ten days, where 
an announcement would be made ten days in advance, prior to the 
sale or acquisition of a stock.
    Would that alter the appearance of the impropriety as 
people would be analyzing a Member of Congress or another 
insider from engaging in a trade?
    Ms. Schulp. It may have some effect.
    Mr. Steil. And would the burden placed upon that Member, or 
a spouse be significant or lighter than a blind trust scenario 
or a forced sale?
    Ms. Schulp. It should be lighter than a blind trust or a 
forced sale.
    Mr. Steil. I appreciate your insights today.
    Cognizant of the time, Madam Chairperson, I yield back.
    The Chairperson. The gentleman yields back.
    Mr. Butterfield is recognized for five minutes.
    Mr. Butterfield. Thank you very much, Madam Chairperson. 
And thank you for convening this very, very important hearing 
today.
    I especially want to thank the five witnesses for your 
testimony as well.
    Mr. Sherman, it is good to see you again.
    Mr. Sherman. Good to see you again, sir.
    Mr. Butterfield. I was on the Ethics Committee when you 
served as counsel to the Ethics Committee, and it looks like 
you have landed well. I just want to thank you for your many 
years of service.
    Madam Chairperson, you were the Chairperson of the Ethics 
Committee when I was there.
    The Chairperson. That is correct.
    Mr. Butterfield. I will say publicly that, out of the 
eighteen years that I served in Congress, those two years or 
four years on the Ethics Committee were the worst years of my 
life.
    The Chairperson. I don't take it personally because I 
concur.
    Mr. Butterfield. And it had nothing to do with you, Madam 
Chairperson nor you, Mr. Sherman.
    I had spent thirty years in a courtroom before coming to 
Congress, and, you know, in a courtroom, the rules are so much 
different than the rules for ethics for Members of Congress. 
One, for example, there is a presumption of guilt. I don't know 
if Members fully know that or appreciate it if you have not 
been confronted with an ethics violation, but there is a 
presumption of guilt. The burden of proof is on the Member to 
prove that she is not guilty of the offense for which she is 
charged. And that was just so, so different from what I had 
been exposed to in a courtroom.
    The final thing that I found very interesting was that a 
Member's failure to cooperate with the process was deemed to be 
a violation of the ethics rules.
    And so, when I say those were some very difficult years, 
they were.
    But while I am with you, Mr. Sherman, let me just start 
with you. You have testified that your organization recommends 
a legislative proposal that requires a comprehensive ban on 
both trading and ownership of individual stocks and other 
securities by Members and their spouses and dependents.
    So, my question to you--and I have great respect for CREW--
what is CREW's perspective of the various legislative proposals 
that ban stock trading but permit stock ownership through the 
use of qualified blind trusts, which are currently allowed by 
law? I know you touched on it earlier, but if you would be a 
little bit more illuminating in your response.
    Mr. Sherman. Absolutely. And thank you for the question.
    I think the misnomer with respect to qualified blind trusts 
is that it only works if it is truly blind. Our position is 
that qualified blind trusts could be a useful option if the 
Member is required to effectuate the sale of all the assets 
that would go into that trust beforehand. Right? A trust can't 
be blind if the Member knows that they owned Microsoft the day 
before it went into the trust. They know that they still own it 
the day after.
    Mr. Butterfield. Let's talk about judges. Half of my legal 
career, I was a judge back in North Carolina, and I have great 
interest in judicial service.
    But does your organization have any recommendation for 
addressing the crisis of widespread recusal failure--failure to 
recuse--and lack of transparency regarding financial conflicts 
of interest in the Judicial Branch, in the Federal Judicial 
Branch?
    Mr. Sherman. Absolutely. I agree with you that the 
conflict-of-interest issues that have arisen in the Federal 
judiciary and have been exposed through detailed reporting are 
a crisis of confidence and need to be addressed by the 
Congress.
    I would note, though, that one distinction between the 
ethics regime that applies to the Federal judiciary versus 
Members of Congress is that recusal is an option. The problem 
with the Federal judiciary is that judges didn't recuse. Here 
in Congress, recusal is not a viable option for Members of 
Congress that have a financial conflict of interest, because it 
denies their constituents effective representation in this 
body.
    Mr. Butterfield. Finally, Professor Nagy--I can't pronounce 
that exactly, but thank you for your service.
    Ms. Nagy. Nagy.
    Mr. Butterfield. Thank you for your testimony. Thank you 
for your testimony thirteen years ago or whenever you testified 
before the STOCK Act was passed.
    Some people have argued that new prohibitions on stock-
trading activity or ownership are unnecessary. Some are saying 
that. They are saying it because public disclosure and the 
electoral process should be enough; it should be sufficient to 
address conflicts of interest. They argue that disclosure 
allows for the public and good-government groups to track 
trading activity and assess whether elected officials have 
acted ethically and that, informed by those disclosures, voters 
can remove unethical lawmakers at the ballot box.
    That seems extreme to me. What is your perspective on this 
argument?
    Ms. Nagy. Well, my perspective is that, in 1978, Congress 
enacted the Ethics in Government Act with disclosure as the 
solution, or the proposed solution, for the conflicts of 
interest. Ten years ago, in the STOCK Act, we put in 
transparency reporting requirements where 45 days after--and 
disclosure hasn't worked.
    If anything, disclosure of financial transactions puts it 
glaringly obvious to the public that the conflicts of interest 
are there.
    The voters decide, let the voters and the ballot box 
decide--that reflects a misconception of the corrosiveness that 
conflicts of interest have. A----
    Mr. Butterfield. Thank you.
    Ms. Nagy [continuing]. Voter only in one district decides 
the answer for that Representative, but that Representative's 
conflicts affect us all.
    Mr. Butterfield. I agree. Absolutely.
    Thank you. I yield back.
    The Chairperson. The gentleman yields back.
    The Ranking Member is recognized for five minutes.
    Mr. Davis. Thank you, Madam Chairperson.
    This is a very interesting hearing. I appreciate all the 
witnesses' testimony.
    I am hoping that some of the witnesses' testimony hasn't 
already led the majority to, kind of, assess what type of 
legislative proposal they are going to put forth. Because I 
think the discussion, we are having today is too important to 
not take a step back and understand where we are as an 
institution.
    There is a common theme here, that corrupt people do 
corrupt things. Right? And we should make sure that corrupt 
people don't have an opportunity to do that.
    Our goal also is to make sure that those who want to follow 
the law and those who want to follow transparency measures can 
do so without being labeled corrupt. That is our charge. Our 
charge is to develop something that makes the public 
comfortable that we, as Members of Congress, are transparent in 
what we do financially, but, at the same time, we are working 
through a prism of testimony that was based upon corrupt 
individuals.
    Did any of you research our or log into our financial 
disclosure portal before you came here to testify today? Raise 
your hand if you did.
    Okay. Any of you look at mine? Raise your hand if you did.
    Nobody? Why wouldn't you? Why wouldn't you look at our 
disclosures, those of us who are questioning you?
    Because if you did, you would see that I don't trade a lot 
of stocks. I got my only individual stock holding when I was a 
child because my father happened to work as a franchisee for a 
corporation called McDonald's. I haven't traded that stock 
since I got here. My kids, my dependent children have that same 
asset. You know one reason I don't trade it? Because I don't 
want to go through the paperwork of the STOCK Act reporting 
requirements.
    However, because I have owned this stock since I was a 
child, much of your testimony says that maybe I should sell it, 
right?
    Now, since I own that one stock--Mr. Sherman, I have a 
question for you. I was really interested in the comment that 
you said, that, you know, owning and trading individual 
securities undermines the critical work of the entire Federal 
Government. Does my owning an individual stock since my 
childhood undermine the credibility of the Federal Government?
    Mr. Sherman. I think it is reasonable for any constituent 
to question whether their Member's stock ownership----
    Mr. Davis. They can do that at the ballot box.
    Mr. Sherman [continuing]. Has an impact on----
    Mr. Davis. I want to reclaim my time----
    Mr. Sherman [continuing]. Their legislative work.
    Mr. Davis. I am going to reclaim my time really quick, 
because I want to go a little further on this.
    Mr. Sherman. Sure.
    Mr. Davis. So, now that I am a Member of Congress and I own 
that one stock--my dependent children own similar stock that 
they were gifted. My wife does not. So, if I go to, let's say, 
a McDonald's restaurant--because that is the only stock that I 
have owned since a child--and buy lunch, is that something that 
is unethical?
