Fact check: Beasley says 64 lawmakers 'have broken a law to stop insider stock trading'

North Carolina Democrat Cheri Beasley said in a recent ad that "64 members of Congress - Republicans and Democrats - have broken a law to stop insider stock trading, yet Washington refuses to do anything about it." PolitiFact NC checks her claim.

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North Carolina Democrat Cheri Beasley said in a recent ad that if she’s elected to the U.S. Senate, she wants to ban members of Congress from trading stocks.

“I’ll admit, I’ve never worked in Washington,” Beasley said in the ad. “But to me, there's a lot going on there that makes no sense. Like get this: 64 members of Congress – Republicans and Democrats – have broken a law to stop insider stock trading. Yet, Washington refuses to do anything about it.”

Beasley, a former chief justice of the North Carolina Supreme Court, is running for the Senate seat that will soon be vacated by Republican U.S. Sen. Richard Burr. She faces Republican U.S. Rep. Ted Budd in what could be one of the closest Senate races in the nation.

Beasley’s claim “may very technically be true, but it hides a lot of important nuance and distinctions,” said Robert Walker, a former chief counsel for the Senate and House ethics committees.

Most of the congressional members listed in the article Beasley’s ad cites — including U.S. Rep. Kathy Manning, a North Carolina Democrat — aren’t accused of insider trading. But they’re alleged to have failed to report their stock transactions by a legally mandated deadline. For that, they face fees, not criminal charges. And the soft penalties are one reason Beasley wants to change law, her campaign says.

“Cheri is the only candidate in this race who will stand up to both parties and special interests to put North Carolina first, which is why she supports a ban on stock trading by Members of Congress — because our elected officials should focus on serving the people, not enriching themselves,” said Dory MacMillan, a spokeswoman for Beasley’s campaign.

About the law

Beasley’s campaign ad cites an article by Business Insider, which is tracking members of Congress who've failed to properly report their financial trades as mandated by the Stop Trading on Congressional Knowledge Act of 2012. Business Insider said it identified 71 members of Congress who didn’t fully comply with the law.

That law, known as the STOCK Act, requires members of Congress and others to report their stock transactions within 45 days of the trade, a much stricter deadline than the previous requirement of once a year.

Lawmakers face fees if they’re late in filing their periodic transaction reports. The fees start at $200 and escalate depending on how late the reports are filed and how many trades are being disclosed. Lawmakers who face egregious violations or are suspected of trading off insider knowledge are subject to investigation by the House or Senate ethics committees, which govern the reporting.

The disclosure reports are public and people can detect potential reporting violations by comparing the listed trade and disclosure dates. However, penalties levied by the ethics committees are not public. So voters, in many cases, are left in the dark about how violations are handled. It’s common for media outlets to report on STOCK Act violations and have no information about legal repercussions for the lawmaker.

The fee structure is considered by many to be ineffective. Donald Sherman, a former counsel for the House Ethics Committee, told a congressional committee this year that the fees aren’t high enough to encourage compliance.

Still, it’s inaccurate for Beasley to say Washington refuses to do anything. While the late fees are private, some lawmakers have reported paying them. And a bipartisan push for reforming trade disclosure is credited with prompting House Speaker Nancy Pelosi, D-Calif., to shift her position in favor of tighter enforcement.

About the alleged violations

Beasley’s ad mentions what the STOCK Act is intended to do: prevent lawmakers from using nonpublic information to get an unfair advantage on the stock market. But it leaves out that most lawmakers listed in the Business Insider article aren’t actually accused of insider trading—but of reporting their trades late. Without that context, the ad implies a level of criminality that doesn’t typically accompany a STOCK Act violation.

Some lawmakers featured in the Business Insider article were months late disclosing transactions worth hundreds of thousands or even millions of dollars. Some are repeat offenders. Very few have been under intense scrutiny.

One of them is U.S. Rep. Tom Malinowski, a Democrat from New Jersey. Business Insider reported that Malinowski didn’t disclose dozens of stock trades from 2020 and 2021 until after being questioned by the news outlet and is now being investigated by the House ethics committee. The Office of Congressional Ethics, a nonpartisan congressional entity charged with investigating misconduct, found that Malinowski hadn’t directed his securities firm to make trades. And, in a statement to PolitiFact, Malinowski’s office said the congressman had already “gone above and beyond the requirements of the law by placing his life’s savings into a qualified blind trust" and supports proposed ban on member stock trading.

