By: Richard Mendoza
Article Update: February 2025
In 2006, an act of Congress created to combat and deter congressional insider trading was created. Formation of the bill occurred after insider trading allegations against members of Congress were revealed in 2006. i Several years later, an aired 60 Minutes segment in 2011 reported how members of Congress were able to legally trade stocks using non-public information gathered on Capitol Hill. The segment called into question the practice of stock market trading conducted by congress members using insider information found and gathered on Capitol Hill.ii Continuous efforts by those with power and money to retain their privileges results in a centralization of power and wealth. David Harvey’s theory of accumulation by dispossession provides evidence towards the belief that centralization of power and wealth allows those in control to benefit greatly in any instance. The very idea of capitalism and capital accumulation creates internal contradictions. The result of capital accumulation, for example, creates further division between members in society from opposing classes.
Money is a necessary aspect to survival in American society.iii It dominates life in every aspect, from institutions and governments to relationships. In terms of monetary assets, anything owned as a personal or financial investment is viewed as a capital asset. Capital accumulation along with competition is important to a capitalistic society. “Competition and capital accumulation incentivize businesses to maximize efficiency, which allows investors to capitalize on that growth and consumers to enjoy lower prices on a wider range of goods”.iv The U.S Economy is a free market economy. This makes the stock market a component of a free market economy, which invites competition. As Frederick Engles describes in the The Principles of Communism,
“The introduction of free competition is thus public declaration that from now on the members of society are unequal only to the extent that their capitals are unequal, that capital is the decisive power, and that therefore the capitalists, the bourgeoisie, have become the first class in society”.v
In David Harvey’s article The Enigma of Capital and the Crisis this time, Harvey analyzes the work of Karl Marx in viewing and defining capitalism and capital. “Capital, Marx insists, is a process of circulation and not a thing. It is fundamentally about putting money into circulation to make more money”.vi Investments such as stocks are considered capital accumulation because it is an attempt to grow said investment into higher wealth/profit.vii David Harvey’s analysis of the financial crisis that began in 2008 provides further detail into a theory known as the Internal Contradictions of Capital Accumulation. This theory, related to the crisis theory by Karl Marx, claims that capital accumulation results in contradictions which expose instability within the very structures and frameworks that hold up the economy. Capital Accumulation will ultimately lead to economic crises when overaccumulation occurs. David Harvey argues that through the process of capital accumulation, accumulation by dispossession will eventually also occur. Accumulation by dispossession is the eventual centralization of wealth and power into the hands of a select portion of the population. Instances of accumulation by dispossession have occurred throughout history. As Harvey states,
“In all of these cases, the turn to a liberal form of imperialism (and one that had attached to it an ideology of progress and of a civilizing mission) resulted not from absolute economic imperatives but from the political unwillingness of the bourgeoisie to give up any of its class privileges, thus blocking the possibility of absorbing overaccumulation through social reform at home”.viii
Capital accumulation through the stock market is a potential way to gain money or capital legally. There is nothing illegal with investing in the stock market. However, there are issues related to the stock market that make the practice a race and class issue.
Stock trading is the act of buying and selling shares of publicly traded companies on stock exchanges. Trading in terms of economics or finances involves buying and selling investments including stocks (or shares) as well as bonds or commodities for a profit. Individuals that partake in the stock market are involved for either short-term or long-term capital gains. Short-term investments are typically the favored route taken by individuals looking to make a profit in the stock market. However, based on an individual’s needs or goals, long-term investments become the other available option.ix Insider trading however is the act of buying or selling stocks (shares) of a publicly traded company using information that is not readily available to the public. Insider trading is illegal in the United States and carries penalties of potential imprisonment up to 20 years and fines up to $5 million dollars.x Despite this, allegations and documented proof of congress members conducting insider trading have occurred for years.
