Insider Trading in Politics Is a Bigger Problem Than We Thought

Speaker 1 Here's one piece of advice that I've given for years: build an emergency fund. Aim to stash away enough to cover at least three months of expenses in case your income suddenly drops.

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Speaker 1 Here's one piece of advice that I've given for years. Build an emergency fund.
Aim to stash away enough to cover at least three months of expenses in case your income suddenly drops.

Speaker 1 Sounds simple, right? But let's be honest, it's not. Saving even one month's worth of living costs can feel impossible.

Speaker 1 Just when you're making progress, that check engine light blinks on and derails your plans. Life already throws enough curveballs.
You don't need your bank adding to the chaos.

Speaker 1 That's why it's so important to choose one that makes savings easy and doesn't nibble away at your hard-earned money with ridiculous fees. QIIME understands that every dollar counts.

Speaker 1 That's why when you set up direct deposit through QIIME, you get access to fee-free features like free overdraft coverage, getting paid up to two days early with direct deposit, and more.

Speaker 1 With qualifying direct deposits, you're eligible for free overdraft up to $200 on debit card purchases and cash withdrawals. To date, CHIME has spotted members over $30 billion.

Speaker 1 Work on your financial goals through QIIME today. Open an account in just two minutes at chime.com/slash MNN.
That's chime.com slash MNN. Chime feels like progress.

Speaker 2 Chime is a financial technology company, not a bank. Banking services and debit card provided by the Bankor Bank NA or Stripe Bank NA.

Speaker 2 Members, FDIC, spot me eligibility requirements and overdraft limits apply. Timing depends on submission of payment file.

Speaker 2 Fees apply at out-of-network ATMs, bank ranking, and number of ATMs according to US News and World Report 2023. Chime checking account required.

Speaker 1 I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab.

Speaker 3 Hey, guess what? I want to teach you how to grow your money 20,000% in just one day. And I promise it is so, so easy.
It is just this one little money move called

Speaker 3 insider trading. So if you missed this story, let me first say I'm totally kidding.
Do not try DIY insider trading. It is super duper illegal, but I'll fill you in on what I'm talking about.

Speaker 3 There was a viral post on X that showed a screenshot of someone and we do not know who buying 100 grand worth of zero-day options for the S ⁇ P 500 Index SPY.

Speaker 3 This means that that person basically made a bet that the stock market would go up that day. And if they were wrong, they would lose all of that money they'd put in.
But what'd you know?

Speaker 3 They happened to place this order right before President Trump rolled back some of the Liberation Day tariffs. And this person made an estimated 20,900% on their investment or 21 million bucks.

Speaker 3 Now, the market did not move because of some factor that you or I could have seen coming on a technical chart. The market moved because of an unexpected announcement the president made.

Speaker 3 So this person probably is not a fortune teller or even a really skilled investor. They probably had some insider information.
Insider trading is a huge issue in Washington.

Speaker 3 I got intel on this from Senator Kirsten Gillibrand, who came on the show before I went on maternity leave. She told me this.

Speaker 4 We don't do any stock investing in our family because I passed a law that said members of Congress have to disclose all their stocks.

Speaker 4 And so, I've told them if you're buying and selling stocks, you need to tell mommy right away so I can disclose it.

Speaker 4 I'm hoping to ban it, and that would stop the insider trading by members of Congress. They have a 17% higher return rate than the SP 500, and that is not because they're smarter.

Speaker 3 Well, you know, I've often said that most investors don't beat the market. Well, members of Congress aren't just better investors than most financial advisors.

Speaker 3 They have access to more information than we do and more influence over stocks than we do, for that matter. And they translate that into outperforming the SP 500 by 17%.

Speaker 3 It is definitely infuriating. But is it illegal?

Speaker 3 Since 2012, members of Congress and their spouses have been required to disclose trades thanks to the STOC Act, which stands for Stop Trading on Congressional Knowledge.

