On February 7, 2020, Senator Richard Burr—the chairman of the Senate Intelligence Committee and member of the Health, Education, Labor, and Pensions (HELP) Committee at the time—co-authored a Fox News opinion article with Senator Lamar Alexander in an effort to calm the public over the incoming coronavirus.
“Thankfully,” the two senators wrote, “the United States today is better prepared than ever before to face emerging public health threats, like the coronavirus, in large part due to the work of the Senate Health Committee, Congress, and the Trump Administration.”
But behind closed doors, Burr made changes to his investment portfolio. On February 13, Senator Burr sold between $628,000 and $1.72 million worth of stock, a month prior to “Black Thursday” on March 12, which was the worst day for U.S. stocks since 1987. Burr then called his brother-in-law, Gerald Fauth, who in turn contacted “his own broker to sell certain stocks held in an account in his wife’s name.”
The SEC alleged that Burr and Fauth committed insider trading, as Senator Burr was in possession of “potentially material nonpublic information concerning COVID-19 and its potential impact on the U.S. and global economies.” However, both the DOJ and SEC closed their investigations without any explanation or charges brought against Burr and Fauth.
Despite the lack of charges, the allegations brought against Burr contributed to the growing bipartisan call for reform concerning stock trading by members of Congress. A survey by the University of Maryland’s School of Public Policy found that 86% of voters supported a ban on individual stock trading by members of Congress. Multiple attempts were also made in Congress to pass a stock trading ban. Most recently, in September 2025, Representative Chip Roy, alongside multiple representatives across party lines, introduced the Restore Trust in Congress Act to the House. If passed, it would ban members of Congress, as well as their spouses and dependents, from trading or possessing individual stocks.
This article will first review current regulations on congressional stock trading under the STOCK Act. Then, this article will provide a legal justification for banning congressional stock trading, deriving them from the U.S. Supreme Court precedent on corporate insider trading.
The STOCK Act of 2012 and The Restore Trust in Congress Act
The STOCK (Stop Trading on Congressional Knowledge) Act of 2012 was signed into law by President Obama in a bipartisan effort to combat insider trading allegations in Congress.
First, the legislation confirms in Section 4(a) that members of Congress are not permitted to trade based on insider information under SEC regulations.
Then, the legislation declares a “Duty of Members and Employees of Congress” in Section 4(g)(1):
Subject to the rule of construction under section 10 of the STOCK Act and solely for purposes of the insider trading prohibitions arising under this Act, including section 10(b) and Rule 10b-5 thereunder, each Member of Congress… owes a duty arising from a relationship of trust and confidence to the Congress, the United States Government, and the citizens of the United States with respect to material, nonpublic information derived from such person’s position as a Member of Congress…
Finally, the legislation also amended the Ethics in Government Act of 1978 to require members of Congress to report their stock trades.
The proposed Restore Trust in Congress Act builds upon the STOCK Act in three ways: prohibiting any member of Congress from possessing or trading individual stock, extending the trading ban to both the spouse and dependents of the member of Congress, and penalizing violations with 10% of the value of the investment.
The SEC on Insider Trading
The legal case for a congressional stock trading ban is relatively simply under SEC regulations. The commission derives its regulations on insider trading from Rule 10b-5. 17 CFR § 240.10b-5 states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange… To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
To the SEC, the legal issue with insider trading is that it provides an unfair advantage to the person with insider information when trading securities. Often known as the “equal access theory,” this standard for prosecuting insider trading was upheld by the Second Circuit’s U.S. Court of Appeals in the case SEC v. Texas Gulf Sulphur Co. (1968). The opinion reads:
The essence of the Rule [10b-5] is that anyone who, trading for his own account in the securities of a corporation has “access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone” may not take “advantage of such information knowing it is unavailable to those with whom he is dealing,” i. e., the investing public.
Applying this standard to congressional stock trading, members of Congress can easily obtain such nonpublic information. Members of Congress are often part of committees overseeing various sectors of the economy, which grants them access to information on various companies. In fact, many of these Congress members have traded stocks in companies that they are overseeing.
How does an insider avoid violating insider trading regulations? The Second Circuit notes two options:
Thus, anyone in possession of material inside information must either disclose it to the investing public, or, if he is disabled from disclosing it in order to protect a corporate confidence, or he chooses not to do so, must abstain from trading in or recommending the securities concerned while such inside information remains undisclosed.
While it may be possible for a corporation to choose to release insider information, it is not possible for an individual Congress member to unilaterally release confidential government information in order to avoid insider trading. So then, according to the Second Circuit, members of Congress must avoid trading such securities.
The U.S. Supreme Court on Insider Trading
The U.S. Supreme Court has a much stricter definition on insider trading. To the Court, the use of insider information alone does not constitute a violation, thereby rejecting the SEC’s equal access theory. Instead, the Court states in Chiarella v. United States (1980):
A duty to disclose under § 10(b) does not arise from the mere possession of nonpublic market information… But one who fails to disclose material information prior to the consummation of a transaction commits fraud only when he is under a duty to do so. And the duty to disclose arises when one party has information “that the other [party] is entitled to know because of a fiduciary or other similar relation of trust and confidence between them.”
In other words, the existence of the duty to disclose (or abstain from trading) requires not only the possession of material nonpublic information, but also a “relation of trust and confidence” between the trader and the relevant party. For instance, board members of a company are bound by the duty to disclose not because they are in possession of insider information, but because they have a “relation of trust and confidence” with the company’s shareholders.
Although Chiarella was a corporate insider trading case, members of Congress are still bound by the Court’s definition of the duty to disclose. As mentioned above in Section 4(g)(1) of the STOCK Act, although members of Congress are not insiders to a company, the existence of a “duty arising from a relationship of trust and confidence” to U.S. citizens and the federal government prevent the use of government insider information for stock trading. And again, since members of Congress always possess material nonpublic information (such as information concerning companies they oversee, upcoming legislations, national security reports, etc.) and cannot unilaterally disclose said information, members of Congress must abstain from trading.
What about a trading ban on spouses and dependents, as proposed by the Restore Trust in Congress Act? Unlike a trading ban on members of Congress, this proposal lacks legal precedent, as the STOCK Act does not extend the duty to disclose to the family of Congress members. Dirks v. SEC (1983) does note that it is possible for a family member to inherit the same duty as a corporate insider when the insider breaches the relationship of trust and makes “a gift of confidential information to a trading relative or friend.” However, this is an enforcement problem, not a legal one. Simply being related to a member of Congress does not provide access to confidential information, but only if the member of Congress breaks the “relation of trust and confidence” by tipping insider information. Therefore, a stock trading ban on spouses and dependents is not supported by Court precedent.
Conclusion
In theory, the STOCK Act should have already resolved the issue of congressional insider trading. After all, the legislation prohibits the use of insider information while trading stocks. But even after excluding the issue of enforcing insider trading laws against members of Congress (despite the numerous allegations), the legal mistake that the STOCK Act makes is its assumption that it is possible for members of Congress to trade stocks without using insider information.
The key difference between corporate and congressional insider trading is the range of information insiders have access to and to whom their duty to disclose is towards. Corporate insiders have nonpublic information on their respective companies, while their duty to disclose is for their respective shareholders. Therefore, trading stocks in other unrelated companies would not be an insider trading violation. However, congressional insiders have access to a wide variety of nonpublic information concerning the United States, while their duty is to the American people. Therefore, members of Congress must be banned from stock trading, as trading any individual stock in the U.S. stock market would be a violation of their “relationship of trust and confidence” with the American people.