In 2012, former President Barack Obama officially signed into law the Stop Trading on Congressional Knowledge (STOCK) Act after the bill was passed in Congress. Due to the exposure of financial practices (related to stocks and the stock market) of congress members, the original bill that was drafted and written by former congress members Louise Slaughter and Brian Baird was created. The issue of insider trading by members of congress dates back as far as 1968. Prior to 1968, there had already been attempts by Congress to deter individuals from abusing positions of power for personal financial gains or the financial gains of others. “It was Congress that passed antitrust laws that attempted to govern the monopolistic behavior of the private sector or face punitive consequences”.xi In 2023, Business Insider reported that 78 members of congress had recently failed to properly report their financial trades as mandated by the STOCK Act.xii The question is now how and why members of congress were able to bypass the STOCK Act. According to Cora Leeuwenburg from the Loyola University Chicago School of Law, there isn’t a limit on lawmakers trading stocks based on classified information. In addition, there is no oversight regarding the trades lawmakers are allowed to make based on other information they are privy to as part of their job.xiii
As a result of lacking enforcement of the STOCK Act, the bill plays zero deterrence in stopping these types of actions by congress members. Congress members Sherrod Brown and Jeff Merkley introduced the Ending Trading and Holdings in Congressional Stocks (ETHICS) Act in April of 2023.xiv The Act, if passed, would officially put an end to all forms of trading by members of congress and their family members. The most notable aspect of the Act is that it would prohibit Members of Congress (MoC), their spouses, and dependent minors from owning or trading securities, commodities, or futures. In addition, it would immediately ban stock trading for MoC upon enactment. The Act calls into question the ethical or moral practices of members of congress. Insider trading, by all accounts is considered unethical because it “generates profits at other parties’ expense by exploiting information advantages gained through means of position or association (i.e., connections) instead of through public channels”.xv Issues with the current state of stock trading by congress members is due to a lack of public trust in Congress as well as little to no punishment for insider trading.xvi Critics of insider trading involved with politics view the issue as a violation of political ethics. This has led to calls for outright banning of stock trading by congress members and their immediate family members. As members of congress are provided incredible amounts of private information, questions into their morality in using said private information for exploitation or personal gains may continue to occur.
In 2020, several senators, including the late Dianne Feinstein, were accused of selling stock using gained information on Capitol Hill.xvii This information alerted them to the impact the Covid-19 pandemic would have on the stock market and other financial sectors. None of the accused were charged and the the department of justice closed their investigations by January 2021. The most notable case was brought against now former Senator Richard Burr.xviii It was dropped by the SEC in 2023. Throughout the Covid-19 pandemic, many other members of congress were active in the stock market as well, investing in health companies and manufacturers of vaccines. Business Insider reported in 2021 that “At least 75 federal lawmakers held shares of Moderna, Johnson & Johnson, or Pfizer in 2020”.xix Though the STOCK Act is in place to prohibit insider trading by congress members, there are legal ways around the STOCK Act as noted earlier by information from Cora Leeuwenburg. As a result, insider trading by congress members is rampant and hardly enforced, but it is not only MOC conducting insider trading. A 2021 study conducted by staff of the University of Technology Sydney found the prevalence of illegal insider trading is at least four times greater than the number of prosecutions.
“We estimate that insider trading occurs in 1-in-5 mergers and acquisitions and in 1-in-20 earnings announcements…We find that insider trading is more likely when the information is more valuable, more people are in possession of the information, and in more liquid stocks. Detection and prosecution are more likely when there are abnormal trading patterns and more regulatory resourcing”.xx
Comparatively to 2020 and 2021, insider trading cases have increased. In 2022, the U.S. Securities and Exchange Commission brought 43 insider trading cases to court.xxi By comparison, 2020 saw 33 cases filed by the SEC and just 28 cases in 2021.xxii Punishment, such as prison or fines for conducting insider trading is the biggest deterrent to the Act being conducted in American society. The average American citizen does not have the same privileges as a congress member, and therefore are more likely to be charged with insider trading. In addition, the average non-white or non-asian individual or household does not make enough to reap the benefits of investing in the stock market.
There are a variety of reasons as to why individuals, especially middle to lower class individuals and families, do not involve themselves with the stock market. First, to invest in the stock market requires certain amounts of money. Secondly, effectively making profits in the stock market requires time and knowledge. When viewing who is investing in the stock market and who isn’t, there are discrepancies by income, age, and race/ethnicity. Income plays a big factor into why more Americans are not investing in the stock market. In 2023, of those who made $40,000 or less, only 29% stated that they had any money invested in the stock market currently. Of those who made $100,000 or more, 84% stated they had money invested in the stock market.xxiii Discrepancies by income forces lower income individuals and families to not have the same opportunity in investing as those with a greater income.