    Mr. Sherman. Certainly not.
    I think we need to craft ethics policy around the concept 
of, one, public service is a public trust. And we need to 
design a policy that would give the public the greatest 
confidence that their elected Representatives and the body does 
not have financial conflicts of interest and that Members 
aren't acting on them.
    Mr. Davis. Well, it took me about two minutes to find my 
disclosure. I would urge you all to go in and find out if any 
of us here have any so-called conflicts of interest. Because we 
need a baseline--we need a baseline of what all of you experts 
think would be a conflict of interest. Because, I mean, we 
think we are complying with all the rules and requirements that 
we need.
    Ms. Nagy, I am interested in your testimony. You talked 
about the placement of--you testified, the placement of 
accumulated assets into QBTs, qualified blind trusts, is only a 
minimally effective anti-conflict measure.
    How much does it normally take to have a financial company 
offer you a blind trust? Don't they have minimums----
    Ms. Nagy. They do.
    Mr. Davis [continuing]. Minimum investments? What are they?
    Ms. Nagy. I think it varies according to the financial 
companies, but it's a significant amount of assets.
    Mr. Davis. It is a significant amount.
    My wife--because her financial advisor is a friend of ours 
and because of our reporting requirements, he is not allowed to 
change any investments in her mutual funds on any given year, 
because it is very difficult to comply, and we want to be 
sure--we want to do the right thing here.
    But I asked my financial advisor, her financial advisor, 
how much the minimum amount would be. You can go look at how 
many stocks I own--which, again, is one--and I am nowhere near 
the minimal amount for a $500,000 minimum investment to create 
a qualified blind trust.
    Were you all aware of those limitations? Do you know how 
many Members of Congress would have that amount of money to put 
into a qualified blind trust? Anyone?
    Ms. Hempowicz. May I respond?
    Mr. Davis. Sure.
    Ms. Hempowicz. Yes. I think it is important to remember, 
when we are talking about blind trusts, that I don't think any 
of the legislation that is in front of Congress would force a 
Member to take advantage of the blind trust. Therein, the 
option is given to Members who would choose not to divest.
    We see that same structure in the executive branch. And, 
for the most part, most individuals going in, who are subject 
to very similar restrictions in the executive branch, choose to 
divest, including very successful millionaires and billionaires 
who----
    Mr. Davis. Are there tax----
    Ms. Hempowicz [continuing]. Are in the Executive Branch.
    Mr. Davis. [continuing]. Incentives for divesting as a 
member of the Executive Branch?
    Ms. Hempowicz. You can receive--in the same way that I 
think some of the legislation would include here, if Members 
are selling their stock and they would incur a penalty, they 
would be able to get a certificate of divestiture, which would 
put off the--it wouldn't give them a benefit and it wouldn't 
give them a tax penalty.
    It would simply maintain their status quo until after their 
government service, and then they would have to pay whatever 
taxes they would have had to pay on those assets, whatever they 
did with them whenever. Which is the same thing they do in the 
executive branch, sir.
    Mr. Davis. All right.
    I know I am out of time, but Mr. Sherman did raise his 
hand.
    Do you know the number of Members of Congress that would be 
able to afford that?
    Mr. Sherman. I don't. As my colleague Ms. Hempowicz 
mentioned, divestment is an option, and it is an option that I 
think is preferable, from the standpoint of--certainly of CREW. 
QBTs may work for some Members, but there are other options 
that Members should avail themselves of if----
    Mr. Davis. Forced divestment.
    Mr. Sherman. [continuing]. You pass a ban.
    Mr. Davis. Forced divestment is the option you are talking 
about, right?
    Mr. Sherman. Well, you use ``forced.'' I would say that 
being in public service is a choice. And----
    Mr. Davis. It is a choice.
    Mr. Sherman [continuing]. So--
    Mr. Davis. And that is----
    Mr. Sherman [continuing]. The choice to divest----
    Mr. Davis [continuing]. What I am concerned about with many 
of the proposals that are out there, that the choice for those 
who are not independently wealthy is going to be limited 
compared to those who are wealthy and can afford a qualified 
blind trust.
    Mr. Sherman. I certainly am aware that there are more 
limited choices for individuals with less net worth than those 
with more, and I think this is another example of that. I think 
divestment remains a viable option.
    Mr. Davis. Thank you for giving me the----
    The Chairperson. The gentleman yields back.
    Mr. Aguilar is recognized for five minutes.
    Mr. Aguilar. Thank you, Madam Chairperson. And I appreciate 
you holding this hearing and the opportunity to hear from our 
witnesses.
    Despite what the Ranking Member said, my belief--and I feel 
I speak for folks on our side here--is, this is about gathering 
more information. This is about ensuring that we need to hold 
ourselves to the highest ethical standards, to realize that we 
need to follow the letter and the spirit of the law, and to 
recognize that there might need to be some changes along the 
way, and that the idea of crafting good public policy means 
that we have to weigh options and weigh equities, and that 
individuals who run for this office have to make choices on 
what public service and public sacrifice means.
    And so, I appreciate hearing the information and reading 
the testimony as well.
    Ms. Nagy, there have been ongoing conversations about the 
scope of covered persons within stock trading and ownership. 
Should stock-trading reform efforts capture Members alone, or 
should they include dependent children and the covered--covered 
individuals, senior staff members? What is the importance of 
the scope being widened here?
    Ms. Nagy. Sure. Thank you, Representative Aguilar.
    So I think the importance of the scope being wider relates 
to my very first point, which is that, if the concern is a 
conflict-of-interest concern about the ownership of securities 
and if the concern is that a Member of Congress may be tempted 
into self-interested decision-making, then that self-interested 
decision-making is also going to relate to one's spouse and 
potentially to one's dependent children, who that lawmaker has 
control, often, of the assets.
    And so, insider-trading issues and trading issues are 
serious ones, but conflict-of-interest ones are very serious as 
well. And that is the area where Congress and the rules that 
apply to Congress and the laws that apply to Congress are very, 
very different than what currently applies in the Executive 
Branch and the Judicial Branch.
    Mr. Aguilar. I appreciate that.
    Ms. Hempowicz--and then I will go again to Ms. Nagy on this 
question--there has been debate over the ideal enforcement 
mechanism within the STOCK Act. Some potential bodies: SEC, 
Securities and Exchange Commission; Department of Justice 
Office of the Special Counsel.
    What are some of the challenges facing these specific 
enforcement mechanisms?
    Ms. Hempowicz. Yes, I think when we are talking about 
enforcement mechanisms that will go through the executive 
branch, we are going to run into Speech and Debate issues.
    Our preferred enforcement mechanism runs through Congress. 
It is the one that you--I am sorry, these bills all run 
together at this point. But it is the--I think it is the Ban 
Conflicted Stock Trading Act, and it is the one led in the 
Senate by Senator Ossoff. I think that one has the clearest 
enforcement mechanism.
    I think the high-level principles to consider with an 
enforcement mechanism is that, you know, any penalties would be 
meaningful, that it would be easy and simple to apply, and that 
the public can have confidence that it is being applied evenly 
across the board. And so there must be some transparency there.
    And so, I think those are the three high-level principles. 
But if you are asking what my preferred mechanism is, it is the 
one in the bill led by Senator Ossoff.
    Mr. Aguilar. Ms. Nagy.
    Ms. Nagy. So, I think the enforcement mechanism could get 
more complicated when there are various options to divest or 
put in a blind trust. I think the administration of blind 
trusts would be--the administrative challenges would be 
immense.
    If we look at the difficulties that Members have had in 
complying with the STOCK Act's 45-day reporting requirement, 
adding more disclosures, more forms, more supervision does not 
seem, to me, the way to remedy the current problem.
    I think the enforcement mechanism, the simplest one, is to 
say that Members of Congress cannot own covered securities. 
Exempt certain types of securities, like widely held 
diversified mutual funds, Treasury bills, others. There might 
be some other exceptions, and I think drilling down to that.
    The simpler the prohibition, the easier the enforcement.
    Mr. Aguilar. I appreciate it.
    Mr. Sherman, you were the only one that mentioned--I am 
sorry; you may not be the only one. But you specifically 
mentioned Federal resources in oversight mechanisms. And can 
you talk with me briefly about, you know, how we bolster the 
enforcement bodies to improve our ability to tackle insider 
trading and other conflicts?
