House to Likely Ban Lawmakers’ Public Company Board Membership

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By Andrea Vittorio

The House will likely ban lawmakers from sitting on publicly traded company boards in the wake of a New York congressman’s indictment for insider trading, according to a Democratic House aide.

A ban on such board seats was proposed in August after the indictment of Rep. Chris Collins (R-N.Y.) who is leading by a slim margin in a race that’s still too close to call.

Democrats are likely to include the board ban as one of the rule changes they are readying for a vote when they take control of the House in January, said the aide who didn’t want to be quoted on rule changes still under discussion.

The bipartisan proposal from Rep. Kathleen Rice (D-N.Y.) and Tom Reed (R-N.Y.) would apply to House lawmakers so it requires a vote only in that chamber. The Senate already bans directorships at publicly traded companies.

If approved, the proposal would close a loophole that lets House lawmakers sit on public company boards, as long as they don’t get paid for it. Ethics watchdogs hope it could lead to a broader reassessment of lawmakers’ dealings with the corporate sector, including possibly tightening rules on stock trading.

“I think it’s an appropriate and crucial first step toward broader reforms,” Rice said.

Collins is the only sitting member of Congress known to have been simultaneously sitting on a public company’s board.

Collins was until recently a director at Innate Immunotherapeutics, an Australian biotechnology company. Federal prosecutors have accused Collins of tipping his son to the company’s negative drug trials, which allegedly prompted his son to sell shares and tell others to do the same. The case is scheduled for trial in the U.S. District Court for the Southern District of New York in Manhattan in 2020.

The House rule on board seats “was just stunning to me,” said Craig Holman, government affairs lobbyist at advocacy group Public Citizen. Holman filed an insider trading complaint against Collins with the Office of Congressional Ethics and the Securities and Exchange Commission.

Collins, who has denied wrongdoing, didn’t reply to requests for comment.

Limits on Trades?

Adopting a House rule to ban public company board service is “a good first step, but there’s a lot more they can and should do,” said Jennifer Ahearn, policy director at the nonprofit Citizens for Responsibility and Ethics in Washington.

Public Citizen’s Holman has also asked Rice and Reed to bar lawmakers from sitting on the boards of private companies or nonprofit organizations.

“There’s no question that we have a lot of work to do when it comes to regulating members’ relationship with private companies and non-profit organizations,” Rice said in a statement to Bloomberg Law prior to the election. “And I’m eager to work with my colleagues to make changes.”

Lawmakers’ investments also might get more attention in the wake of Collins’ indictment. Congress should do more to prevent lawmakers like Collins from investing in health care and other industries that they directly oversee through their committee assignments, Holman said.

“There’s some interest in dealing with that issue,” Holman said, adding it hasn’t gained enough support to make it into the House rules package under discussion.

Congress passed a law in 2012 that makes it illegal for members to trade on nonpublic information about pending regulatory or legislative decisions. The Stop Trading on Congressional Knowledge Act (STOCK) Act also requires timely disclosure of stock trades.

“The difficulty here is not so much in understanding the financial holdings. It’s how they may or may not connect with how things happen in Congress,” Ahearn said. “That’s difficult.”

Many but not all lawmakers have dialed back their trading activity since the STOCK Act became law, according to Holman’s research on members of the Senate.

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