Disclosure requirements for financial trading don't make for easy searching.
The Cabinet and sub-Cabinet officials being assembled by President-elect Trump include no shortage of wealthy and seasoned financial investors.
So as Trump announced that he will soon unveil a plan to avoid conflicts of interest by distancing himself from his vast business holdings, it’s logical to ask whether his Wall Street-savvy subordinates-to-be might hesitate to join the government due to the trading disclosure requirements of the 2012 STOCK Act.
The original 2012 Stop Trading on Congressional Knowledge Act was aimed at curbing insider trading by requiring senior career officials and congressional staff to post their financial transactions on a public database. Within a year, however, opposition from agencies and the Senior Executives Association—citing risks such as identity theft and extortion-- prompted a corrective bill that greatly narrowed the universe of affected federal employees and simplified the data requirements.
This October, the Office of Government Ethics proposed a rule clarifying who must comply and easing the reporting requirements further.
The arriving Trump appointees, according to Craig Holman, government affairs lobbyist for Public Citizen, are likely “to view the STOCK Act as only a moderate nuisance to some employees. The original version would have been much a bigger problem,” he told Government Executive, noting that it covered 28,000 executive branch employees and required officials to post their trades within 45 days in a downloadable manner that was searchable on the Internet.
The softened law, Holman said, applies only to about 70 people at levels one and two. The resulting database is less searchable, requiring users “to take a look at each individual, and you can’t do a general search. The nuisance factor is very much minimized,” he added, and the Obama ethics office’s rule is an indicator that the current administration “pulled back” from enforcement.
Cabinet members, however, remain subject to the long-standing conflict-of-interest provisions in 18 U.S.C. 208, Holman said, which prohibit them from making stock trades in any area that poses a conflict.
That view was seconded by attorney Debra D’Agostino, founding partner with the Federal Practice Group. “I can’t fathom how this is going to deter anyone from much of anything, since disclosure is not really enforced,” she said. Enforcement is done by the Securities and Exchange Commission, which “though part of the executive branch, is a little like having the fox guarding the henhouse.”
In general, the STOCK Act “offers very little guidance on how insider trading laws for disclosure in the financial world apply to the government world,” D’Agostino said. “In this day and age when the president tweets, what is the line between public and private information? It’s difficult for the SEC to determine what piece of information or proof was material to any trade,” she said. “Many Trump people have tremendous financial dealings, so we’re in uncharted territory.”
If Trump himself has not put his assets in a blind trust, “it would be hard for the public to expect those below him to adhere to higher standards than he is holding himself to,” D’Agostino said.