    Mr. Sherman. Absolutely.
    I think it is incumbent upon this Committee to speak to the 
enforcement bodies, whether that is the OCE or the House Ethics 
Committee or some of the Federal law enforcement agencies that 
were mentioned, to understand their capacity and how much 
resources they would need to implement these policies.
    I agree with my colleagues, though. I think the simplest 
and the cheapest mechanism of enforcement is to implement an 
absolute ban on Members and their families owning and trading 
individual stocks and other securities.
    Mr. Aguilar. Thank you, Mr. Sherman.
    I yield back, Madam Chairperson.
    The Chairperson. The gentleman from Georgia is recognized 
for five minutes.
    Mr. Loudermilk. Well, thank you, Madam Chairperson.
    A very interesting hearing. I think this is something we 
should be discussing and talking about.
    But one quick question. I learned Mr. Sherman was part of 
the Ethics Committee just since I have been here. I am curious, 
how many ethics violations were prosecuted per year?
    I mean, I know that it is politicized and there are tons of 
ethics complaints for political purposes. But, on an average, 
how many years of Members of Congress were we actually held 
accountable for ethics violations?
    Mr. Sherman. With apologies, I don't know the answer to 
that question. I served on the Ethics Committee before the 
STOCK Act was passed.
    Mr. Loudermilk. Well, not just with stocks; with anything.
    Mr. Sherman. Sure----
    The Chairperson. Would the gentleman yield?
    Mr. Loudermilk. Yes.
    The Chairperson. Because I was chair----
    Mr. Loudermilk. Okay.
    The Chairperson [continuing]. Of the committee at that 
time. And we had a very vigorous enforcement mechanism at that 
time, one that Mr. Sherman was very actively----
    Mr. Loudermilk. Right. What I was----
    The Chairperson [continuing]. Involved in.
    Mr. Loudermilk [continuing]. Wondering is just, whether it 
is stocks or not, how many ethics violations do we catch people 
with that are prosecutable or however you--the term you want to 
use--in a year?
    Mr. Sherman. Again, I would be guessing if I----
    Mr. Loudermilk. Okay. That is fine.
    Mr. Sherman [continuing]. Gave you a hard answer----
    Mr. Loudermilk. But there are some?
    Mr. Sherman [continuing]. But there----
    Mr. Loudermilk. Yeah.
    Mr. Sherman [continuing]. Are some----
    Mr. Loudermilk. Which is a violation of an existing rule or 
regulation or law, correct?
    Mr. Sherman. Absolutely.
    Mr. Loudermilk. Okay. That is all I was wondering.
    I will turn it over to Ms. Schulp.
    Insider trading. Has there been insider trading done by 
Members of Congress in the last few years?
    Ms. Schulp. There have been no prosecutions brought under 
the STOCK Act provisions on insider trading.
    Mr. Loudermilk. So there were some----
    Ms. Schulp. But there have been Members of Congress 
convicted of insider trading.
    Mr. Loudermilk. Right. Right. Which is illegal.
    Ms. Schulp. Correct.
    Mr. Loudermilk. Okay.
    I am kind of getting to a point, is that a misconception 
that we have here is that government can change behavior. It 
cannot. Laws can't change or shape behavior. It can only punish 
for violations of those.
    If we enact something like this that restricts the rights 
and the freedoms of individuals--and everybody in this 
Committee is a free American citizen that has rights. And part 
of the rights, as explicitly defined by our Founders, was the 
right to participate in a free-market society. The first stock 
market came in 1790, shortly after the ratification of our 
Constitution. It is part of a free-market system. It is no 
different than having a bank savings account that you can draw 
interest.
    Now, I am speaking from somebody--if you pulled the 
disclosures on me--and maybe you have--you found that there 
were none. No stock trades. Why? Because the minimal stock 
trades that I do is below the threshold of reporting. And so, 
it is not going to affect me, what you do, one way or the 
other.
    Let me also bring this up. It is ironic--I am on the 
Financial Services Committee, and part of the oversight that we 
have is the stock markets, the SEC. There was an article that 
was written about me a few months ago or a year ago criticizing 
me that I have oversight and regulatory authority over the 
stock markets, and I don't even trade stock so how could I know 
anything about it.
    Versus, one of the reasons I started trading a few stocks 
on my own, so I could learn the intricacies of what I am doing. 
That is not a conflict of interest. That is using the interest 
I should have to further my knowledge, to know what is right, 
what is wrong, how do we do this, how can we correct these 
things.
    Look, we cannot change behavior. At the founding of our 
country, there were four Federal felonies. Today, we have rooms 
of code books, of laws, but murders still happen. If government 
could change behavior, we would have no murders, we would have 
no thefts, we would have no fraud. We can't change behavior. If 
we enact a law that prohibits Members of Congress from owning 
or trading stocks, it will still happen by bad players.
    John Adams put it this way. He said, our Constitution is 
for a religious and moral people; it is wholly inadequate for 
the government of any other. What he was saying is, basically, 
the only way that you can control behavior is have such a 
strong and powerful government that it strips the freedoms away 
from everyone. If we have freedoms, if we have rights, you must 
accept that bad people are going to do bad things, but you put 
the guardrails in for punishment of those things.
    So, I am just--whatever happens here, we have to keep in 
mind that every person in this room is an American citizen that 
has rights and freedoms, and part of that right and freedom is 
to participate in a free and fair market economy.
    And, if you look, there are so many ethics controls on 
Members of Congress right now, I think you are going to run 
some people out.
    And I just--I wanted to take my few minutes to bring a 
different perspective on this from somebody who it is not going 
to make a difference to me personally. But it does make a 
difference to me as an American citizen.
    And, yes, seventy percent--look, if you polled a Republican 
district after it came out that the Speaker's husband made all 
these millions of dollars on a stock trade, I guarantee you 
most of them would say, yes, ban it. Ban it. But if you went to 
a Democrat area, it probably wouldn't be as much. Because 
people are emotional, and our Founders put in a system that was 
slow and methodical so we wouldn't react emotionally but 
thoughtful, based on law and protecting freedoms.
    And so, Madam Chairperson, I see my time has expired, and 
so I yield back the time I no longer have.
    The Chairperson. The gentleman yields back.
    The gentlelady from Pennsylvania is recognized for five 
minutes.
    Ms. Scanlon. Thank you so much. And thank you for having 
this hearing.
    I mean, obviously, the public has been appalled by the 
reporting we have seen about Members of Congress and the Senate 
using inside information to profit themselves. The whole point 
of public service is to serve the public, not line politicians' 
pockets.
    I do think there is a lot of usefulness in establishing 
firmer laws. I would have to disagree that laws have no impact. 
Thinking of smoking or speeding, we certainly set some 
guardrails. And when people know what the rules are, they 
follow them better.
    I certainly find myself in the unusual position of agreeing 
with the Ranking Member that we do need to do a better job of 
educating Members of Congress about what those guardrails are. 
Because the whole process of getting here is such a firehose of 
information that this is not one that is well-emphasized.
    A couple of you have talked about Executive-Branch 
guidelines being maybe something we should be considering. And 
maybe we could start with Mr. Sherman. I know, Ms. Nagy, you 
also discussed this. If anyone else wants to chime in.
    Can you talk about how the Executive-Branch guidelines with 
respect to stock trading might inform what we are trying to do 
here and if there are any important differences we should be 
thinking about?
    Mr. Sherman. Sure.
    Well, the conflict-of-interest statute that applies to the 
Executive Branch but does not apply to Congress creates 
provisions that ban Federal employees from working on specific 
matters where they have a conflict with their financial 
holdings. It doesn't name specific securities. It is pretty 
broad. It applies to spouses, and it applies to dependent 
children.
    I think that is a good model for Congress, in part because 
we know Congress thought that it was important. I don't know 
why Congress opted themselves out of it.
    I think that is a good floor, with the recognition, 
however, that Members of Congress are differently situated than 
executive-branch employees, because Executive-Branch employees 
have the opportunity to recuse themselves from matters where 
there is a financial conflict.
    Again, with respect to Members of Congress, it hurts your 
constituents if you are recused from any matter that is within 
the purview of Congress. It denies them representation. Which 
is why the prophylactic measures for Members of Congress should 
be higher, not lower, than applied to members of the executive 
branch.
    Ms. Scanlon. Ms. Nagy.