Income and race/ethnicity combined are the two leading reasons as to why stock ownership and stock profit are low in Black or Hispanic households. According to the United State Census Bureau, in 2023, the median household income of all races/ethnicities was $80,610. Asian households made a median salary of $112,800, White non hispanic households made $89,050 median, Hispanic (any race) households made $65,540, and Black households made $56,490.xxiv Differences in income allow those with more wealth and of a higher class to involve themselves in the stock market much sooner with potential for greater profits. “The median stock value owned among invested Black and Hispanic families was $15,000; it was almost $51,000 for non-Hispanic white families”.xxv It is believed that the lack of investment by African Americans into the U.S stock market plays a contributing factor to the black-white wealth disparity.xxvi Being financially literate helps individuals and families use, manage, save, and invest their money. Studies have looked into reasons as to why African Americans did not involve themselves with the stock market more.xxvii Among the factors forcing their absence, financial literacy and knowledge as well assets and income were prevalent reasons. “Previous studies have found that African Americans, on average, were less financially literate or less financially knowledgeable than Caucasians…African Americans themselves have reported that they do not have enough assets or make enough money to invest in the stock market”.xxviii
In 2021, CNBC conducted a survey to compare rates of investment by race. “Half of Black U.S. adults and 49% of Hispanics don’t currently own individual stocks, mutual funds, bonds, exchange-traded funds, cryptocurrency or real estate. Meanwhile, 32% of Asians and 28% of whites reported not being invested”.xxix Prior to 2023, American citizens' stock ownership was at 58% in 2022. It increased to 61% in 2023. “Stock ownership averaged 62% between 2001 and 2008 -- but it fell after the 2007-2009 recession and remained at a reduced level until this year”.xxx An increase in stock ownership in America is viewed as a good thing. Investing in stocks allows for an increase in individual/family income and assets. The stock market can be beneficial to families who need an extra form of income. Successful investment in the stock market allows for American citizens to better save and plan for retirement, or other necessary aspects of life.xxxi In addition, increased stock ownership in America allows for greater money and cash flow back into circulation which would benefit the economy for everyone. A 2019 research paper released by the National Bureau of Economic Research viewed how the wealth effect related to stock ownership is a positive trend for American society. “An increase in local stock wealth driven by aggregate stock prices increases local employment and payroll in nontradable industries and in total, while having no effect on employment in tradable industries”.xxxii
Benefits of the stock market and owning stocks, as noted earlier, are increased capital gains of consumers, a sense of ownership, and acts as an enabler in companies and businesses to raise money. The most successful individuals within the stock market likely come from a background of money. Individuals that made substantial profits from the stock market through their own earned money likely had the time and knowledge to be invested in the stock market. As the information provided earlier states, individuals from a lower class are not able to truly benefit from the stock market because they lack the funding, knowledge, and time to invest and earn. The stock market is well documented as a factor that perpetuates economic inequality. It is also viewed as a symbol of classism. Classism occurs when individuals or groups are treated differently because of their perceived social class.xxxiii The United States has a class system of social stratification that is divided by wealth/income, occupation, or education. These are known as the upper, middle, and lower classes.
The internal contradictions of capital accumulation as David Harvey describes them are not simply contradictions by accident but rather a purposeful element of the designed system in place in America. A system and society which divides individuals into classes by their monetary assets or income is a purposeful way to keep those of a higher class separated from the lower classes. Class systems are a way for higher class individuals to retain their wealth, status, or power even in a potential crisis. Therefore, financial crises will occur as a result of contradictions of capital accumulation and accumulation by dispossession. Factors such as race, which relate back to wealth, ultimately determine why accumulation by dispossession occurs in American society. It is why, as referenced earlier, Hispanic and Black americans are not investing in the stock market. The issue ultimately relates back to a class issue. For example, in an economic crisis, individuals with wealth and power will likely be more well off than individuals of a lower class. During the Great Recession, which took place from 2007-2009, it was the U.S governments' $700 billion (Total amount spent was $443.5 billion) Troubled Asset Relief Program (TARP) that allowed many banks and financial institutions to stay afloat until the markets stabilized.xxxiv Though under President Obama several acts designed to provide relief to affected American citizens by the recession were enacted, the damage had been done. Millions lost their homes and were unable to get them back. Yet, large financial institutions were saved.
The privileges, priority and influence of the upper class is further proven through the examination of the Covid-19 pandemic.xxxv Individuals in the middle/working class and lower struggled greatly. In order to provide aid and rescue the great financial crisis many Americans were dealing with, stimulus checks were provided. They ranged in quantities of $600, $1200, and $2000. The last stimulus check began being sent out in March of 2021. In comparison, by February 2021, “After 11 months of pandemic misery, where millions have lost their jobs, health and wealth, total U.S. billionaire wealth increased $1.3 trillion since mid-March, 2020, an increase of 44 percent”.xxxvi The success of the upper class, particularly the top 1%, provided additional support for the Billionaire Income Tax.xxxvii Instances of exploitation or continued success even in times of crisis shows the necessity for change to the current systems in place. It is why calls for the banning of stock trading by congress members continue to grow louder as time progresses.
