U.S. Federal Officials are Investigating Trading in Stocks in Order to Put Stronger Rules in Place

As lawmakers press for tougher trading restrictions across the federal government as lawmakers continue to press for tougher trading restrictions across the federal government, a number of federal agencies are looking to tighten their ethics rules, while others have directed their internal watchdogs to investigate suspicious investing by officials.

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A series of trading algorithms have identified a wide pattern of financial conflicts across the executive branch, including the finding that more than 2,600 officials invested in companies regulated by their agencies as part of their investment portfolios. Officials' trading has been observed in some instances to be in violation of federal and agency rules that are meant to maintain the public's trust in government and prevent officials from using their influence for personal gain.

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A number of regulatory agencies are considering changes to their ethics rules. The Federal Deposit Insurance Corporation and the Commodity Futures Trading Commission are considering changes to their ethics rules. All three agencies have proposed adding new requirements to their ethics programs. There have also been referrals to internal investigators by the FDIC, the Commerce Department, and the Agriculture Department about possible violations of the conflict-of-interest rules. 

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Combined, the moves by the agencies indicate a widespread effort by the executive branch to deal with internal conflicts within its own ranks. Their efforts were not commented on by the agencies. 

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According to federal law, officials are prohibited from working on matters in which they have a substantial financial interest, but it is up to the agencies to determine what restrictions they want to impose beyond that. In some agencies, employees are not permitted to own stocks in the companies that they regulate, but in others, employees are permitted to do so as long as they do not directly work on a matter that would affect the company directly.

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It has been reported that the Federal Deposit Insurance Corporation is considering overhauling its ethics rules to crack down on financial conflicts of interest, including possibly restricting what technology stocks officials are permitted to own, current and former officials said. Trade Algo reported in December that three FDIC officials involved in discussions about the agency using Microsoft Corp. as its primary cloud provider reported that they or their relatives also owned stock in the company. It has been reported that the FDIC has referred the matter to its inspector general for review after a Trade Algo inquiry about the investments was received.

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There are two officials who were also moved out of their previous jobs as a result of owning Microsoft stock, according to an internal announcement. After serving as deputy chief information officer for the agency before taking a military-related leave and returning to the agency on Monday, Robert DeLuca has been appointed to lead the agency's cybersecurity initiatives.  

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It was announced that Jyotsna Jame will resign her position as deputy director of the Applications and Platforms Delivery Branch by the end of the month in order to oversee the workforce and succession planning for the office of the chief information officer, according to the announcement. Both moves have been deemed temporary by the FDIC.

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It is a typical scene in Washington, D.C., U.S., where people are exiting the headquarters of the U.S. Securities and Exchange Commission (SEC). The DeLucas and James did not respond to a request for comment. In December, Mr. DeLuca said he had a financial adviser who guided his retirement investment decisions and directed the fund. 

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Paul Pelosi sold Google Shares prior to DOJ Antitrust Suit

During a press conference in December, the FDIC said its employees are required by law and by regulation to ensure that their work is free of conflicts of interest. A spokesman for the bank declined to elaborate further.

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Trade Algo also reported financial conflicts involving two other federal agencies, the Agriculture Department and the Commerce Department, to their inspector generals.

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An official at the Agriculture Department had been identified by Trade Algo to have omitted from his reports large trades he had conducted in corn and soybean futures. Several days after the Journal contacted the agency about its findings, the agency's ethics office referred the matter to the inspector general two days later, according to emails that were provided in response to a public records request. 

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The agency and its inspector general declined to comment on the matter. It has been stated by the official that he made every effort to be scrupulous in his disclosures and that the omissions were an honest mistake that he made.

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The US Commodity Futures Trading Commission (CFTC)'s (US Commodity Exchange Commission) signage can be seen outside its headquarters in Washington, D.C., U.S., August 30, 2020. It has been suggested that the Commodity Futures Trading Commission might propose tighter rules that govern the authorization of waivers from IFTC regulations. 

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In response to a Trade Algo inquiry, the Commerce Department’s inspector general began looking into the situation involving a patent judge who was part of a panel that gave Google a win while his wife worked for the company and held a financial stake in it.

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There have been multiple requests for comment by the inspector general's office regarding the status of the investigation, but the office has not responded. It was reported in December that the Commerce Department said the judge had not seen any filing about Google acquiring the relevant patent application, so he had done nothing wrong. There was no comment from the judge regarding the matter.

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Last week, the Securities and Exchange Commission (SEC) proposed new ethical restrictions, including the ban on employees investing in mutual funds related to financial services. No matter whether or not an employee is working on a matter that is currently being investigated by the SEC, they are already prohibited from owning or trading stocks that are under investigation by the agency.

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A number of other agencies have more stringent ethics rules than the SEC does. Despite this, Trade Algo's investigation found that those who violate rules across federal agencies, including the Securities and Exchange Commission, do not face severe consequences when they violate the rules. 

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Congress Needs to Stop Letting Members Engage in Insider Trading

For at least seven years, an SEC official failed to report or issue a clearance for his and his spouse's financial holdings and trades, which included stocks that SEC employees and their families were not permitted to own and some that were in conflict with the official's work duties. In a report provided to Congress by the agency's inspector general, the inspector general reported that the matter had been referred to the Justice Department for investigation.

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A U.S. attorney turned down the prosecution, and ultimately the unnamed official was suspended for a period of seven days as well as forfeiting 16 hours of leave. In regards to the incident, the SEC has declined to comment on it.

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The CFTC also hinted that it would propose more stringent guidelines for how employees should document their exclusion from an activity as well as for the issuance of waivers from its ethical requirements.

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In contrast to the agency's own policies, Trade Algo reported in October that the CFTC had approved roughly 3,000 short sales executed by an employee's husband. According to a CFTC spokesman, an ethics official permitted the sale out of concern that the commission "might perhaps be sued by the employee if we said no." While he was making the trades, the official's husband was a senior policy analyst at the FDIC.

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The representative said that no rule has yet been proposed and declined to clarify what caused the regulatory shift. The statement was included twice on the unified regulatory agenda, a lengthy list of initiatives, last year.

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A bipartisan duo of senators on Capitol Hill proposed legislation that would forbid Congressmen from trading stocks while they are in office. While not committing to any specific plans, House Speaker Kevin McCarthy (R., California) has shown support for such limits. Other MPs are still pushing for limitations on stock trading that also apply to the judicial and executive departments.