    Ms. Nagy. Yes. Thank you.
    If one is a member of the Executive Branch and one is 
charged with shaping healthcare policy, one cannot own 
healthcare stocks, full and simple. Sometimes it is prohibited 
by statute directly. Sometimes it is prohibited because of the 
conflict-of-interest statute that Mr. Sherman just took us 
through.
    Members of Congress can own stocks and shape healthcare 
policy. And they do.
    Ms. Scanlon. Yes.
    Ms. Nagy. And they are complying with all current rules and 
all current disclosure requirements when they do, which says to 
me a change needs to be made.
    We have had instances where Legislative Branch officials, 
where lawmakers, when the President nominates them to move to 
the Executive Branch, have to sell their stocks because they 
can't do their jobs. But they went for decades doing their jobs 
here in Congress, and they were complying with congressional 
rules, which says to me congressional rules need to change. I 
think a Federal statute is the way to change that.
    Ms. Scanlon. Okay. And it is interesting since the scope is 
so broad. I mean, we have to deal with wars in Ukraine and we 
have to deal with childcare tax credits and everything in 
between. So that is an interesting distinction.
    I think you had something, Ms. Hempowicz.
    Ms. Hempowicz. Yes. I just want to--in addition to what my 
colleagues have said, I think it is also important, the 
Executive Branch provides a really good model for any 
particular exemptions or unique situations as they come 
forward.
    You know, I know people have asked questions about, how 
would you handle cryptocurrency underneath the new 
restrictions? I think the Executive Branch you know, has 
provided a really good roadmap of how to do that.
    There are also questions about you know, non-nuclear 
families and how would they be approached. The Executive Branch 
has had restrictions that are stronger, in many ways, than what 
is being considered right now for Congress and has found a way 
to make it work--and has found a way to make it work without 
deterring successful people or, you know, people from the lower 
economic ring in our society from participating in the 
Executive Branch while under those stricter restrictions.
    Ms. Scanlon. I have a gazillion more questions. Also 
wondering how much public financing of campaigns would help. 
But thank you, and I will yield back.
    The Chairperson. A vote has been called on the Floor of the 
House. We have two votes. So, we will recess at this time to go 
vote. It is probably going to take at least forty minutes to 
come back, so you may want to go get a cup of coffee or 
something. We have at least three Members who have questions, 
and there has been discussion of maybe having a second round if 
you all are game to stick around for that.
    So, at this point, we will recess, and we will come back 
promptly after the second vote.
    [Recess.]
    The Chairperson. We are waiting for Jennifer Schulp to 
rejoin. Apparently she is downstairs and on the way. We have 
the gentlelady from New Mexico, but she has not yet arrived, 
and Mr. Raskin is participating online. We don't know the 
answer, so I will turn to myself for some of the questions that 
I have.
    Let me just say, Mr. Davis has talked about his gigantic 
stock portfolio, which he inherited as a child. I have never 
purchased or sold a stock or a share of stock. So in some ways, 
this is very much an educational experience for me on the 
nuances and the questions that are before us. I am sure the 
Ranking Member has had the same experience I have had, people 
asking questions, what about this, what about that, that, by 
and large, I don't have the answer to.
    So let me pose this question. Several people have--I think 
the goal, if I am hearing everyone correctly, is that a Member 
of Congress should not be able to personally benefit 
financially from the information they receive because they are 
a Member of Congress, or because of decisions that they are 
making as a Member of Congress. I think most of us agree with 
that. So the question is how to address that. I think, as 
people have asked me questions, it seems like there are more 
complications than it would seem at first blush.
    So let me ask the fundamental question which has been asked 
to me: Why stocks would be different than other assets? For 
example, we have Members of Congress who are allowed--who own a 
business that they owned before they were elected, an insurance 
company or a store or, you know, car dealership, whatever, and 
the decisions being made, or the information received could 
have an impact on the value of that asset.
    We have Members of Congress who have professional licenses. 
When I chaired the Ethics Committee--Mr. Sherman may remember 
this--you are not allowed to practice your profession as a 
Member of Congress to avoid conflicts of interest. The medical 
doctors approached the Committee with the point that if they 
didn't practice a certain number of hours, they would lose 
their license, and they would never be able to practice 
medicine again. And so, we arranged for a scheme where the 
medical doctors could put in the number of hours that they 
needed to retain their license, and the remuneration could be 
no more than what was necessary to pay their malpractice 
insurance for doing those hours. And I think that has worked 
reasonably well.
    On the other hand, you know, Medicare reimbursements, a 
whole variety of things impact what an M.D. will, in the 
future, be able to expect as an income stream. The same with 
dentists or even attorneys. You don't have the minimum hour 
issue with M.D.s, but if you vote on something that provides 
for a private right of action that is remunerative in the 
future, you could benefit from that.
    So why are those issues different than stocks? Whoever 
could answer that would be helpful.
    Ms. Nagy. Well, thank you. So stock in individual publicly 
traded companies is the low-hanging fruit, and let's go after 
the low-hanging fruit. It would be great to go up the tree and 
get higher-reached fruit, and as we do it is more nuanced and 
it is more complicated. But a total of hundreds of millions of 
dollars of assets of Members of Congress are currently invested 
in publicly traded company stock.
    The Chairperson. I understand that, and I think there is a 
genuine desire to address the issue. But from a policy point of 
view, what is the distinction?
    Ms. Nagy. So the policy distinction is if we rid that 
interest and shift it, because it is not completely abolished, 
basically then the stock is held in diversified investment 
funds. Members of Congress in a diversified fund would not have 
as much impact.
    The Chairperson. Let me ask you this: Members of Congress--
most American middle-class American families, the single most 
important financial asset they have is their personal dwelling. 
I think that is true--other than the extremely wealthy people 
in Congress, and there are some, that is true for most of us. 
Obviously, there are a lot of things that can impact real 
estate. I mean, mortgage rates and the like. Should we require 
Members to sell their homes?
    Mr. Sherman. So, I think we have to recognize two things: 
One, there are conflicts of interest with respect to most of 
what Members of Congress do, right? Members set tax policy, 
and, presumably, they all pay taxes.
    I think how we have to approach this is a balancing test 
that takes into consideration the risk of a conflict of 
interest materializing in a way that impacts Members in their 
representation of their constituents, as well as consideration 
of how large a pool of individuals the conflicts that Members 
have impacts beyond them, right? For example, with tax policy, 
or with owning a home, or paying for college, right?
    These are things that affect the general public, you know, 
across income levels, across various different factors. And I 
think everyone agrees that it is reasonable to understand why 
Members of Congress, you know, are elected to make policy with 
respect to those issues without selling their homes or, you 
know, taking other extreme measures.
    With respect to individual stocks and other assets that are 
under discussion with some of these proposals, one, they impact 
a much smaller class of assets than the public possesses in a 
much more substantial way. I don't think there is any way to 
compare the stock portfolio, or the financial portfolio, of the 
average American as compared to the portfolio of the Member of 
Congress.
    The Chairperson. I agree with that. I am understanding your 
conflict rules. I think they match the conflict rules of the 
House, in terms of if it broadly impacts the public, you know, 
it doesn't--but let's talk about businesses.
    Lawyers--and I know several lawyers who are in the House, 
and if they were in private practice, they had to shut their 
practice down and lay off all the employees. Other people who 
don't have management of businesses, they can keep those 
businesses.
    Why would those businesses be treated differently than a 
stock portfolio, because, obviously, most Americans don't own a 
business? How would that be dealt with and what is the policy 
distinction, if any, being made?
    Mr. Sherman. I don't think they necessarily should. I will 
give you an example from the depths of the Ethics Manual. With 
respect to recusal, there is a provision, an example in the 
Ethics Manual that says it is okay for Members of Congress who 
own a brewery to vote on prohibition legislation. That seems 
like an obvious conflict of interest that any normal person 
could understand that the congressional ethics rules not only 
explicitly allow but articulate as an example of how Congress 
should function.
    I think that is a problem. I think there are lots of 
businesses and interests in privately held companies that 
present the same level of conflicts of interest that we are 
seeing with stock trades. As Professor Nagy said, I think we 
should handle as much as we can, as judiciously as we can, but 
that doesn't mean that other conflicts don't exist and 
shouldn't be addressed.
    I think there is a reasonable test and a line that can be 
drawn. We have seen it with small farms and things like that, 
but certainly they present the same conflicts that we are 
dealing with here.
