Congress Needs To Stop Day Trading, Says Sen. Mark Warner

“If you take these jobs of responsibility, you have to be willing to give up something," Warner tells Big Technology.

Big Technology is a weekly newsletter dedicated to covering the tech world with honest, nuanced reporting. Join the 12,000+ subscribers who tune into Big Technology for tech news without the spin. Here’s an easy way to subscribe:

Visit: Mediaocean.com/Retreat

Mark Warner has a different background than his colleagues in the Senate, one more common in Silicon Valley than Washington’s halls. Before Virginians elected him U.S. Senator in 2008, and governor six years before that, Warner was a venture capitalist and entrepreneur. He co-founded Nextel, a wireless company now owned by Sprint, and 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 little so far. They risked losing credibility by persistently calling out tech executives and then sitting on their hands. 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 check their excesses, 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,” Brian Baird, 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.”

“There were members of Congress day trading from their congressional office.”

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 sold millions in stock. Her fellow Georgia Sen. David Purdue made a windfall by dumping and 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 public became more attuned to their representatives’ trading habits.

Loeffler, Purdue, and Burr disclosed their investments in compliance with the Stock Act, a law 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 Baird started. Democratic Sen. Jon Ossoff, who replaced Purdue in the Senate, introduced legislation this week along with Sen. Mark Kelly to 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 $5.3 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 said at the time.

Congress can participate in a free market economy without this apparent conflict of interest. Putting their assets in blind trusts, as 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% in 2021, for instance, a fine result for anyone. Restricting members to more general funds could give them 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 DC 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. 

Meet Big Technology’s Headline Sponsor: Mediaocean

If you missed the #MediaoceanRetreat held virtually during CES, you can watch the recording on-demand. Sessions from the 2-day program include speakers from Big Tech platforms like Facebook, LinkedIn, and Twitter, Big Brands like Cadillac, P&G, and Pepsi, Big Agencies like Dentsu, Omnicom, Publicis, and WPP, Big Networks like CBS, NBCU, and Univision, and Big Personalities like Bill Wise, Joanna O'Connell, Rishad Tobaccowala, Sir Martin Sorrell, and Yours Truly. Go to www.Mediaocean.com/Retreat to access all the content. 

News Briefs

Federal Judge Steps Aside From High-Profile Amazon Case, Citing Financial Conflict (WSJ)

It’s not just Congress. Federal judges are trading stocks in companies they preside over as well. This week, U.S. District Judge Liam O’Grady stepped down from a nearly two-year Amazon case because his wife owned — and sold — $22,000 in Amazon stock as it took place. O’Grady called it “almost insane” that his wife’s investments would’ve caused him to steer the case in Amazon’s favor. Which is itself insane.  

Why Apple’s iMessage Is Winning: Teens Dread the Green Text Bubble (WSJ)

Apple has considered making iMessage available on Android several times, but has always decided against it. The reason? iMessage is a “lock in” that keeps people on iPhones so they won’t turn into dreaded “green bubbles” if they go to Android. Apple executives say this plainly in internal documents made public during its case with Epic Games. And the strategy is working, young people say they won’t date people who show up as Android users in their texts. 

Together with The Day One Fellowship

If your New Year’s Resolution is to finally start something entrepreneurial, you need to invest in your idea — and your network.

Day One is a shortcut to a network of collaborative, entrepreneurial people united for skill-building, insider knowledge, resources, and partnerships typically reserved for venture-backed founders. Its community contains hundreds of ambitious people who are learning, building, and exploring what’s next together.

One Big Technology reader applying through this newsletter will get a free 8-week Day One Fellowship (all-access to one of the most powerful entrepreneurial communities in the world). 

Include Big Technology in your application by January 23, 2022 to be considered.

What Else I’m Reading

The Financial Independence Retire Early (FIRE) movement reckons with inflation. Amazon Prime pricing may rise. A thoughtful metaverse exploration. The FTC will get a second crack at Facebook. An excerpt from the forthcoming Davos Man book about Marc Benioff. We’re putting too much news behind paywalls. A California man with an AR-15, loaded magazines, and a hit list including Dr. Fauci and Joe Biden was arrested en route to Washington.

Quote Of The Week

“This might suggest that decentralization itself is not actually of immediate practical or pressing importance to the majority of people downstream, that the only amount of decentralization people want is the minimum amount required for something to exist.”

• Signal founder Moxie Marlinspike on Web3’s illusion of decentralization

Check Out Techmeme's Daily Newsletter (cross-promo)

For over 16 years, technology leaders have depended on Techmeme for an up-to-the-minute executive summary of trending news and commentary relevant to the industry, compiled from both news sites and social media. And they now publish a daily newsletter of all the best stories from the past day, formatted for your inbox. High utility, no clickbait, no annoying ads, and always free.

Advertise with Big Technology?

Big Technology has new ad openings in February and March. To reach this group of 12,000+ plugged-in tech insiders, please email me at alex.kantrowitz@gmail.com.

This Week On Big Technology Podcast: Tech Regulation’s Make Or Break Moment — With Sen. Mark Warner

As noted above, Senator Mark Warner takes us inside the battle to regulate Big Tech on this week’s podcast. Elected in 2008 and serving his third term in the U.S. Senate, Sen. Warner joins Big Technology Podcast to discuss whether we should regulate Big Tech and how the companies are fighting back — overtly and covertly. In the second half, we also discuss whether members of Congress should trade individual stocks.

You can listen on Apple, Spotify, or wherever you get your podcasts.

Thanks again for reading. Sharing Big Technology with friends and colleagues is the primary way the newsletter grows, so please help the cause!  

Questions? Email me by responding to this email, or by writing alex.kantrowitz@gmail.com

News tips? Find me on Signal at 516-695-8680

See you next Thursday!