United States: A Question Of Ethics: Are Members Permitted To Help Companies In Which They Own Stock?

Last Updated: October 27 2014
Article by C. Simon Davidson

Q. I heard that Rep. Tom Petri, R-Wis., may face ethics discipline because he assisted companies in which he owned stock. I know that Members are not supposed to use their position for their own personal gain, but I didn't realize that meant they are disqualified from taking action on behalf of any companies in which they might own stock. Is that really the rule?

A. No, it is not. A member's mere ownership of stock in a company does not disqualify the member from taking official acts on the company's behalf. But, as the Petri matter illustrates, members should take special care when they assist companies in which they happen to own stock. Exactly what that means, unfortunately, is less than clear.

In a report made public last month the Office of Congressional Ethics, which filters allegations of misconduct for review by the House Committee on Ethics, concluded there is substantial reason to believe Petri "improperly performed official acts on behalf of companies in which he had a financial interest." The OCE therefore recommended further review by the House Committee on Ethics, which it is now considering.

There is no dispute that Petri took official acts for companies in which he owned stock. That is allowed. At issue in the Petri case is whether he did so "improperly." That is not.

According to the House Ethics Manual, acts that involve a degree of advocacy above and beyond merely voting on legislation require special care. For these acts — such as sponsoring legislation, participating in committee action or contacting an executive agency — a decision that may affect the member's personal financial interest requires what the Committee calls "added circumspection."

The OCE concluded there is substantial reason to believe Petri failed to meet this standard when he helped Wisconsin companies in which he or his wife owned stock by contacting other government officials regarding government contracts and regulations impacting the companies.

While the OCE acknowledged that in many instances Petri's office sought Ethics Committee guidance before assisting the companies, "he did not seek advice before taking all official acts." Moreover, in some instances, the requests for Ethics Committee guidance included inaccurate information, the OCE report said. The OCE also noted it interviewed two Petri aides who said there were "no written office policies or training specifically related to handling requests for official action by companies in which Representative Petri owned stock."

Petri's counsel disputed the OCE's conclusions in a letter to the Ethics Committee, and urged the committee to complete its investigation before the end of Petri's term. (Petri has announced he is not seeking re-election.) The letter noted that the companies Petri assisted are two of the largest employers in his district which, as a congressman, he assisted for many years. Moreover, the type and degree of assistance he provided did not change after he purchased stock in the companies in the mid- to late-2000s. "In every instance," the letter said, "Representative Petri has made a good faith effort to comply fully with both the letter and spirit of the rules and the guidance his staff received." The OCE, the letter argued, "seeks to impose a novel standard of conduct that would undermine the ability of all Members to rely with confidence on the ethics advice they receive from Committee staff."

So, who is right? Precedent in this area is unclear. On the one hand, a 2012 Ethics Committee report about a conflict of interest investigation stated: "If a Member seeks to act on a matter where he might benefit as a member of a large class, the Committee has taken the position that such action does not require recusal." On the other hand, that same report also said this does not "permit Members free rein to act on behalf of a single entity ... merely because there are numerous shareholders." The report concluded "the time has come to engage in a comprehensive review of the House conflicts standards so that they are clearer and more easily digested by the House community." An Ethics Committee report later that year did include additional conflicts of interest guidance but did not address specifically the issue of members assisting companies in which they own stock.

Ultimately, then, in an environment in which it is unclear exactly what precautions House rules require of members who own stock in a company they wish to help, the Petri matter may come down to whether the precautions he took are deemed adequate, ex post facto. The OCE report includes many examples of efforts by Petri and his staff to make sure they were complying with the rules and committee guidance. They were careful. It may be up to the Ethics Committee to determine if they were careful enough.

Originally published in Roll Call, October 14, 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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