    The Chairperson. Let me ask a question, and maybe this is a 
dumb question, but as I indicated earlier, I have never 
purchased any stock or sold any stock. If you look at my 
disclosures, however, it looks like there are all these stock 
trades, but what it is, my husband, he is a lawyer, he is a 
sole practitioner, and he has a retirement fund that some guy 
at the bank manages for him.
    I don't know what he is doing, and I suppose my husband 
could find out, but I don't think he does. We just say, don't 
buy fossil fuels, don't buy tobacco, don't buy gambling, and 
sometimes he doesn't even adhere to that. But that is not a 
blind trust, but, in fact, we don't know what he is doing.
    Could you substitute the very burdensome--and, you know, 
there are problems in terms of what you put into a blind trust, 
but the asset requirements and all the blind trust rigmarole 
with a more simple approach that you attest under penalty of 
perjury, the Member, that you don't know and you are not 
directing and you are not receiving information, and the person 
who is doing the investing does the same penalty-of-perjury 
attestment. Does that work?
    Ms. Hempowicz. If I could jump in on this one.
    The Chairperson. Sure.
    Ms. Hempowicz. The scenario you describe, kind of where the 
holdings are in a retirement account, is not necessarily what 
we are talking about here. I think that would likely follow the 
current restrictions.
    I think the benefit of a blind trust is that there is a 
statutory definition there. The individual is, like you are 
saying, under penalty of perjury, but in there, it is the 
individuals administering the trust also have a professional 
responsibility and will receive professional penalties.
    But to the point that you are making, that you don't own 
individual stocks and Ranking Member Davis that you made also 
along those lines, that puts you in line with most of the 
American public. Again, I think the restrictions on how they 
would apply to Members of Congress would not shut Members of 
Congress out of the financial market, as was suggested earlier. 
It would simply limit their ability to engage in those markets 
with financial instruments that don't pose those same conflicts 
as individual stock ownerships do and then would allow--and I 
think also to your point earlier about what the goal is here, 
absolutely the goal is to make sure that Members of Congress 
aren't corruptly using information that they have.
    I think the goal must be a little bit bigger than that too, 
and it has to be that Congress crafts ethics rules and laws 
that are strong enough that the public doesn't even have to 
worry about whether or not that is happening.
    The Chairperson. It is the appearance as well.
    Ms. Hempowicz. The appearance of a conflict is as damaging 
to the integrity of the institution as an actual conflict.
    The Chairperson. Let me ask a couple of questions that I 
have been asked. If the goal is basically to keep the Member of 
Congress in the dark--and if they don't know something they 
can't act upon it, I overstate that--it occurs to me that, to 
some extent, the STOCK Act reporting undercuts that whole goal. 
For example, once a year, my husband grumbles about it. He must 
fill out this form because I don't know what is going on. Once 
a year I find out what he has been doing. I guess there is that 
value as a spouse. But otherwise, I would never know. So, to 
some extent, the reporting aggravates the situation, and you 
must report for tax purposes and then once again, for 
disclosure purposes.
    Would it make more sense to align the dates of the 
disclosure so that the tax and reporting are at the same time? 
You don't at least have two disclosures. That is something we 
could do by adjusting the disclosure time for Members to 
coincide with tax time. Would that help some?
    Mr. Sherman. My understanding is that the reason why the FD 
date is a month out is so that Members can file their taxes 
without having that butt up against the deadline for FDs.
    I think, frankly, taking a poll of Members and figuring out 
if the intent behind that accommodation makes sense would be a 
reasonable approach to figure out if it is just running in 
place.
    The Chairperson. Let me ask a couple of questions that have 
been asked to me by various Members, and I won't go into any 
names, but people wonder about this.
    A Member of Congress is estranged from a spouse, not 
divorced, but it is obviously heading that way. The non-Member 
spouse is engaging in rampant stock trading and will not comply 
with requests of the Member spouse.
    I mean, should we have a provision where you could say, 
This is out of control, we are estranged? I mean, you are going 
to hold a Member accountable for something they can't control. 
What do we do with that?
    Ms. Hempowicz. Yeah. I think one thing to consider, or two 
things to consider with any exemption or potential exemption 
would be--well, one good roadmap is to look how the executive 
branch has handled it. Again, you know, they have had these 
similar restrictions for over sixty years.
    I think kind of the bigger, broader principles for Congress 
to consider when thinking about this or any kind of exemption 
to this rule is that any exemption takes you further away from 
what the American people are asking for. And so, I think, as a 
threshold matter, Congress should ask itself could this 
exemption undermine public trust? And if the answer to that is 
yes, I think Congress should then ask, Is it absolutely 
necessary that we figure it out in this legislation, or is it 
something that we could do in regulation?
    I also think if it has the potential to undermine public 
trust and is not absolutely necessary, I urge Congress to 
resist the urge to address every individual instance that may 
come up, because I think it just further complicates a system 
that really benefits from simplicity.
    The Chairperson. That may be the answer that people have 
for the other specific questions I have been asked. People have 
asked about, is it 527, these education accounts? Is that the 
right code section? Would that be covered? Because Members 
contribute for their children and for their grandchildren so 
they can go to college. And people are worried that, you know, 
most of the Members of Congress could earn a lot more money in 
the private sector than they are earning here. We are not 
asking for a pay raise. We are just noting that if you can't 
support your kid's college, you know, endeavors, and you have 
to quit----
    Ms. Nagy. So, I think you are referencing 529, a saving 
plan for tuition.
    The Chairperson. Yes.
    Ms. Nagy. And the way those usually work is that you put in 
your monthly contributions, or annual contributions, and it is 
typically directed into a diversified fund, sometimes an index 
fund, sometimes----
    The Chairperson. So it is because you don't control it, it 
would not be covered.
    Ms. Nagy. Correct. You do not control the individual stocks 
in the portfolio, in the basket of stocks that the fund would 
own.
    The Chairperson. And that would be true for retirement 
funds as well, I would assume?
    Ms. Nagy. Correct.
    Ms. Hempowicz. It is in addition to because you don't 
control them, but also, they meet definitions of being 
diversified. And so, you are not having--that you don't have 
that same impact on any one sector, or any one particular 
company as you would with individual stock ownership.
    The Chairperson. Okay. Let me ask a question that has come 
up. You inherit stock. I will give you an example. We no longer 
have the stock, but my husband's Aunt Mary was married to an 
oil field worker, and it turned out that she had stocks in an 
oil company that Ed has received and he had died. And she never 
had kids, so her nieces and nephews inherited it, which we 
didn't want.
    But what do you do when that happens, either for you or 
your minor children, you have acquired it, but not 
intentionally?
    Mr. Sherman. Well, I would go back to what my colleague, 
Ms. Hempowicz, said. I think we are designing an ethics regime 
for the Legislative Branch. We should start from the principle 
that public service is a public trust and establish as 
stringent and clear a rule as possible. There are always going 
to be unique family situations as unique as the 535 Members of 
the House and the Senate, but we can't develop an ethics regime 
like that.
    Certainly, the Ethics Committees, if they are given 
authority to enforce these rules, can come up with some 
reasonable regulations that account for very specific and 
likely to occur exceptions, but I think we need to start from a 
general rule----
    The Chairperson. So we would leave that to we are going to 
have to check with the Ethics Committee on their capacity to do 
that. I mean, for example, one of the questions I have been 
asked is what if your spouse is employed in a company and their 
compensation is stock options. Do they have to work for free?
    Mr. Sherman. I think most of the proposals under 
consideration right now would allow for the spouses to be 
compensated in the way that their employers decide.
    I know you didn't ask this, but I will also just say 
explicitly, I think Members of Congress should get a raise. It 
is important for government ethics. It is important----
    The Chairperson. Well, I appreciate that, but that is not 
going to happen. So----
    Mr. Sherman. Fair enough.
    The Chairperson [continuing]. I will just make that very 
clear.
    You know, there are many, many other questions, but I have 
taken more time than really is fair. I thought about this a 
lot, and I appreciate the testimony, because you all have a 
high level of expertise in this area.
    I see the gentlelady from New Mexico has arrived, so we 
will turn to her for her questions.
    Ms. Leger Fernandez. Thank you, Chairperson Lofgren. And 
this line of questioning really highlights the fact that it is 
not easy, right? It is an area where we are trying to deal with 
multiple Members of Congress who each have their own unique 
histories of why and how they came here.