The act of insider trading by congress members fuels David Harvey’s theory of Accumulation by Dispossession. Capital accumulation through insider trading raises ethical concerns. Individuals who are given access to non-public information and then engage in stock transactions reinforce a system which favors the financial elite while putting ordinary investors at a disadvantage. As a result, a widening of the wealth gap occurs. People in positions of power accumulating wealth using illegal practices creates an unfair market. The continuous act of insider trading done by members of congress creates a cycle of dispossession that exacerbates social and economic inequalities. Furthermore, prevalence of insider trading among those in positions of power contributes to public perceptions that the current systems in place are set-up to favor those of a higher class and status. Therefore, citizens feel alienated from institutions, specifically financial institutions, that in theory should serve the collective good. Passage of the ETHICS Act by Congress may help bridge the gap in economic inequality between classes but also increase trust and faith in the American government and its financial institutions.
NOTE: On January 9, 2025, Representative Zach Nunn (IA-03) introduced the Bipartisan Anti-Corruption Legislation (Bipartisanly known as the No Corruption in Government Act). The Act, co-led by Representative Marie Gluesenkamp Perez (WA-03), aims to prevent stock trading (by congress members and their spouse), end automatic annual pay raises, and triple the lobbying ban for Members of Congress. The act is comprised of three separate bills, which can be found in greater detail here. As of February 2025, the act has not yet been voted on for approval in the Senate or the House.
i Caputo, D., Marsco, D., & Payne, K. (2022, February 18). The stock act: The failed effort to stop insider trading in Congress. Campaign Legal Center. https://campaignlegal.org/update/part-2-stock-act-failed-effort-stop-insider-trading-congress
ii Cherry, I., Heitz, A., & Jens, C. E. (2017). Change in capitol: How a 60 Minutes Exposé and the stock act affected the investment activity of U.S. senators. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2905309
iii Gemici, K. (2016, January 21). Money and credit. Oxford Bibliopgrahies.
ivHayes, A. (2023, August 21). What are the most important aspects of a capitalist system?. Investopedia. https://www.investopedia.com/ask/answers/040715/what-are-most-important-aspects-capitalist-system.asp
v Engels, F. (1847). The Principles of Communism . www.marxists.org.
vi Harvey, D. (2010, August 30). The enigma of capital and the crisis this time. Reading Marx’s Capital with David Harvey. https://davidharvey.org/2010/08/the-enigma-of-capital-and-the-crisis-this-time/
vii Tuovila, A. (2021, May 28). Capital accumulation: Definition and how to measure. Investopedia. https://www.investopedia.com/terms/c/capitalaccumulation.asp
viii Harvey, D. (2009, March 19). The “new” imperialism: Accumulation by dispossession. p. 69, Socialist Register. https://socialistregister.com/index.php/srv/article/view/5811 (Original work published 2003)
ix Short-term vs long-term investors. Corporate Finance Institute. (2023, October 19). https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-markets/short term-vs-long-term-investors/
x Pearce, R. (2023, June 26). Insider trading: Definition, rules, punishments and penalties. Law Offices of Robert Wayne Pearce. https://www.secatty.com/legal-blog/insider-trading/
xi Schieberl, J., & Nickles, M. (2013, April 26). Congressional Insider Trading: Is It Legal?. p.222, Clute Journals. https://clutejournals.com/index.php/JBCS/article/view/7798/7861
xii Levinthal, D. (2023, January 3). 78 members of Congress have violated a law designed to prevent insider trading and stop conflicts-of-interest. Business Insider.
xiii Leeuwenburg, C. (2022, February 11). Insider Trading Isn’t Illegal if You Are a Member of Congress. Inside compliance. https://blogs.luc.edu/compliance/?p=4459
xiv Brown, S., & Merkley, J. (2023, April 18). Ending Trading and Holdings in Congressional Stocks (ETHICS) Act. Senator Sherrod Brown.
