Mark Warner has a different background than his colleagues in the Senate, one more familiar in Silicon Valley than Washington’s halls. Before Virginians elected him U.S. Senator in 2008, and their governor six years before that, Warner was a venture capitalist and entrepreneur. He co-founded Nextel, a wireless company now owned by Sprint, and then invested in hundreds of startups. Today, he’s worth hundreds of millions of dollars.
When I sat down with Sen. Warner this week for Big Technology Podcast, I wanted to learn why his colleagues talked a big game about regulating Big Tech but had done so little. By persistently calling out tech executives and then sitting on their hands, they risked losing credibility. And given Warner’s background, he was the perfect person to ask.
Our conversation covered familiar territory—techno-optimism, tech illiteracy, and lobbyists—but then turned to stock trading. Members of Congress can trade individual companies’ stocks while professing to restrain them, a stunning conflict of interest that pits their portfolios’ prospects against the country’s. The practice is commonplace, supported by party leadership, and may influence the legislative process. Warner said it should end. “Members ought to restrict themselves from playing in the market,” he told me. “If you take these jobs of responsibility, you have to be willing to give up something.”
Warner is part of a broader awakening inside Congress around trading individual stocks, an issue that looms over the federal legislature’s push to regulate Big Tech, and its relationship with big business overall. Democratic House Speaker Nancy Pelosi, known as the House’s best trader, has long favored members being free to trade. But after years of acceptance, there’s finally a movement inside the building to stop this legalized form of corruption.
Among stock traders, it’s common knowledge that you can’t consistently beat the market if you don’t have an edge. Firms that do it regularly tend to find themselves in hot water for insider trading, like Steven Cohen’s SAC Captial, or on top of a Ponzi scheme, like Bernie Madoff. Then there’s Congress. Federally elected legislators are often privy to the details of big-spending packages and potentially catastrophic events, like Covid-19, well before their constituents. They have an edge. They’re not supposed to trade on that knowledge but—wink, wink—they do.
“There were members of Congress day trading from their congressional office, and day trading in large volumes,” a former member of Congress who served from 1999 to 2011, told me. “The idea that, in no way shape or form did the knowledge acquired from their public servant role influence their trades—it’s just absurd. Human beings don’t work that way.”
Some of the most egregious stock trading in Congress occurred when several senators dumped large volumes of stock in Winter 2020, right after Congress was briefed on the magnitude of the Covid threat. Sen. Kelly Loeffler disclosed she’d sold millions in stock; her fellow Georgia Sen. David Purdue made a windfall by dumping and then buying back stock; Sen. Richard Burr offloaded more than $1.6 million in stock ahead of the market crash (and then made a suspicious call to his brother-in-law who promptly called a broker). Loeffler and Purdue lost their races, the Department of Justice investigated Burr, and the American public became more attuned to their representatives’ trading habits.
Loeffler, Purdue, and Burr disclosed their investments in compliance with the Stock Act, a law that former Rep. Brian Baird originally introduced in 2006, which requires timely disclosure of trades by federal representatives. The law didn’t prevent members of Congress and the Senate from trading individual stocks—that seemed too aggressive at the time—but it ensured the public would learn about their behavior. In that regard, it worked. Nobody’s missing it now. “The ability to trade, and particularly on a day trade basis, even if you’re not doing anything wrong, it looks bad,” said Sen. Warner. He said he keeps his investments in a trust that doesn’t buy individual stocks.
Today, momentum is building to finish the job that Baird started. Democratic Sen. Jon Ossoff, who replaced Purdue in the Senate, introduced legislation this week along with Sen. Mark Kelly that would ban members of Congress and their families from trading stocks. The bill would force them to put their assets in blind trusts. And if they violated the law, they’d be fined their entire salaries. Republican Sen. Josh Hawley, after failing to unite with Ossoff, introduced his own stock trade ban for members of Congress. Bridging the gap between parties won’t be easy, but the bipartisan interest is a radical change from just a few years ago, where such bans were inconceivable.
Nancy Pelosi’s argument for allowing stock trading is that federal representatives should not be restricted from participating in the economy. “We are a free market economy,” she said in December. “They should be able to participate in that.” But as Pelosi’s colleagues consider regulating the tech giants, her family’s been trading their stocks. Last July, her husband Paul Pelosi made $4.8 million by exercising call options to buy shares of Alphabet. His transactions took place just a week before the House Judiciary Committee advanced its slew of antitrust bills aimed at Big Tech. The market didn’t think much of the bills, sending Alphabet’s stock up, and Pelosi cashed in. “The speaker has no involvement or prior knowledge of these transactions,” Pelosi spokesperson Drew Hammill told Bloomberg at the time.
Congress can participate in a free market economy without this apparent conflict of interest. Putting their assets in blind trusts, as Sen. Ossoff proposed, would solve the problem while allowing them to participate in the market. Even limiting federal representatives to broad index funds would help. The S&P 500 returned nearly 27 percent in 2021, for instance, a fine result for anyone. Restricting members to more general funds could give them all the market’s upside, help them focus on the entire economy, and remove the temptation for impropriety.
As he leaned back in his chair in his Washington, D.C. office, Sen. Warner, a seasoned investor, brought the point home. “The stock pickers, you look at their averages against the actual returns of the market over the last five or ten years, and time and again picking a market-based fund is both cheaper and probably has a better return.” And that is exactly why Congress should limit itself to that option, unless it has something to hide.