    I will say that over the last few months, one of the top 
reasons why my constituents have been reaching out to me is 
that they want to urge a ban on individual stock ownership for 
Members. So, it is not something that is in a vacuum. We are 
dealing with--our constituents are asking us to make sure that 
we have that separation, that we have that independence, and 
that our best interests in what we do financially is not at all 
tainted by what we do here.
    You know, and I agree with that. I don't think Members 
should be in the business of owning or trading individual 
stocks. When I first got elected, soon after it was brought to 
my attention that my retirement portfolio had--my 401(k) had a 
very modest amount in an individual stock. So, I had to go in 
and actually take the extra effort to actually say, no, get rid 
of that. I do not want to have there be any question at all. As 
the Chairperson noted, I was not aware of that until it was 
brought to my attention, and I immediately asked them to turn 
it into something else. I don't know what you can do with it, 
just turn it into something else.
    The other thing that strikes me is that we are talking 
about choice. I love the fact that that word came up a lot, 
because when we run, when we ask voters to elect us, which we 
have to do every two years, we are making a choice at that 
time. So, if we know that we have a large portfolio of stocks, 
and if it is known in advance that once you get elected, you 
are going to have to divest yourself of those stocks or put it 
in a blind trust if you have enough to make sure that you can 
pay the cost and deal with the complexity. That is a choice you 
are making. When you are asking--you are asking voters to trust 
you. So, we need to return that trust. As long as we know that 
is what we need to do, then that becomes part of the decision-
making process.
    But there is an issue of timing, and so, like how long 
would you recommend that a Member of Congress, once elected, be 
allowed before they must engage in that divestment? If they 
inherit something, what is reasonable then? I mean, because we 
want to be able to provide a period of reasonableness that 
everybody knows about.
    And I will ask that of the panel. So, I see several of you 
shaking your heads up and down. So, what would you answer to 
that?
    Ms. Hempowicz. I will be faster than I usually am. You 
know, I think the important thing, again, to consider and look 
and see how things have been handled in the executive branch, 
and so, I think the timelines that are given there might be a 
good indicator.
    I think also, you know, some people have suggested that 
maybe any additional restrictions shouldn't go into place until 
a Member wins reelection, and I think that may also be--that 
may also be reasonable.
    You know, I think we are certainly not trying to create an 
ethics program that is impossible to comply with. We are trying 
to do the opposite. And it should be as simple to comply with 
as possible.
    Ms. Leger Fernandez. Right. And waiting until reelection 
allows that Member to make the choice as to whether they will 
continue to ask for that.
    Mr. Sherman.
    Mr. Sherman. Agreed. I think the Executive Branch provides 
some examples. I also think that the time period should be with 
all deliberate speed, particularly relative to the two-year 
term of service that Members are elected to.
    So I have seen some proposals which are ninety days, 120 
days. That seems not unreasonable, but I think with all 
deliberate speed is advisable.
    Ms. Leger Fernandez. And Professor Nagy, as you answer 
that, I have another one and since I don't have a lot of time I 
will just see if you want to answer that. And also, I mean, we 
keep pointing to the executive branch and its models.
    Are there instances of something that is in the Executive 
Branch that doesn't quite fit within a congressional setting, 
and what are some of those examples?
    Ms. Nagy. So, on the timing issue, I would say that I think 
a number of the bills actually, particularly for inheritance, 
raise 180 days as the time that someone would have to divest. I 
think the consideration there is that sometimes the stock 
market is not doing what one wants it to do, and that gives a 
little bit of time there.
    I would also say for any divestment that is required under 
legislation that Congress enacts, I would also recommend the 
same type of rollover of capital gains tax that is currently in 
force, that Congress has currently put in the statute for the 
Executive Branch.
    I think that if someone sells assets, sells stock and other 
securities because they are ordered to do so, and they move 
that into a diversified mutual fund, the law should be written 
so that capital gains is deferred.
    Going to the Executive Branch, that is the rule in the 
Executive Branch. I think what the Executive Branch has, 
because in most instances in the agency, it is not an outright 
prohibition, although there are exceptions. The FCC is one 
exception. Don't own telecommunication stock. The disclosure 
forms that Executive Branch officials complete allows the 
ethics agency to determine whether there is a conflict of 
interest or is not. And then that then triggers the need for 
recusal or divestiture. And clearly, that is not the instance 
here. Mr. Sherman before referenced the sort of brewery example 
that is codified in the manuals there. The House and Senate 
Ethics Manual reference stock ownership, and explicitly say 
that divestment is not required even if Members own stock in 
companies that directly and substantially affect the 
legislation.
    So, the problem is greater than the current law allows 
this. It is that the problem is that the current rules in the 
House and Senate safe harbor this.
    Ms. Leger Fernandez. Thank you. My time is expired, Madam 
Chairperson.
    The Chairperson. The gentlelady yields back. The Ranking 
Member is recognized for our second round.
    Mr. Davis. Thank you, Madam Chairperson. Again, this is a 
great hearing. I do truly appreciate the witnesses.
    Going back to our previous conversation, I just--I think 
what we are hearing from our witnesses is that Members have a 
choice. You can either go into a qualified blind trust that I 
have already established, I and most Members of Congress would 
never qualify for, for one company, LPL's minimum investment of 
$500,000. Don't have it. Most Members don't. Or divest. Divest 
individual stocks that then we will get accused of getting a 
special privilege of deferred capital gains.
    So those types of--you must take into consideration what 
the perception is when you all come up with what you think 
might be a great idea for Congress, but we are in a different 
perception. CREW might call us corrupt if we take that tax 
break. Who knows?
    I am focused on the middle-class Member, and I just don't 
believe that forcing middle class Members to divest an 
ownership portion of a family farm, or to divest ownership in a 
business that their spouse may be a part of, their dependent 
children, I just think it is untenable.
    Would you all agree that your proposals are mainly geared 
toward the wealthiest Members of Congress?
    Ms. Hempowicz. I wouldn't. No, I wouldn't say so.
    Mr. Davis. Okay. All right.
    Ms. Nagy, you testified earlier you don't believe the 
ballot box is sufficient to be a check on Members of Congress, 
drawing analogies to different rules with different branches of 
government. I want to point out that only two people in the 
Executive Branch are elected, zero in the Judicial Branch. We 
have had no discussion on the Judicial Branch right now.
    I don't think that analogy compares apples to apples. I 
mean, we are accountable to 800,000 people every two years. We 
have a job interview called an election.
    Ms. Nagy. So, my testimony before was that the ballot box 
is not a sufficient remedy to ethics, because ethics affect the 
Nation, affect everybody. And so, if a Member has conflicted 
investments, and is generating a public perception that the 
reason he or she is advocating for legislation is to juice the 
value of their portfolio, that is a national problem. And the 
fact that a small----
    Mr. Davis. That is a corruption problem. That is, again, 
those corrupt Members. But most----
    Ms. Nagy. That is not corrupt. It is allowed. If I may just 
respond. It is not corruption. It is currently completely 
within--the House and Senate rules do not prohibit a Member 
from owning stock or owning an investment and advocating for 
the direct benefit of that investment unless--and there is an 
unless--unless they are the sole beneficiary of that 
legislation.
    Mr. Davis. Do you have a number that your research has put 
forth that would determine how many Members of Congress are 
doing that?
    Ms. Nagy. How many are doing it? How many people are 
advocating for legislation because it benefits their own 
portfolio?
    Mr. Davis. Yes.
    Ms. Nagy. I am not sure how that can be quantified.
    Mr. Davis. I agree.
    Mr. Sherman. If I may.
    Mr. Davis. Hold tight. I appreciate it, I would be glad to 
get to you. I have a limited amount of time. I don't control 
the Committee. But this is a great time to be able to ask a lot 
of different questions.
    So, as we look ahead--all right, let's look back. We were 
coming into a pandemic, right? We, in a bipartisan way, 
virtually unanimously created the Paycheck Protection Program. 
It benefited a lot of small businesses that are attached to 
stocks, maybe Members own.
    Should every Member of Congress, because they may have 
voted for that program, was that a corrupt thing because we 
tried to save the economy? Is that something that you can go 
back and say Members of Congress benefited?
    I mean, in my particular case, I was accused, because my 
family Members got PPP loans, of trying to benefit my own 
family when I have no financial interest. But that is settled 
in the election.
