What The Hell Is A Sitting Member Of Congress Doing Sitting On The Board Of Directors Of A Publicly Traded Company Anyway?
Representative Chris Collins’ Insider Trading Indictment Raises More Questions For Us Than It Answers
What keeps jumping out at us about the coverage of the New York Republican’s indictment on insider trading is not so much the accusation of what he did, which is undoubtedly a huge story. But what was he was doing as a board member holding more shares than anybody else in a pharmaceutical company while he was also actively serving on a House health Subcommittee, (which Paul Ryan removed him from this week)?
That angle to the story — which is what seems the most interesting to us — is getting a lot less coverage in most of what we’ve been reading compared to the actual alleged crime. Perhaps because there’s no real easy or obvious answer to it. We spent much of the day looking into it, and all we could come up with was bits and pieces of an explanation. While we’ll lay out what we’ve found, we’ll also admit our explanation is by no means complete. So our column today is as much a request for illumination from our readers who have more specialized knowledge than we do, since we know we can’t neatly provide an answer to our own question.
But we’ll try our best:
Now, we all know about members of Congress, White House senior staffers, etc. going on to hold lucrative positions on multiple corporate boards following their tenure in public office.
But in reviewing Congress’ ethics rules, we were surprised to find there’s not too much that expressly forbids them from doing so while in office. So why don’t they all do it? Seems to boil down to 3 reasons:
- It looks bad.
- Congressional ethics rules do prohibit service on a board of directors for pay. Which of course eliminates a big incentive. And even that’s a relatively new thing: dating back to 1989 and the passage of the Ethics Reform Act. (This is kind of a side note, since there are no accusations of it here, but we were not able to find any rules or guidelines expressly addressing whether deferred payment or payment in the form of options that couldn’t be exercised until after the politician left office would also be a definite no-no).
- Congressional ethics rules also restrict the number of days members can work outside jobs to 90 calendar days a year. We guess this has more to do with ensuring a member of Congress is sufficiently focused on legislating vs. an express restriction on outside activities. But that could also give some daylight to them sitting on a board or two that meets once a month. No biggie right? Although constantly flying around to multiple board meetings might be a problem.
And even with all of that, there appears to be a loophole: if you are the largest shareholder in a company — which Collins admits he was in Innate Immunotherapeutics, for which he’s charged with insider trading — then all bets seem to be off. Here’s the language from the House Committee on Ethics: “a Member or senior staff person is not prohibited from accepting compensation for business consulting from a business in which the Member or staff person (or his or her family) holds a controlling interest.” This could be so farmers and operators of family businesses don’t have to put those businesses at risk if they run for Congress and get elected.
(BTW, if the name Innate Immunotherapeutics sounds familiar, it’s because back in 2017 former Secretary of Health and Human Services, Tom Price got into trouble after he made a killing on shares in the company, after getting a tip and a sweetheart discount price courtesy of Collins…)
Collins, who made a name for himself as an early Trump acolyte, made an appearance in which he read a statement but took no questions. He started with a Trump-like lament (although far more low-key) that this is all because his political opponents are out to get him. Then Collins took great care to highlight the fact that he was not paid for his work as a board member. Look at how carefully he sets up and emphasizes the word “uncompensated” in this clip:
Collins continues by insisting he did not sell his shares in the company and therefore his personal investments of “millions of dollars were wiped out”. But of course that’s not what he’s charged with. He’s accused of tipping of his son and his son’s future father-in-law, who then went and spread the info to a bunch of folks. Saving them close to $1-million. Which in the eyes of the law is the same as if he did it himself.
And one thing that’s very interesting to us is that most of the laws and guidelines pertaining to outside work and insider trading are relatively new. Like within the last 5 or 6 years new.
In fact, the law Collins is being prosecuted under dates back only to the Obama administration. The STOCK, or Stop Trading On Congressional Knowledge Act seems pretty obvious: it prohibits the use of non-public information for private profit, you know, the kind of info Members of Congress and their staffs have all the time. The bill passed in 2012. Although it had originally been introduced in 2004. Of course when it did pass it was by a huge margin, but who in their right mind is gonna vote against that in full view of the public? So the fight to kill it (lost, ultimately) was really about not letting it get to the floor for 8 years. And of course if your son or his future father-in-law is doing the trading as was the case with Collins, there are still ways to circumvent. Unless you get caught.
Without turning this into too much of a history lesson, that may be because while the Constitution is full of regulations about who can serve in federal office and under what terms, it says precious little about outside work. Many of the founding fathers were wealthy landowners and farmers with vast plantations so there was not much thought about giving all that up. (Before anyone tries to trot out the emoluments clause, that’s only about receiving gifts or payments from foreigners who seek political influence).
It has in fact been very common for some politicians to participate in the operation of non-profits involved in charitable work or advocacy/lobbying. Vice President Dick Cheney served on the board of half a dozen such organizations even while in office. What was almost more shocking to us is that in the U.S. Office of Government Ethics Financial Disclosure Form, there’s a whole section for “Positions Held Outside U.S. Government”.
Collins, for his part, says he will fight the charges and still plans to run this fall. And since he’s in a large rural district bordered by Lake Ontario that Trump won by 25 points, there’s a decent chance he could still win. (Although Collins was one of Trump’s earliest supporters, the silence from the President is deafening. At least so far.)
And what if he makes it back to Capitol Hill? There are very few restrictions for people under criminal prosecution to serve in Congress. The Constitution does not forbid it. There are loose House rules applying to anyone facing a charge carrying a possible sentence of 2 years or more. The issue did come up in the case of New York Republican Michael Grimm who threatened to throw a reporter off a balcony 3 years ago, saying “I’ll break you in half like a boy.” Grimm did not physically attack the reporter, although shortly after resigned when he was convicted of tax evasion. But guess what? Grimm ran again this year, but lost in the Republican primary.
We thought we might end today by suggesting one humble starting point: That Members of Congress not be allowed to serve on a board of directors while they’re in Congress, even if they’re unpaid. Even if it’s a nonprofit. They’ll have plenty of time to do that sort of thing when they leave Congress, and they won’t be missing any opportunities because they’ll have more than they ever dreamed of. That would be the common sense solution, right? Let’s see how long it takes for Congress to get around to it.