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Thousands of career and political federal employees own stock in companies their agencies regulate. That’s according to a recent analysis by The Wall Street Journal. If so, it’s largely in violation of federal ethics rules. For what they found and how they found it, Journal senior reporter James Grimaldi joined  the Federal Drive with Tom Temin.

Interview transcript:

Tom Temin: Let’s begin with the top line findings. Thousands of people and many of them in the career ranks. Correct?

James Grimaldi: Yes, that’s right. We’re talking about the Senior Executive Service as well as appointees and those who have to file a public financial disclosure form, we went and got them. And we found more than 200 senior officials at agencies at an agency, for example, like the EPA, nearly one in three reported that they or their family members had investments in companies that were lobbying the agency. You know, as you pointed out, on our main findings, we found one in five were owning stocks, and companies that were being regulated by those agencies. But we did a deeper analysis. There’s a lot more than just that, but it was really a surprise, even to us to find so many federal officials actually investing in companies that they oversee, or they regulate.

Tom Temin: Yes. So it could be the form of direct regulation of that company, or it could simply be decision making of the agency that could materially affect a company.

James Grimaldi: That’s right. Yes, for example, an energy company would be regulated by the EPA, or  probably involved in lobbying the EPA, and there would be 200, as we said, senior EPA officials who were owning it, it was harder for us to find it. And although we did find some cases, where they actually were involved in decision making regarding particular companies that that they own stock in, but we knew that they were there. And the idea that these numbers are so high, I mean, to be sure, there were people who went out of their way to sort of make sure they weren’t doing anything like that. But others were just like, well, I could do this, and I’m gonna do it.

Tom Temin: And you also checked in with the Office of Government Ethics and determined that yes, in fact, these were violations of both statutes and regulations regarding federal employee behavior.

James Grimaldi: It’s up to the OGE, or the ethics officers to take a look at it. But we had people who were clearly owning stock in companies that they weren’t supposed to. For example, we had an official at the Food and Drug Administration. FDA actually has a really rigorous program that’s a little bit even more restrictive than for other federal workers in which they post monthly, all of the companies that are significantly regulated by the FDA, which are off limits for everyone at the FDA, and we had official who had 70 of these companies and had transactions 170 times involving those 70 companies.

Tom Temin: And that official was appointed or career?

James Grimaldi: That was a career official had been working there for 18 years, the head of the Office of Planning. I suppose you could say somewhat distant, maybe from actual regulation or rulemaking. But the FDA had passed this rule, it was in the CFR, the Code of Federal Regulations had passed this rule for the very purpose of avoiding even the appearance of a conflict of interest, because you need to remember that not only you’re supposed to avoid a conflict of interest, but you’re supposed to avoid the appearance of conflict of interest, because an appearance of a conflict of interest will cause problems with the public, who begin to doubt whether or not they’re having a government that’s either acting in the best interest of the public rather than the best interests of their stock portfolio.

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Tom Temin: Sure. And I know you have a long history in looking at these things in your reporting history. And could it also be that they would have insider trading violations? Possibly, in addition to the ethics questions?

James Grimaldi: There is certainly a possibility that. It definitely says insider trading is having material nonpublic information that you are then investing on. And of course, proving that is really difficult. You have to get into the state of mind that these trades were maybe for this reason, a lot of the responses we got from officials like “oh, well, that was my, you know, that was my trader, you know, my financial advisor or my spouse”. But the rules cover them, right. Even if you’re saying it’s your financial advisor,  you were the one who owns this stock and is benefiting from it. We don’t know what conversations you have with your financial advisor, just saying that it was done by a third party adviser does not let you off the hook.

Tom Temin: Sure. We’re speaking with James Grimaldi. He’s senior reporter for The Wall Street Journal. And just briefly, tell us the methodology by which you obtain this information.