    I mean, I think you can try to find a connection to 
everything we do, but again, most Members of Congress I truly 
believe, Republicans and Democrats, want to do the right thing. 
I don't trade stocks because I don't want to have to fall into 
some gray area of a reporting issue, but I think there is an 
issue that we don't start with what we have. We follow 
transparency rules. We file ethics disclosures that most people 
in the American public don't.
    So, with that in mind, one last question. And I know, Mr. 
Sherman, you have probably more experience with this than most. 
Knowing the ethics disclosures that all of us file, and they 
are easily available, did any of you go research mine while we 
were on break? Darn it. I was hoping you would. You could get 
it easily.
    And then we have the STOCK Act transaction paperwork that I 
have never used, but others have. So, I don't know anything 
about that. But I file my own ethics disclosure because I want 
to go talk to the Ethics Committee staff to make sure I am 
doing everything right.
    But is there anything in our current disclosure 
requirements that is lacking, that you would say needs to be 
more transparent and, if so, what is it?
    Mr. Sherman. Yes. So, I appreciate the question. One, I 
would note that the only way to really know if a Member is 
acting on a financial conflict of interest is to see their 
communications about that policy, but Congress is exempt from 
the FOIA, right?
    So, when you talk about true transparency, I think there is 
some transparency, but the transparency with respect to Members 
of Congress, how laws are made and their financial conflicts of 
interest pales in comparison to the executive branch.
    I would also note that with respect to financial 
disclosures and periodic transaction reports, they are 
accessible to I think the folks on this side----
    Mr. Davis. What are they missing?
    Mr. Sherman. I think they are not easily accessible to the 
public. They are not machine readable. You can only view one 
document at a time. So, if, for example, one of your 
constituents wanted to review all of your transactions over the 
course of your tenure----
    Mr. Davis. And so you have an accessibility----
    Mr. Sherman [continuing]. They cannot easily do that.
    Mr. Davis. You have an accessibility based on something 
that can be fixed. Make it more searchable and sortable on the 
Clerk of the House website. But I am talking about the 
disclosure itself.
    Mr. Sherman. Sure. Disclosure does not correct conflict.
    Mr. Davis. The disclosure itself is our ability, as Members 
of Congress, it is our ability to tell our voters and tell 
every person in America here is our financial picture for our 
entire household. Here it is.
    Chairperson Lofgren, you know, she laid out how her 
personal situation is. Each time that ethics disclosure comes, 
I know what mine is because I do it, but what on that 
disclosure, what are we not doing that gives corrupt Members of 
Congress the ability to hide wealth, or hide trades, or hide 
something that you, as a former Ethics Committee attorney, you 
used to see these corrupt cases, right?
    Mr. Sherman. Yes.
    Mr. Davis. What is it that you would recommend we do to fix 
the current transparent process, because I think that is a key 
point that in a lot of recommendations, we start from where we 
are today rather than where we were before this transparency 
existed?
    And we start at a point rather than looking back and 
saying, what can we correct to make the periodic transaction 
report better? What can we correct to make the ethics 
disclosure PFD better?
    Mr. Sherman. I think, you know, as I said, making them more 
easily accessible to the public, machine readable. But also, we 
have had, as you mentioned, 59 Members of Congress violate the 
STOCK Act since 2019. So whatever enforcement mechanisms are in 
place clearly aren't working.
    Maybe there is education----
    Mr. Davis. Education.
    Mr. Sherman [continuing]. As you mentioned, which I think 
is incredibly important, but the penalties aren't high enough 
to promote the compliance that I assume that Members want and 
that the public is demanding.
    Mr. Davis. I am going to ask you guys one more time, and 
anybody else can answer this. This is my last question. I am 
sorry, Madam Chairperson.
    The Chairperson. That is all right. I was going to ask if 
you would yield for a follow-up----
    Mr. Davis. I will yield.
    The Chairperson. [continuing]. On that, because we have had 
a lack of compliance. And one of the things I am thinking 
about, you know, it could be somebody trying to hide something 
or, more likely, somebody just messed up, and that the 
penalties--you know, it is the same amount of penalty whether 
it is $100 trade, or $1 billion trade, and maybe we ought to 
stagger/phase the penalties based on the dollar amount.
    Mr. Davis. And that is something as we develop what would 
be a final piece of legislation to address these issues, I 
would love to work with you on that, Madam Chairperson.
    But where we are right now, I mean, Congress today versus 
25 years ago is much more transparent. I actually led a group 
when we were in the majority that made every MRA expense 
searchable and sortable. I mean, even the most liberal good 
government groups said nice things about me. I know it was 
tough, but they did. I know.
    But there has got to be within the existing system--I mean, 
is there anything that we can do within the existing disclosure 
system that can be more transparent about what Members of 
Congress, what we do, because, I mean, we want to follow the 
rules.
    And just immediately changing the rules, telling people you 
got to divest in your family farm, you have got to divest in 
your family business, you have got to divest in a stock that 
you may have inherited--and I will tell the chairperson I will 
gladly take ownership of any fossil fuel stock she inherits. I 
will hold that for you.
    The Chairperson. My husband sold it.
    Mr. Davis. I will take care of it for you.
    But in the end, we want to do the right thing. We all try 
to do that right thing. What is it that we have in place today 
that can be better and could show what is happening in our 
financial picture that may not be shown today?
    Ms. Hempowicz. Ranking Member Davis, to your question, the 
transparency requirements currently on Congress have been 
enormously helpful in highlighting to the public that Members 
of Congress own and trade individual stocks.
    And that is the issue that the public keeps rising up about 
and wants to be--and wants their voice heard on. It is not that 
they care about missed filing deadlines, or that they are 
concerned that Members aren't aware of the current rules. It is 
that every step of the way when the public becomes aware of 
what those current rules are, they are outraged that Members of 
Congress are allowed to engage in this behavior.
    And so, I think just focusing on additional disclosure 
requirements or the existing nonprohibitions in the STOCK Act 
would be a tragically missed opportunity to engage with the 
American people on something they care a lot about and have 
told Congress they would like to see you act on.
    Mr. Davis. I would argue that both Republicans and 
Democrats here, we engage with the American people on a regular 
basis.
    Ms. Nagy, did you have a response to that?
    Ms. Nagy. I did. I will just echo my colleague's statement. 
Assuming timely reporting, the problem is not what is hidden. 
The problem is what is in the sunshine. And the sunshine is 
causing individual constituents to question not only their 
Member's decision-making, but the entire Congress, or at least 
the large group that doesn't already have their assets 
diversified into widely held funds.
    Constituents are questioning and members of the public are 
questioning what was the motivation that prompted the push for 
this legislation. And that is in the sunshine. It is not 
hidden, it is in the sunshine, and that is troubling.
    Mr. Davis. Ms. Schulp, did you have any comment on that?
    Ms. Schulp. Yes, I have two comments to that. And one we 
keep coming back to the question of diversified funds. And I 
think it is an interesting, good question that we keep coming 
back to, but keep in mind that some of the questionable trading 
that happened during the COVID pandemic was in diversified 
funds. So the problems that we are discussing, and the 
conflicts that exist, are not nonexistent in diversified funds 
as well. It doesn't magically take care of the question of a 
conflict.
    On the question that you pose directly with respect to what 
could be better in the disclosure now, I think the long lag 
between the time that trades happen and that periodic 
transaction reports are required to be filed is something to 
take a look at. And where I have had interactions with the 
public, I have heard calls for more timely and quicker 
disclosure on that front.
    Corporate insiders are required to disclose within two 
days. That too, is not a completely comparable situation to 
Congress, but having 30 or 45 days after a trade takes place is 
an exceptionally long period of time after that trade takes 
place for disclosure to happen.
    Mr. Davis. I will end by this--and, again, thank you for 
giving me so much extra time. I do believe this discussion is 
extremely important. I look forward to working with each of you 
individually as we move forward.
    But I will tell you, and I certainly hope this hearing 
allows my constituents more of an opportunity to think about 
this process. And I can tell you it is--I travel a lot when I 
am home. I haven't had a lot of constituents bring this up. I 
hope they do, because I want to explain to them the processes 
we have in place and get their opinions and their ideas.
    I certainly hope those of you who have already put 
proposals together for divestment and qualified blind trusts 
that we cannot afford, that most Members cannot afford to 
participate in, I hope you are willing to listen to how we can 
make the process better, and do it in a way that doesn't just 
encourage the ultra-wealthy to be the only ones to run for 
Congress.
