Cashing in on Congressional Trading

How bad has insider trading become among politicians elected to the U.S. Congress and congressional employees?

It didn’t take long to find out. Just after this article on conflicts of interest for Federal Reserve and Congress members went live here at the Beacon, NPR broke a new story. Inexperienced traders using the TikTok app to check out investing ideas have figured out congressional insiders have the Midas touch.

Young investors have a new strategy: watching financial disclosures of sitting members of Congress for stock tips.

Among a certain community of individual investors on TikTok, House Speaker Nancy Pelosi’s stock trading disclosures are a treasure trove. “Shouts out to Nancy Pelosi, the stock market’s biggest whale,” said user ‘ceowatchlist.’ Another said, “I’ve come to the conclusion that Nancy Pelosi is a psychic,” while adding that she is the “queen of investing.”

“She knew,” declared Chris Josephs, analyzing a particular trade in Pelosi’s financial disclosures. “And you would have known if you had followed her portfolio.”

The trades these TikTok users attribute to Nancy Pelosi are really those of her husband, Paul Pelosi. That fact however hasn’t stopped the House Speaker from becoming known as “The Queen of Stonks“. That’s because the Pelosi family’s investment portfolio has really boomed in 2021.

Incredible Luck, Brilliant Trading, or Insider Knowledge?

Pelosi invested millions in Big Tech stocks that have paid off in a big way. The success of those trades has attracted a following of social media connected traders. They are looking to cash in on the next internet meme-driven “stonk“-trading frenzy. And they’re looking to Nancy Pelosi as their stock pick guru.

Last year, Josephs noticed that the trades, actually made by Pelosi’s investor husband and merely disclosed by the speaker, were performing well.

Josephs is the co-founder of a company called Iris, which shows other people’s stock trades. In the past year and a half, he has been taking advantage of a law called the Stock Act, which requires lawmakers to disclose stock trades and those of their spouses within 45 days.

Now on Josephs’ social investing platform, you can get a push notification every time Pelosi’s stock trading disclosures are released. He is personally investing when he sees which stocks are picked: “I’m at the point where if you can’t beat them, join them,” Josephs told NPR, adding that if he sees trades on her disclosures, “I typically do buy... the next one she does, I’m going to buy.”

From this section, it’s clear these traders don’t think the stock picks are lucky and they don’t think Pelosi is a brilliant trader. Instead, these traders have bought into the idea that Pelosi has insider knowledge.

A Perception of Corruption

The Speaker of the House should never be considered to be any kind of stock picking guru. She is however, because these traders perceive great corruption in Washington D.C. Worse, they are willing to place investment bets on their perception.

Regardless of whether or not that’s the case, the truth is that members of Congress have inherent conflicts of interest. Having so much sway over government policies and contract awards gives them too much potential to profit by exploiting the system.

If only it weren’t so profitable for them and their family members.

Final Footnote

Two of the Federal Reserve officials criticized for their stock trading have announced they will resign. It seems the Fed cares more about the appearance of impropriety than the leaders of the U.S. Congress do.

Craig Eyermann is a Research Fellow at the Independent Institute.
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