Speaker 3 Classic legislative example of creating a backronym, you know, an acronym that you just sort of back into based on what you want the abbreviation to be.

Speaker 3 This law made it explicitly illegal for members of Congress to use non-public information they learn through their jobs to make personal financial gains, i.e., insider trading.

Speaker 3 Under the Stock Act, lawmakers must file a disclosure within 45 days of making a trade over a thousand bucks, and that includes trades made by their spouses and their dependent children.

Speaker 3 These disclosures are public and can be tracked pretty easily. I'll get to that in a bit.
But here's the potential problem.

Speaker 3 While the law requires disclosure, it does not ban members of Congress from owning or trading stocks.

Speaker 3 I say potential problem because there are people out there who believe no one in public office should be able to own stocks, while others believe disclosure should be good enough.

Speaker 3 But I think everyone can agree the penalty for not disclosing should be pretty severe. But it's not.
It is basically a $200 fine, pocket change for someone who just made a six-figure trade.

Speaker 3 Senator Gillibrand told me that disclosure isn't actually happening like it should.

Speaker 4 Members of Congress, which are very, very bad at this. Most don't disclose like they're supposed to.
One in three are trading, one in seven are disclosing.

Speaker 3 So members of Congress are not great at following the rules. Interestingly, neither are judges.

Speaker 3 Federal judges are also required to file annual financial disclosures and are barred from ruling on cases where they have a financial interest.

Speaker 3 But a bombshell Wall Street Journal investigation in 2021 found that 131 federal judges violated this rule by hearing cases involving companies in which they or their families own stock.

Speaker 3 So that's a little under 10% of all federal judges. That triggered a pretty significant response.

Speaker 3 In 2022, Congress passed the Courtroom Ethics and Transparency Act, which requires judges to file trade disclosures within 45 days, just like Congress.

Speaker 3 And then, surprisingly, it gets actually a little more lax for the the most important judges in the country, the Supreme Court justices.

Speaker 3 Until recently, SCOTUS didn't have to follow the same code of conduct as other federal judges. They're now technically bound by a code of ethics adopted in late 2023, but it's toothless.

Speaker 3 There's no enforcement mechanism, and it's mostly voluntary.

Speaker 3 And in terms of financial disclosures, they do have to file annual reports, but there's no real-time trade disclosure requirement like there is for Congress or lower court judges.

Speaker 3 So if Justice so-and-so is holding stock in, say, Chevron and the court is hearing a major environmental case, well, there's no law stopping them from weighing in unless they choose to recuse themselves.

Speaker 3 And as we've seen, recusal is rare.

Speaker 3 As I'm talking about this, President Trump's meme coin might come to mind, right? So here are the rules for him.

Speaker 3 The president and also the vice president and high-level executive branch officials are subject to broader ethics laws than members of Congress.

Speaker 3 High-level executive branch officials have to file detailed annual financial disclosures and are generally prohibited from participating in decisions where they have a personal financial interest.

Speaker 3 But there is no law that explicitly bans the president or vice president from owning individual stocks.

Speaker 3 You might remember that during his first term, President Trump refused to divest from many of his business interests, raising major questions about his conflicts of interest, especially when government policy could impact his bottom line.

Speaker 3 He claimed to have handed over operations to his sons, but that's not the same as full divestment. And now there's Trump, not Trump himself, but the ticker T-R-U-M-P, President Trump's meme coin.

Speaker 3 The president launched the coin in January of this year, and since then, it's estimated that the coin has generated more than $324 million in trading fees for the Trump organization.

Speaker 3 This week, the webpage for the coin announced that the top 200-ish holders of TrumpCoin will get to have dinner in Washington with the president. That announcement sent the value of the coin up 50%,

Speaker 3 and now its total market value is $2.7 billion. The coin's website discloses that the Trump organization and affiliates own 80% of the coin supply.

Speaker 3 So, at the total market value of $2.7 billion, the Trump organization and allies have gained over $2.1 billion from the meme coin.

