In recent years, the United States has experienced an unprecedented number of financial conflicts of interest in its executive and legislative branches. Thanks to recent reporting by The Wall Street Journal, we now know how bad financial conflicts of interest are in the federal judiciary. According to the newspaper’s report, 131 federal judges broke the law by participating in 685 cases in which they had a financial interest, chiefly because of their holdings in individual stocks. This is a violation of the disqualification statute for United States judges prohibiting them from deciding cases in which they have a financial interest.
We have an ethical crisis across all three branches of government.
We have an ethical crisis across all three branches of government because those holding high office have been unwilling to divest from assets that conflict with their official duties.
I was among those in 2016 who raised alarm over the refusal of candidate Donald Trump, then President-elect Trump, to divest from the Trump Organization’s vast holdings in hotels, condominiums, resorts and golf courses the world over. Former Ambassador Norman Eisen, Harvard Law professor Laurence Tribe and I prepared a detailed analysis of the inevitable collision between Trump’s financial interests and the Emoluments Clause of the Constitution, which prohibits a federal official from receiving any profit or benefit from a foreign government.
Trump refused to divest, and we sued him on his first full day in office on behalf of Citizens for Responsibility and Ethics in Washington (CREW) and other plaintiffs. Our standing to sue was later upheld by the 2nd Circuit Court Of Appeals, but the litigation lasted so long that Trump held onto these financial interests and the foreign government emoluments that came with them for all four years of his presidency, and our suit became moot upon his leaving office.
In Congress, representatives and senators of both political parties persist in holding millions of dollars of stocks in individual companies affected by their official duties, including health care companies, fossil fuel companies, mining companies and technology companies. Some members frequently trade stocks while in office when they have access to nonpublic inside information because they’re in Congress. Never mind that trading stocks on the basis of misappropriated nonpublic information is a crime and is something people who aren’t members of Congress are frequently prosecuted for.
Donna Nagy, a professor at the Maurer School of Law at Indiana University, and I have both published extensively on insider trading. We sent a December letter to the leadership of the House and Senate requesting that members be required to divest from individual stocks affected by their official duties and to invest instead in diversified mutual funds and other conflict free assets. We received no response.
As for the 131 federal judges mentioned in the Wall Street Journal report, judges holding stocks in companies affected by cases before them are required to recuse themselves. It’s likely that some judges aren’t watching their portfolios or their spouses’ portfolios or aren’t aware that many larger publicly traded companies have multiple subsidiaries. The identify of those subsidiaries is unknown to the many investors (judges included) who don’t read the parent company’s annual report. Other judges simply may not care about complying with a statute that requires recusal.
This problem could easily be avoided if judges, like most Americans who invest for their retirement, invested in the “mutual or common investment funds” that are specifically exempt from the conflicts of interest provisions under federal law. It is unlikely that a single case would affect the value of an entire fund. For whatever reason — perhaps the belief that they can beat the market because they have more information than professional fund managers — some judges, like some members of Congress, insist on owning, and sometimes actively trading, individual stocks.
Some judges may think that, when the occasion arises, they can sell a stock so they can participate in a case. Not so fast. If the judge has any inside information from the court about how the case might come out, selling the stock while in possession of that information could expose the judge to prosecution under federal criminal insider trading laws. The judge who has a conflict of interest in a case may be stuck with a stock by the time the conflict is noticeable.
The judge who has a conflict of interest in a case may be stuck with a stock by the time the conflict is noticeable.
Matters get worse on the Supreme Court. At least three justices — Chief Justice John Roberts and Associate Justices Stephen Breyer and Samuel Alito — own individual stocks, and all three have recused themselves from cases because of their stock holdings. The problem is, unlike on the lower federal courts, there are no replacement justices to take their place. A case could be decided by eight justices or seven justices because of recusals. This is problematic for the Supreme Court, which often grants review in certain cases not just to resolve a particular dispute but to clearly state what the law is going forward. A Supreme Court decision that does not have the support of at least five justices has little value as a precedent because the ruling could be reversed in a future case in which none of the justices recuse themselves.
This is also a problem that could be easily solved if justices were to invest the same way most Americans invest their retirement funds — in broadly diversified mutual funds. At this point Congress must realize that there is a crisis in confidence in all three branches of government. Many voters believe, with some justification, that corruption spreads like a disease and that executive, legislative and judicial decisions are made with little regard for the interests of the average citizen. This cynicism, and the reality that underlies it, are dangerous for the future of representative democracy. Last month, Congress introduced the Protecting Our Democracy Act to curb abuses in the executive branch. The bill, among other things, provides for enforcement of the Emoluments Clause of the Constitution by the Department of Justice and Congress. Never again should concerned citizens have to wait four years, as we did in the CREW litigation, while a president openly flouts the financial conflicts of interest laws. As University of Pennsylvania professor Claire Finkelstein and I recently suggested, the Protect Our Democracy Act should include a provision explicitly confirming that a sitting president who commits crimes can be indicted while in office. The Supreme Court already held in Trump v. Vance that the president is subject to the criminal process. Congress should confirm that no person, including a president, is above the law. The Protecting Our Democracy Act also needs to include a provision requiring presidents, vice presidents, members of Congress and all federal judges to divest from individual stocks and any other investments that pose conflicts of interest with their official duties. House and Senate leadership may not like such a divestment mandate, perhaps because they also own individual stocks, but they need to do it anyway. Investments in broadly diversified mutual funds are good enough for most individual investors, and they should be good enough for federal officers at the pinnacle of all three branches of our government. Virtually every other federal employee is prohibited by criminal statutes from participating in matters in which they have a conflict of interest. Holders of the highest federal offices — executive, legislative or judicial — should be required to do the same.
Richard W. Painter
Richard W. Painter was the chief White House ethics lawyer from 2005 to 2007 under President George W. Bush. He is the S. Walter Richey Professor of Corporate Law at the University of Minnesota and is a graduate of Harvard College and Yale Law School. 