    So with that, I yield back.
    The Chairperson. The gentleman yields back. Mr. Aguilar, 
you are recognized for five minutes.
    Mr. Aguilar. Thank you, Madam Chairperson. And I am happy 
to continue down the path and the conversation specific to kind 
of education and compliance. Mr. Straus, we have been talking 
about the, you know, PTRs, the periodic transaction reports, 
and the thirty days of covered financial transactions.
    What remedial measures does the Ethics Committee have in 
place in the event that a Member or a staffer files a PTR 
incorrectly.
    Mr. Straus. So thank you for the question. And my 
colleague, Mr. Sherman, may know more specifics on the details 
of some of this stuff, but, in general, when a filing happens, 
whether it is a PTR or a financial disclosure report, and there 
is an error on the form, which I am led to believe is not 
uncommon, right--they are complicated forms to fill out--the 
committee reviews the forms, notifies the filer, and the filer 
has time to correct that filing.
    Most errors that occur on financial disclosure forms are de 
minimus errors. Things are put on the wrong line, you know, 
just mistakes that happen. And once that filing is identified 
as being wrong, an amendment can be filed.
    The Ethics Committee is very clear that filing an amendment 
in and of itself does not have anything to do with potential 
wrongdoing, that most of the time--and a Member or a staff 
member can file an amendment on their own, too, if they realize 
that they have made an error, without prompting.
    It is only after the potential that, you know, an error can 
be fixed, if someone chooses not to comply, that is when the 
committee might get involved in working with that person, 
either directly or indirectly, to figure out what is going on 
and whether a potential recourse might be necessary or not.
    Mr. Aguilar. Mr. Sherman.
    Mr. Sherman. I think every staffer on the Ethics Committee 
remembers getting that one call from a Member about a question 
about the form that they submitted. Mr. Straus is exactly 
right. You know, Members file their FDs and PTRs, and there is 
a process to work with them to make sure that the information 
is accurate, and if there are questions they are asked, there 
is an opportunity to amend.
    I think even on the investigative side, particularly with 
financial disclosures, you know, I think there is a presumption 
that we need to make sure that this form was filled out 
accurately and correctly. There is sort of a lean towards 
presuming that Members sometimes make honest mistakes, which we 
all do.
    Mr. Aguilar. Mr. Straus, with respect to the remediation 
process, how does that differ within the Executive Branch?
    Mr. Straus. So a Designated Agency Ethics Officer in the 
Executive Branch has prescribed tools that are potentially 
available to them, depending on individual circumstances. So 
when a filer puts a financial disclosure form into their DAEO, 
their Designated Agency Ethics Officer, and it is reviewed, the 
ethics officer is going to work with that individual on a case-
by-case basis to choose the best remedy available, which could 
be divestiture. It could be recusal, as we have talked about. 
It could be the creation of a blind trust. But it also could be 
a voluntary transfer, right, to another job within an agency, 
depending upon what the circumstances is.
    And so, those agency DAEOs have a lot of flexibility to 
work with that individual to come up with a solution that works 
for a particular case, depending on their financial situation, 
based on what is in the disclosure.
    Mr. Aguilar. I appreciate it.
    Mr. Straus, CRS is known for their education, for helping 
us at every step of the way. The Ranking Member talked about 
opportunities for new Members to receive information.
    What would you envision? What does a training session, you 
know, on this look like? You know, how should we think about 
scaling up the Member educational pieces of this process? No 
matter what road we pick, what should that look like?
    Mr. Straus. Well, first I would say that I don't nor CRS 
presumes that education is not already occurring, and that 
there are requirements for that educational process to take 
place.
    In the executive branch, the Office of Government Ethics 
works very closely with the Designated Agency Ethics Officers 
in each agency to train them so that they can then train the 
staff within each agency.
    So ultimately, the Ethics Committee is the one responsible 
for holding those ethics trainings and for deciding the type of 
educational content, right, that might be included within that 
process, both for Members and for staff. I have never taken the 
training, certainly not the Member training on that particular 
topic, but to Mr. Davis' point earlier, more education is 
almost always preferable in these types of situations.
    And probably the advice I give offices that call more often 
than anything else is, when in doubt in this space, ask for 
permission, don't ask for forgiveness. Call the Ethics 
Committee's advice and education staff and ask them rather than 
presuming to know what the answer is, even if you have gone 
through that training, just to make sure you are on the 
compliance side of whatever the circumstance might be.
    Mr. Aguilar. My situation is similar to the Ranking 
Member's in that, I handle this document, because it is about, 
you know, me, and it is about my circumstance and my household. 
I want to make sure that I do this right. But that often means 
I am reaching out to the committee directly and filing this as 
well.
    I do think that there is a lot of space on the education 
side. The policy piece is why we are here, and it is something 
that we have to do, but I know that the chair, you know, feels 
strongly about giving Members the tools to do this job 
successfully, and I think that there is some space to do some 
more on the Member side.
    Thank you. I yield back.
    The Chairperson. The gentleman yields back.
    We have had another vote called on the Floor. So I will 
just make a couple of comments. I think--I don't remember which 
witness expressed concern, but I know it has been expressed 
among certain Members that we not hold up whatever we are going 
to do relative to the Legislative Branch for changes in the 
Judicial Branch or the Executive Branch.
    I don't think we should hold this up for that. On the other 
hand, I don't think we should hold up reforms in those areas 
too. So the obvious answer is not to put them all in one bill, 
but to let the processes move forward. And I think there is 
very strong evidence that we need additional measures in the 
Judicial Branch. I don't think it should be combined in one 
bill with this, but I don't think we should hold it up while we 
are working on this.
    A real simple question, and, you know, the ranges on 
disclosure, I have never understood that. It is like, okay, 
between zero and $10,000. Well, if it is five bucks, it means 
one thing, and if it is $10,000, it means something else. And 
you really can't tell what is going on. And then for people who 
are very wealthy, it is over $50,000. Well, maybe it is $1 
billion. That would be something we would like to know.
    What is wrong with just doing the actual dollar amount in 
the disclosure? Is there a reason for this?
    Mr. Sherman. I think sometimes it is hard to be accurate, 
and Members definitely don't want to be inaccurate. But I agree 
with you. I think the demarcations could probably use a little 
bit of work.
    The Chairperson. Okay. I am going to close out and just say 
that, without objection, the following items will be included 
in the record of today's hearing: The February 17, 2022, CRS 
report; a letter sent on March 28 to House leadership and this 
Committee from 19good government organizations; an April 7, 
2022, letter to this committee from the National Taxpayers 
Union; an April 7, 2022, letter to me from Representatives 
Krishnamoorthi, Ocasio-Cortez, and Neguse; and a March 17, 
2022, Wall Street Journal article, ``Dozens of Federal Judges 
Had Conflicts: What You Need to Know''; a December 10, 2007, 
Kansas Law Review article by Professor Megan J. Ballard, ``The 
Shortsightedness of Blind Trusts.''
    The Chairperson. I would note, and we have had a lot of 
discussion about education for Members. As you know, this 
Committee is tasked with having a new Member orientation, which 
we take very seriously. We had significant training and 
information sessions on this and many other things over a two-
week period.
    Among other things, we had the Ethics Committee come in and 
discuss all their obligations and a discussion of the 
disclosure forms and the PTR reports and the like. However, as 
our only freshman on the committee said, it is like a firehose 
at a freshman orientation. So, the Ranking Member and I have 
been gossiping that maybe we should do a separate webinar or 
something of that nature on this, similar to what we have done 
with the Congressional Accountability Act that every Member has 
to do once a Congress or something of that nature. We can on 
work on that without legislation, obviously.
    I will note that we very much appreciate our witnesses' 
time. I know it has been a little disjointed because of floor 
votes. We will ask if you would remain open to additional 
questions that we may send to you. The hearing record will be 
open for your responses.
    And I don't know--Mr. Davis, we have got a vote on the 
floor. Anything you want to add before we adjourn?
    Mr. Davis. Thank you very much. I certainly do look forward 
to sitting down with each of you individually and talking about 
how we can make the processes better.
    The Chairperson. Thank you very much. Again, appreciation 
for the witnesses and, without objection, the Committee on 
House Administration is adjourned.
    [Whereupon, at 12:29 p.m., the Committee was adjourned.]

      

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