xv Hanousek, J., Jo, H., Pantzalis, C., & Park, J. C. (2022, October 14). A dilemma of self-interest vs. ethical responsibilities in political insider trading - journal of business ethics. SpringerLink. https://link.springer.com/article/10.1007/s10551-022-05265-0
xvi Caputo, D., Marsco, D., & Payne, K. (2022, February 18). Part 2 - the stock act: The failed effort to stop insider trading in Congress. Campaign Legal Center. https://campaignlegal.org/update/part-2-stock-act-failed-effort-stop-insider-trading-congress
xvii Cause, C. (2020, March 27). DOJ, Sec & Ethics Complaints filed against senators Burr, Feinstein, Loeffler & Inhofe for Possible Insider Trading & Stock Act Violations. Common Cause. https://www.commoncause.org/press-release/doj-sec-ethics-complaints-filed-against-senators burr-feinstein-loeffler-inhofe-for-possible-insider-trading-stock-act-violations/
xviii Mesiya, S. (2021). Failures of the stock act and the future of Congressional Insider Trader Reform. Georgetown Law. https://www.law.georgetown.edu/american-criminal-law-review/aclr-online/volume-58/failures-of-the-stock-act-and-the-future-of-congressional-insider-trader-reform/
xix Leonard, K., DeChalus, C., Rojas, W., & Hall, M. (2021, December 13). As the pandemic raged, at least 75 lawmakers bought and sold stock in companies that make covid-19 vaccines, treatments, and tests. Business Insider. https://www.businessinsider.com/lawmakers-bought-sold-covid-19-related-stocks-during-pandemic-2021-12
xx Patel, V., & Putnins, T. J. (2021). How much insider trading really happens in stock markets? [Abstract] SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3764192
xxi Raissi, J. P. (2023, January 23). Insider trading - 2022 in Review. Shartsis Friese LLP. https://www.sflaw.com/blog-post/insider-trading-2022-in-review/
xxii ibid
xxiii Jones, J. M. (2023, May 31). What percentage of Americans own stock?. Gallup.com. https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx
xxiv Guzman, G. (2024, September 10). Median income of Non-Hispanic white households increased while Asian, black and Hispanic median household income did not change. Census.gov. https://www.census.gov/library/stories/2024/09/household-income-race-hispanic.html
xxv Team, U. (2023, October 5). What percentage of Americans own stock?. USAFacts. https://usafacts.org/articles/what-percentage-of-americans-own-stock/
xxvi Hudson, C., Young, J., Anong, S., Hudson, E., & Dais, E. (2018). Investment Behavior: Factors that Limit African Americans’ Investment Behavior. Journal of Financial Therapy, 9(1), p. 22– 22. https://newprairiepress.org/jft/vol9/iss1/3/
xxvii ibid
xxviii ibid.
xxix Fox, M. (2021, August 23). As interest in investing grows, people of color still lag behind, CNBC survey finds. CNBC. https://www.cnbc.com/2021/08/23/as-interest-in-investing-grows-people-of-color-still-lag-behind-cnbc-survey-finds.html
xxx Jones, J. M. (2023, May 31). What percentage of Americans own stock?. Gallup.com. https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx
xxxi Holden, S. (2018, September 10). Stock ownership in the United States: It’s Main Street. Investment Company Institute. https://www.ici.org/viewpoints/view_18_main_street
xxxiiChodorow-Reich, G., Nenov, P., & Simsek, A. (2019). Stock market wealth and the real economy: A local labor market approach. [Abstract] The Digest, (8). https://doi.org/10.3386/w25959
xxxiii Stanford. Classism. Student Affairs. https://studentaffairs.stanford.edu/stanford-against-hate/classism
xxxiv Troubled asset relief program (Tarp). U.S. Department of the Treasury. (2023, November 2). https://home.treasury.gov/data/troubled-asset-relief-program
xxxv Kochhar, R., & Sechopoulos, S. (2022, April 20). Covid-19 pandemic pinches finances of America’s lower- and middle-income families. Pew Research Center’s Social & Demographic Trends Project. https://www.pewresearch.org/social-trends/2022/04/20/covid-19-pandemic pinches-finances-of-americas-lower-and-middle-income-families/
xxxvi Collins, C., Flannery, H., Petegorsky, D., & DeVaan, B. (2021, February 24). U.S. Billionaire Wealth Grows $1.3 trillion Since Mid-March 2020. Inequality.org. https://inequality.org/article/updates-billionaire/
xxxvii Supermajority & bipartisan support for the billionaires income tax. Americans for Tax Fairness. (2021). https://americansfortaxfairness.org/wp-content/uploads/ATF-Polling Compilation-on-Billionaires-Income-Tax-Oct-2021-1.pdf
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