Business Insider and the nonprofit news website Sludge reported that Manning, the North Carolina Democrat, was late in filing several dozen stock trades that, combined, could be worth up to $1.25 million. In a statement to PolitiFact on Tuesday, Manning’s office said the congresswoman’s financial investments are handled by third-party investment managers “with no input or direction by her or her husband.

“When [Manning] discovered an error had been made by those professionals in the transmission of information to the law firm who handles the disclosure statements, she immediately filed an amended report to disclose that information. Since rectifying that error, her disclosures have been 100% compliant and any accusations to the contrary are completely false.”

Others on the Business Insider list were days or weeks late reporting on smaller transactions, sometimes made by a spouse or child dependent. U.S. Sen. Sheldon Whitehouse, a Democrat from Rhode Island, was only a couple days late disclosing purchases of Target Corp. and Tesla Inc. stock earlier this year. A spokesman for Whitehouse told PolitiFact that Whitehouse’s transactions are made by a manager and that the report was late “due to a staff transition in the office.” Rep. Ed Perlmutter, a Democrat from Colorado, was a few days late in disclosing stock trades made by his wife. Perlmutter’s office didn’t respond to a request for comment.

“Did they break the law? Well, perhaps technically, yes,” said Walker, who is now a lawyer at the Washington, D.C., law firm Wiley Rein LLP. “But I think it's a bit of an exaggeration to use that phrase. It may be more appropriate for those who seem to be kind of scofflaws, who do it intentionally or repeatedly or who seem to be flouting it egregiously.”

Harvey Pitt, the former chairman of the U.S. Securities and Exchange Commission, which regulates the stock market, says the law is clear: “If there’s a deadline, you’re required to meet it. Period,” said Pitt, who is now chief executive of compliance consultancy Kalorama Partners LLC.

But there are more serious offenses. “When I see a lot of people in Congress filing late, I see that as sloppy but not necessarily a hanging offense,” Pitt said.

Kedric Payne is a vice president and general counsel of the Campaign Legal Center, a campaign ethics watchdog group, and former deputy chief counsel of the Office of Congressional Ethics. Payne said voters–not lawmakers–are often most affected by late disclosures.

He compared the cases of Republican U.S. Sens. Richard Burr of North Carolina and Rand Paul of Kentucky.

Burr in 2020 faced a U.S. Justice Department investigation, which has since been closed, after he reported selling up to $1.7 million in stocks just before markets cratered ahead of the COVID-19 outbreak. Burr for weeks faced intense criticism and calls to resign. Burr has denied wrongdoing and said he relied solely on public information.
Paul largely avoided backlash after his wife bought stock in a company that makes an antiviral drug used to treat COVID-19 because he disclosed the trades so late. The purchase, made on Feb. 26, 2020, wasn’t disclosed until August 2021. In a statement to PolitiFact, a Paul spokesperson blamed the late report on a transmission error and rejected the notion he benefited from the tardiness of his report.

Paul “completed the reporting form for an investment made by his wife using her own earnings, an investment which she has lost money on,” Kelsey Cooper, a Paul spokeswoman, said. “This was done in the appropriate reporting time window. In the process of preparing to file his annual financial disclosure for last year, he learned that the form was not transmitted and promptly alerted the filing office and requested their guidance. Dr. Paul attended no hearings public, private, or classified on COVID prior to his wife buying a stock that subsequently lost money.”

Paul’s move, intentionally or unintentionally, deprived the public of key information during a time it was most entitled to it.

“Voters have a right to know that their elected officials are prioritizing the public interest and not their own personal financial interest,” Payne said. “It doesn't matter that someone may look at this as simply a reporting issue. It is a transparency issue, and [filing late] chips away at the public's trust.”

Our ruling

Half-true on the PolitiFact meter

Beasley said 64 members of Congress “have broken a law intended to stop insider stock trading, yet Washington refuses to do anything about it.”

More than 70 members of Congress have filed financial disclosures late, apparently violating the STOCK Act. However, Beasley’s ad glosses over the fact that most of those lawmakers are accused of filing late reports — not insider trading — and that they are subject to fees if they violate the law.

Her statement is partially accurate but leaves out important details or takes things out of context. We rate it Half True.