Regulating Congressional Stock Trading: The Limits of Insider Trading Laws
By: Adam Grey / Edited by: Grace Park
2020 was a tumultuous year in many respects due to the COVID-19 pandemic that practically brought the global economy and social continuum to a standstill. Yet, several members of Congress found a way to increase the value of their net worth amidst the uncertainty. Twelve senators, as was discovered by the public, made lucrative stock trades totaling up to $98.3 million before the market crash that resulted from the pandemic. A select few even received classified intelligence briefings about its imminence that allowed them to buy stocks in companies that might see a boost from the crisis while selling stocks that would potentially tank. While the immediate public backlash was intense, the legality of such congressional conduct was unclear. Despite the appearance of impropriety, members of Congress are not broadly prohibited from trading individual stocks; existing federal law regulates their activity primarily through disclosure requirements and general insider trading principles. One such regulation, the 2012 Stop Trading on Congressional Knowledge Act (STOCK), attempts to regulate congressional trading through disclosure requirements and the application of existing insider trading law. Yet, this framework relies on transparency rather than prohibition, which is largely insufficient as it fails to meaningfully constrain conflicts of interest and leaves a gap, ultimately undermining public trust in legislative decision-making. The lack of meaningful legal constraints suggests future reform can substantially restrict or prohibit congressional stock trading altogether.
The first implementation of statutory restriction on insider trading appeared in 1934 with the Securities and Exchange Act, which created the Securities and Exchange Commission (SEC) and a prohibition of, “fraud or deception in connection with the purchase or sale of securities.” Over time, the courts interpreted this clause to include insider trading through cases such as Dirks v. SEC and United States v. O’Hagan. In Dirks, the Supreme Court held that insider trading liability depends on whether a corporate insider breached a fiduciary duty by improperly disclosing confidential information for personal benefit. In O’Hagan, the Court expanded the insider trading doctrine by asserting that a person may also commit fraud by misappropriating confidential information for securities trading in violation of a duty owed to the source of the information, meaning that the fraud lies in the misuse of confidential information for personal gain. The act was meant to prevent corporate actors who have clear, nonpublic material information —such as mergers or earnings— from using that knowledge as an unfair advantage in securities trading. Such conduct constitutes a breach of a duty of trust because the trader misuses confidential information that he or she is legally obligated to protect rather than exploit for personal financial gain. For example, if a lawyer or banker receives confidential information about a corporate deal and trades on it, that person breaches a duty owed to the client or the source of information. This framework is optimal in the corporate context, where both the duty and the information are well-defined.
The aforementioned STOCK Act relies on this insider trading framework in an attempt to legally prevent members of Congress from benefiting from material knowledge not disclosed to the public. The Act, however, does not prevent Congress from trading stocks, but rather requires them to disclose qualifying financial transactions within forty-five days, and clarifying that they are subject to the existing insider trading law that imposes a “duty of trust and confidence” to the public. In doing so, the Act relies on transparency as its primary means for preventing congressional insider trading rather than prohibiting the activity itself. The STOCK Act is attempting to apply a corporate framework that does not translate well to the congressional context. Members of Congress operate in a political environment characterized by ambiguous language and diffuse public obligations, which make the legal standards outlined in the Securities and Exchange Act —which assumes corporate actors are privy to clear material information— very difficult to enforce. For example, a member of Congress might act on general knowledge of an upcoming policy shift or anticipated regulatory change; both notions would be considered influential to their financial prospects, but are more abstract than “material.” If a violation is suspected, the Office of Congressional Conduct, an independent body of the House, organizes and investigates the potential violation. Yet, such investigations are likely weak, as the body lacks subpoena power and can be dissolved by the legislature. Therefore, the current legal institutions in place to prevent congressional insider trading are seemingly ineffective.
The discrepancy between how the insider trading framework is applied to the corporate world and the congressional world is a result of a deeper issue in legal design. Congress has chosen to regulate its members through insider trading law, a form of “market law,” rather than conflict-of-interest law. The two legal frameworks have salient differences concerning how they prevent insider trading. “Conflict-of-interest” law, such as 18 U.S. Code § 208, essentially states that one cannot participate in decisions affecting one’s own financial interests. The code prohibits Congress from making stock trades in the industries that they regulate and prevents it from participating in decisions affecting its own personal investments. Conflict-of-interest law is largely applied to executive branch officials. Under the current system, however, members of Congress are allowed to trade individual stocks as long as they do not violate any insider trading rules, even if those trades create apparent conflicts between personal financial interests and public responsibilities. Congress’s adopted framework prevents only the most egregious forms of insider trading, leaving broader conflicts of interest intact. As a result, the law focuses on whether legislators have cheated the market, rather than whether they should be permitted to hold financial interests in the first place.
Proponents of the current legal framework argue that congressional stock trading should not be classified as insider trading because lawmakers still assume substantial risk when making trades. Even when legislators anticipate that a piece of legislation may shift the market in a particular way, they are often acting on speculation rather than concrete, nonpublic information. As a result, supporters contend that congressional trading differs from traditional insider trading, which typically involves direct knowledge of how successive events will influence the market. However, the data regarding this subject suggests that the nonpublic knowledge Congress is privy to substantially enhances its financial outcomes. For example, Rep. Rob Bresnahan Jr. (R-PA) sold hundreds of thousands of dollars’ worth of bonds issued by the Allegheny County Hospital Development Authority on March 27, 2025, a month after he voted for a law that would cut Medicaid and put hospitals in that area at risk of closure. There are many such examples of this, including the fact that Congress made more than $635 million in stock trades in the year 2025 alone, suggesting their position may provide informational advantages not equally available to the public.
Recent legislative proposals reflect the growing public recognition that the current legal framework is insufficient. Proposed reforms, such as the Ending Trading and Holdings In Congressional Stocks (ETHICS) Act, notably favor a conflict-of-interest framework that would better detect and punish potentially improper congressional trades. Recent proposals have included barring members of Congress from owning or trading individual stocks, sometimes permitting exemptions for qualified blind trusts or diversified investment funds. The Stop Insider Trading Act, for example, was proposed in January 2026 to prohibit members of Congress, spouses, and dependent children from purchasing publicly traded stocks. Lawmakers are shifting their understanding of the proper legal framework for responding to congressional financial advantage, and it is one that questions the salience of Congressional decisions with respect to their financial portfolios.
The regulation of congressional stock trading reveals an inconsistency in the application of existing legal frameworks to new institutional contexts. Congress has effectively adopted a system that makes it difficult to enforce and is ill-suited to the nature of legislative activity by relying on the insider trading doctrine developed for corporate actors. Evidently, this misapplication of legal statutes leaves significant conflicts of interest unaddressed, under the guise of disclosure as a proper form of Congressional financial regulation. However, the debates over congressional reform dictate that the central question is not simply whether congressional trading should be restricted, but whether the law governing it is capable of addressing the unique ethical and structural challenges posed by legislative power.
