The United States has seen an unprecedented increase in financial conflicts of interests in both its legislative and executive branches over the past few years. The Wall Street Journal recently reported on the extent of financial conflicts of interests in federal courts. According to The Wall Street Journal’s report, 131 federal judge participated in 685 cases in the which they had a financial stake, mostly due to their individual stock holdings. This is against the United States disqualification statute that prohibits them from deciding cases in financial interests.
All three branches of government are in an ethical crisis.
Because those in high office are unwilling to sell assets that interfere with their official duties, we have an ethical crisis within all three branches of government.
İn 2016, I was one of the many who raised concern over Donald Trump’s refusal to sell his vast holdings in Trump Organization hotels, condos, resorts, and golf courses around the globe. Laurence Tribe, a Harvard Law professor, and former Ambassador Norman Eisen prepared a detailed analysis on the inevitable collision of Trump’s financial interests and Emoluments Clause, which prohibits federal officials from receiving any benefit or profit from foreign governments.
Trump refused to sell, and we sued him in his first day in office for Citizens for Responsibility and Ethics in Washington and other plaintiffs. The 2nd Circuit Court Of Appeals later confirmed our standing to sue, but the litigation lasted so much that Trump kept these financial interests and foreign government emoluments for the entire four years of his presidency. Our suit was dropped upon Trump’s departure.
Representatives and senators from both political parties continue to hold millions of dollars in stocks in companies that are affected by their official duties. This includes health care companies as well as fossil fuel companies, mining corporations, and technology companies. Members of Congress trade stocks when they have access nonpublic inside information. It’s important to remember that trading stocks on the basis misappropriated nonpublic data is a crime, and people who are not members of Congress are often prosecuted.
Donna Nagy, a professor at Indiana University’s Maurer School, Law, and I have published extensively about insider trading. We wrote to the Senate and the House in December asking for members to stop holding stocks that are directly affected by their official duties. Instead, we asked them to put their money into diversified mutual funds or other non-conflict assets. We did not receive any response.
The Wall Street Journal report mentions that judges who hold stocks in companies that were affected by their cases are required to withdraw. Some judges may not be paying attention to their portfolios, or the portfolios of their spouses. They might also not know that large publicly traded companies often have multiple subsidiaries. Many investors, including judges, don’t know the identity of these subsidiaries. Others judges may not be concerned about compliance with a statute that requires recusal.
This problem could be easily avoided if judges, as most Americans who invest to retire, would have invested in mutual or common investment funds that are exempted from federal conflict of interest provisions. It is unlikely that one case will have an impact on the fund’s value. Some judges like members of Congress insist on trading individual stocks, sometimes actively trading them, whatever the reason.
Some judges believe that they can sell stock to participate in a case if the opportunity arises. But not so fast. Selling the stock to a judge who has information about the outcome of a case could put him at risk under federal criminal insider trading laws. A judge with conflict of interest in a case could be held responsible for the stock he or she owns.
A judge with conflict of interest in a case could be stuck with a stock if the conflict becomes obvious.
The Supreme Court is facing worse problems. Three justices, Chief Justice John Roberts and Associate Judges Stephen Breyer (and Samuel Alito) each own stock and have withdrawn from all cases due to their stock holdings. There are no replacement justices for the chief justice John Roberts and associate justices Stephen Breyer and Samuel Alito, which is a problem unlike lower federal courts. Recusals can make it possible for a case to be decided by seven or eight justices. This is problematic for Supreme Court because it often allows review in certain cases to clarify the law and resolve particular disputes. A Supreme Court decision without the support of at most five justices is not a precedent. The ruling could be reversed in a case where none of them are available.
This is a problem that could also be solved easily if justices invested in the same way as Americans do with their retirement funds — in broad-based mutual funds.
This is the moment Congress needs to realize that all three branches have lost confidence. Many voters believe that corruption spreads like disease and that executive and legislative decisions are not made in the best interest of the average citizen. This cynicism and the reality it underlies are dangerous for representative democracy’s future.
Congress passed the Protecting Our Democracy Act last month to stop abuses by the executive branch. The bill provides for Congress and the Department of Justice to enforce the Emoluments Clause of Constitution. Concerned citizens should not have to wait for four years again, as was the case in the CREW litigation. This happened while a president openly flouted the financial conflicts-of-interest laws.