James Grimaldi: There is a form 270-A that senior executive officials at the federal government have to file. Everyone files a financial disclosure and those who are generally GS, your audience will know this, it’s GS-15 or above, as well as political appointees and even those that are Senate confirmed to get the forms you file what’s called a form 201 in which you you fill it out say who you are. the Wall Street Journal or the media or whatever you want to look at it. We had some resistance. They said “you need to fill out a form to get all of these forms”. And we said for each individual and you have to give us, you have to put the names in there. And we said, “Okay, can you give us the names of the people who have to fill out the 278s?” And they would say no. So then we had to file a FOIA to get the names of the people who fall at the 278s, in order to put them in the form 201 In order to get them. So not everyone did that. A lot of agencies just sent them all over. So we ended up getting 31,000 forms for 12,000 senior officials that included 850,000 assets, and 315,000 trades. It was a big bunch of documents involving 50 of the top federal agencies. And so we needed data people, we brought in some big data people, the forms were originally I was doing an investigative story on judges and their financial holdings, which sort of inspired this reporting. And Rebecca Ballhaus and Brody Mullins, were doing all the work to get these forms. We then brought in John West, and Chad Day, some data gurus who were able to put it into a big database. They scanned it, the PDFs and put them into a sortable, searchable, and cleaned up the data, we all went through trying to, you know, match stock tickers to stock holdings, and created this massive database. And then they created a lookup tool, so that we could sort it like who had the biggest investments, who  had the most trades. And then they thought, “well that’s not enough,”, these guys are so good. They actually went into the lobby records, right. So they brought in all the lobbying records so that they could see the companies that were actually lobbying the agencies at the time, and match the holdings to the agencies that  the companies that were lobbying the agencies, and then they tried to get as many of the decisions that they could find, because we had some findings, I think it was six dozen, or more about 70 federal officials or so who were actually trading within the time of a major decision. And so those we included announcements or regulatory actions, or sanctions against the company, or fines and that sort of thing,

Tom Temin: Right. So there was real benefit from to some people, in some cases, then from what they knew in the trades they made.

James Grimaldi: Right. And looking at the coincidence of that. I mean, I have to say a lot of these decisions honestly, did not really move the stock, and  even a $10 million fine, would be a rounding error for a company like Exxon Mobil, proving that they were trading on insider information. That’s an example of how that would be difficult, because I don’t know, the way stock moves. If you’ve seen insider trading cases. I mean, you really have to have emails where people said, “Hey, I know this decision is coming, and we’re gonna make the trade on it.” And that’s almost impossible for us to get, because that would be probably between the executive and  his trader or her financial advisor.

Tom Temin: Got it. And you also had a time component to this. And it turns out that had happened under both Democratic and Republican administrations.

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James Grimaldi: Yes, we looked at five years, the most recent five years, and so it would touch a little bit of Obama, all of Trump and a little bit of Biden and it did go across all administrations, given the data set we had, the biggest chunk was from Trump, simply because we did five years. But you know, as far as we could tell, there didn’t seem to be any rhyme or reason. And a lot of these appointees, we don’t even know their senior executive service someone like I said, they could be a career official, who moves up into the GS-15 or above, you know, we don’t even know their party, anything can be either at any party or no party.

Tom Temin: What’s the reaction been? So far? This has been out now about two weeks?

James Grimaldi: Well, we’ve had a lot of media reaction. We’ve had a lot of comments on there. We haven’t had a  lot of reaction that we know of from either IGs, inspectors general or the Congress. But Congress is a little preoccupied right now, as you know, they have an election coming up. And I think that has muted a little bit what’s going on. I wouldn’t be surprised if there isn’t some hearings, either the committees of jurisdiction or I guess this would fall in like in the House Homeland Security Committee, and Government Affairs as well in in the Senate. But then we’re looking at specific agencies, the committee’s that regulate those may want to look into them, because they may have had some questions about why they’re making certain decisions. I wouldn’t be surprised if there isn’t a hearing. And as you may know, there’s in this current Congress, which ends turn of the calendar, there are at least a dozen bills that are proposing that government officials and others be limited to only owning mutual funds or widely held broad exchange traded funds. Those are a little controversial. There was a bill that the Congresswoman Zoe Lofgren brought forward that did not go through the committee process. And so the Republicans were not happy about that, because they like the committee process. You know, you get everyone gets to weigh in on it. Pelosi. Speaker Pelosi endorsed it publicly. But then Steny Hoyer said that there were problems with it. So I think, you know, because they would have covered Congress as well as judges as well as government officials. So we’ll see what happens with that there’s a lot of the devil is always in the details. Sure, we’ll get to these things. There was a lot of objections from the good government groups, including conservative taxpayer groups to the project on government oversight, who didn’t like this idea of a blind trust, because they say there’s really no such thing as a blind trust. So the way those get set up are problematic. So I suspect there will probably be some reforms, but it’s hard to predict what will happen and I certainly don’t endorse one or another over any – I leave it to the policy makers.

Tom Temin: Well, as they say, there’s no straight roads in Washington to anything. So we’ll see what happens. James Grimaldi is a senior reporter for The Wall Street Journal and a two-time winner of the Pulitzer Prize.

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