Speaker 3 Whether this dinner invite will result in some sort of ethics probe remains to be seen. And while Trump is certainly pushing levers to increase the value of the coin, it is not insider trading.

Speaker 3 But there are more straightforward stories of insider trading. You've probably seen the famous examples in the news lately.

Speaker 3 In the days before Trump rolled back the Liberation Day tariffs, Marjorie Taylor Greene bought between $10,000 and $150,000 worth of stock in companies like Adobe, Apple, and Nvidia.

Speaker 3 Between $11,000 and $165,000 of stock in Amazon, FedEx, JPMorgan Chase, Lululemon, Nike, Qualcomm, and Tesla, and also sold between $50,000 and $100,000 worth of U.S. Treasury bills.

Speaker 3 Last year, Nancy Pelosi's husband sold $150,000 worth of stock in Visa right before the Justice Department announced an antitrust lawsuit against the company, which saved the Pelosis a whole lot of losses.

Speaker 3 In both cases, the politicians have denied any wrongdoing. Marjorie Taylor Greene said that these investments were initiated by her financial advisor.

Speaker 3 And to be fair, a lot of financial advisors were telling people to buy the dip. And also, hi, I told you to buy the dip too.

Speaker 3 In the case of Nancy Pelosi's husband, she denies that she shared any sensitive financial information with her husband.

Speaker 3 But no matter the excuses on either side of the aisle, it is clear just through the performance of the portfolios of Congress members alone that insider trading is happening. And I hate it.

Speaker 3 The stock market is supposed to reward research, patience, and strategy. But when people who write the laws can also profit off them before we even know what's coming, that's not a free market.

Speaker 3 That is a rigged game. And the truth is, you don't need to break the law to beat the market.
But when lawmakers are allowed to do both, the system needs a serious reboot.

Speaker 3 Again, I'm obviously not recommending that you try to DIY insider trading. That is illegal.
But you can take cues from money moves in Washington.

Speaker 3 To get insight into what members of Congress are buying and selling, you can use platforms like Capital Trades, which aggregates stock disclosures from lawmakers in near real time.

Speaker 3 And to get even more tactical, you could filter for trades made within 48 hours of closed committee meetings or classified briefings. That's a major tell.

Speaker 3 You could also track unusually large options activities, especially zero-day trades on platforms like Unusual Whales or Cheddarflow.

Speaker 3 That's how the SPY trade that I mentioned at the top of the show got flagged.

Speaker 3 You can look for these big plays and cross-reference the timing against the political calendar to try and infer whether these moves that you're seeing are being made by players in Washington.

Speaker 3 And if you really want to go next level, you can create a Google News Alert for SEC filings, look specifically for Form 4 insider filings or 13D disclosures.

Speaker 3 Both will often drop subtle hints of market moving intel before the news breaks. But if you are not trying to Nancy Drew it, here's today's tip you can take straight to the bank.

Speaker 3 There are ETFs that mimic the stock trades of politicians in Congress, like for example, the ETF that follows Democratic stock trades with the ticker symbol NANC, or the ETF that follows Republican stock trades, K-R-U-Z, Nancy and Cruz.

Speaker 3 Get it? As in Nancy Pelosi and Ted Cruz.

Speaker 3 If you like them, you could add these ETFs to your portfolio, or you could just add them to your watch list and check out how the holdings of these ETFs are being bought and sold so that you can follow the money trail.

Speaker 1 Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin.
Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes.
Do you need some money rehab?

Speaker 1 And let's be honest, we all do.

Speaker 1 So email us your money questions, moneyrehab at moneynewsnetwork.com, to potentially have your questions answered on the show or even have a one-on-one intervention with me.

Speaker 1 And follow us on Instagram at MoneyNews and TikTok at Money News Network for exclusive video content. And lastly, thank you.
No, seriously, thank you.

Speaker 1 Thank you for listening and for investing in yourself, which is the most important investment you can make.