NJ Democrats paid fines for violating stock law, prompting reform talk – NorthJersey.com

Rep. Tom Malinowski became the poster child last year for reforming an insider trading and conflict of interest law when he failed to disclose up to $3 million in stock trades during the COVID-19 pandemic. 

He was hardly alone — on Capitol Hill or in New Jersey. 

Two of his fellow Democrats — Reps. Bill Pascrell Jr. of Passaic County and Mikie Sherrill of Essex County — also appeared to violate the STOCK Act, a lightly enforced law banning insider trading among lawmakers and requiring them to quickly disclose their trades. 

Malinowski, Pascrell and Sherrill were among 63 members of Congress found by Business Insider to have broken that law. They were found to have mostly filed late disclosures and are not accused of insider trading.

The widespread violations by members of Congress led to a rare bipartisan agreement between House Speaker Nancy Pelosi and House Minority Leader Kevin McCarthy to ban lawmakers and their spouses from trading stocks.

But it has also been a campaign issue in New Jersey. 

In the lead-up to last week’s primary, Republican candidates vying to face Democratic Rep. Josh Gottheimer — who did not violate any law — seized on the issue of stock trading to put forth reform plans. The Republican State Committee has drawn attention to Sherill’s stock sales. And in the 7th Congressional District, Malinowski faced attacks from national Republicans as well as the state party. 

Given the competitiveness of that district this year, Republicans signaled they’re likely to keep a focus on Malinowski’s conduct heading into the midterm election. County and state GOP officials after the primary returned to using the hashtag #tradingtom and the nickname Trader Tom on social media. 

Here is what to know: 

What is the STOCK Act? 

Passed in 2012, the Stop Trading on Congressional Knowledge (STOCK) Act was designed to combat insider trading and force transparency. 

The law prohibits lawmakers from using non-public information learned in their official duties for personal profit — commonly known as insider trading. It also requires them to publicly disclose trades between 30 and 45 days after making them.  

Violations typically result in a fine of about $200, but there are no public records to show whether lawmakers pay those fines. 

“It’s the notion that the powerful shouldn’t get to create one set of rules for themselves and another set of rules for everybody else,” then-President Barack Obama said when he signed the law. 

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NJ politicians’ violations

Critics of the law say it is lightly enforced and in need of reform. The pandemic bolstered that argument. 

Malinowski, of Hunterdon County, failed to disclose dozens of trades in 2020 and 2021 until Business Insider questioned him about them. The news organization reported Malinowski’s trades, some made early in the pandemic, were worth at least $671,000 and as much as $2.76 million. One stock sale involved the shares of a medical-diagnostic company that manufactures COVID-19 tests, Insider reported, citing a spreadsheet provided by Malinowski’s office. 

Some of the companies Malinowski invested in were developing COVID-19 testing or therapeutics, according to The Associated Press. In November 2020, Malinowski sold between $15,001 and $50,000 worth of stock in New Jersey-based drug maker Merck, whose value dropped after it announced it would end its efforts to develop a vaccine, the agency reported. 

And in February 2020, days after members of Congress were briefed on the virus, Malinowski sold between $1,001 and $15,000 shares in Kimco Realty, a company that owns shopping centers across the country, according to the AP. He bought back that stock and more a month later when the company’s share price dropped nearly 50%, the AP report said. 

Malinowski has said it was an “oversight” and a broker handles his trades. His broker, Gagnon Securities, publicly confirmed Malinowski had no involvement or knowledge of investment decisions. His campaign told the USA TODAY Network New Jersey the broker had “no input from him” and “made the same trades for Malinowski as it did for dozens of other clients.” 

The Office of Congressional Ethics found “there is substantial reason to believe that he failed to properly disclose stocks” and recommended a further review, which is ongoing. 

Malinowski has since placed his stocks in a blind trust and paid the $200 fine. He is co-sponsoring a bill to ban member stock trading. 

“Instead of attempting to work within a system we know is broken, let’s put in place simpler requirements that eliminate even the suggestion of impropriety,” campaign spokeswoman Naree Ketudat said.

Sherrill paid a $400 late fee after she was months late disclosing two sales of vested stock her husband earned as part of his employment, according to Insider. The sales were worth up to $350,000, the news outlet said. 

Sherrill has sold her individual stocks and purchased “exchange-traded funds,” which pool investments in various industries on major stock exchanges. Her campaign declined to comment. 

Pascrell was overdue reporting two stock trades: A December 2019 trade of General Electric stock and in August 2019 in pharmaceutical company Johnson & Johnson, according to Insider. 

Pascrell’s campaign did not respond to a message seeking comment, but he told NBC News in February, “The few that I have — stocks — I just sold.” 

Political fodder for midterms

Although there’s no evidence of insider trading among any of the members of Congress, the lapses have become useful political weapons ahead of the midterms. 

The National Republican Congressional Committee said in an ad that Malinowski “profited off the pandemic” and called the trades “corrupt violations” of the law.

“Tom Malinowski made a fortune betting against the American economy during the pandemic and intentionally covered it up during an election year,” said Harrison Neely, a spokesman for former Republican state Sen. Tom Kean Jr. “He blew through the law designed to stop members of Congress from insider trading over 140 times and earned himself a bipartisan ethics investigation.”

Malinowski is up for reelection in New Jersey’s 7th Congressional District against Kean in what is widely viewed as the most vulnerable seat statewide.

The Democratic Campaign Committee called Kean a “hypocrite” for raising Malinowski’s trades. The organization cited an NJ Advance Media report that Kean sold at least $175,000 in stock that included Johnson & Johnson, the New Brunswick company that developed one of three COVID-19 vaccines, and his family foundation bought at least $15,000 in stock of a COVID test manufacturer. 

There are key differences between Malinowski’s and Kean’s trades. 

Kean is not in Congress and does not have access to privileged information. And that financial information was made public through routine disclosures, Neely said. 

Ketudat, Malinowski’s spokeswoman, said, “The public needs to have trust in their representatives, and our current financial disclosure system is primed for partisan exploitation.” 

And in the 5th Congressional District, the two leading Republicans in the primary election focused on stock reform even though Gottheimer, the incumbent, did not violate the STOCK Act. 

Gottheimer reported more stock purchases and sales during the past two years than any other member of the House, according to an Axios analysis. He turned over his portfolio to a third-party investor before he got elected and has “nothing to do with managing my portfolio,” he told CNBC, and “I’m not aware of what’s bought or sold at the time.” And in February he announced he set up a blind trust. 

His opponent in November, Frank Pallotta, a former Wall Street executive, issued a plan for trading reform that would require members to place their holdings in a blind trust and place similar trading restrictions on federal lawmakers’ family members as those in the financial industry. 

Nick De Gregorio, who lost to Pallotta in last week’s primary, also issued a reform plan. 

Gottheimer’s campaign did not respond to a message seeking comment but he told CNBC “members should not be actively involved in day-to-day trading.” 

Dustin Racioppi is a reporter in the New Jersey Statehouse. For unlimited access to his work covering New Jersey’s governor and political power structure, please subscribe or activate your digital account today.

Email: racioppi@northjersey.com 

Twitter: @dracioppi