October 16, 2012
Q: I am a staffer for a Member of the House and one of my responsibilities is to help him meet his financial disclosure obligations. I know that there are new rules that require Members to report stock purchases and sales as soon as they are made. My question is whether we also have to report stock transactions made by the Member’s wife. I recall seeing guidance saying that spouses’ transactions do not have to be reported, but more recently I saw something suggesting that they do. What gives?
A: The short answer is that Members must report their spouses’ stock transactions as well as their own. But, given the twists and turns that have led to that result, I can understand your confusion.
The requirement to make timely disclosures of stock transactions appears in the Stop Trading on Congressional Knowledge Act. Since its enactment, much of the coverage of the STOCK Act has focused on its so-called ban on insider trading by Members and staffers. A lesser-known aspect of the act is that it imposes new disclosure requirements on Members.
Specifically, Members must file a periodic transaction report whenever they engage in a personal financial transaction valued at more than $1,000 in stocks, bonds and certain other types of securities. The PTR must be filed within 30 days of when a Member becomes aware of a reportable transaction, or no later than 45 days after the date of the transaction, regardless of when the Member becomes aware of it. The new requirements also apply to many senior staffers. You may want to check whether it applies to you.
The law directed the House and Senate Ethics committees to issue guidance on how to comply with the law’s provisions, including reporting transactions. In June, the committees did just that.
One issue of contention was whether Members would be required to disclose transactions made by their spouses and dependent children. As you may know, Members’ annual financial disclosure statements, which report assets, liabilities and transactions on an annual basis, require disclosure of transactions by spouses and dependent children. The STOCK Act itself, however, did not explicitly impose this requirement.
In the absence of clear direction from the law, the Ethics committees reached different conclusions on this point. The House Ethics Committee’s June 7 memorandum regarding PTRs stated that “the STOCK Act does not require the periodic reporting on a PTR of transactions in assets wholly owned by the filer’s spouse or dependent children.” The Senate committee’s June 15 memorandum reached the opposite conclusion, stating that filers “must disclose not only their own transactions that meet the threshold, but they must also disclose those of their spouses and dependent children.”
Some observers were puzzled how two committees could reach different results when interpreting the same statute. But it is not surprising. Statutory language often lends itself to more than one reasonable interpretation. For example, lower courts often reach different conclusions about the exact same statutory language, leaving appellate courts to resolve the disagreement. In the case of the Stock Act, reasonable minds could differ over whether the PTR requirements were meant to extend to transactions by spouses and dependent children. Reasonable minds did, in fact, differ.
Given the split, Congress stepped in. On Aug. 16, President Barack Obama signed an amendment to the STOCK Act that makes clear that transactions by spouses and dependent children must be reported. The next day, the House Ethics Committee issued revised guidance to accord with the amendment.
The inclusion of transactions by spouses and children only further expands an obligation that was already quite demanding in the first place. The PTR requirement has caused many Members and staffers to increase the extent to which they monitor their investments. In general, it is not uncommon for an investor to leave transactions to a financial adviser, perhaps receiving quarterly updates. Now, those in Congress who are required to file PTRs need to monitor their transactions much more closely.
The House Ethics memo states that filers are responsible for making sure that their broker, investment adviser, trustee or anyone else who makes reportable transactions all know that they must inform a filer. What counts as a reportable transaction is fairly technical and not always clear. Indeed, the House memorandum regarding the PTR requirement is 15 pages long. Thus, filers should make sure their advisers understand what counts as reportable, so they know when to inform the filer of a transaction.
The inclusion of spouses’ and children’s transactions only complicates things. With any luck, your Member and his wife have a relationship such that she will not mind having her own investments made public as they occur. Just as your Member needs to monitor his own investment transactions, he will also now need a system to monitor his wife’s transactions as well. I hope they get along.
And, one more thing. Don’t be late. Missing the deadline to report a transaction carries a $200 fine.
© Copyright 2012, Roll Call Inc. Reprinted with permission.