The Problem With Politicians Owning Assets such as Stocks and Bitcoin
Before anyone else, lawmakers can see what impact will their lawmaking have on a range of assets. This knowledge booster is often put to personal enrichment.
Insider Trading Keeps Capturing Headlines
When politicians with decades-long careers amass wealth far above their yearly salary, questions arise. Usually, this concern revolves around insider trading regarding the stock market. Case in point, Speaker Nancy Pelosi often comes as an example of a politician who manages to outperform top hedge fund managers.
According to the stock return-on-investment (RoI) breakdown by UnusualWhales, Pelosi’s family in 2020 had YTD returns of 45.59% in stocks while options returns stood at 66.7%, compared to the average of 56.15%. That was last year. Based on estimates from OpenSecrets, the breakdown of politicians vs. hedge fund billionaires looks something like this for 2021.
Predictably, the subject of insider trading keeps coming up in public discourse and what should be done to curtail it. Last week, Speaker Pelosi noted that this is a matter of “free-market” forces at work. In other words, lawmakers should be able to engage in stock trading as much as anyone else not privy to legislative agendas.
However, stock trading is not the only issue to consider. When the Stock Act passed in 2012, its 45-day reporting requirement includes all investment decisions, including digital assets.
Bitcoin Holdings as a New Source of Conflict
Following the report by The Wall Street Journal, in which the Senate Banking Committee consists of two senators with crypto holdings, their objectivity may come into dispute. Although crypto holdings could be pseudonymous or entirely anonymous, the WSJ report shows that Sen. Cynthia Lummis has $250k worth of BTC, while Sen. Pat Toomey has a smaller share of more diversified crypto holdings across Grayscale Bitcoin and Ethereum Trusts ($3k – $30k).
As covered previously on the recent stablecoins hearing, both Lummis and Toomey have demonstrated willingness to be more open-minded about crypto assets and decentralized finance (DeFi) in general. As such, they’ve become a target for scrutiny. Lee Reiners, former NY Federal Reserve (FRBNY) official, noted that their involvement should be questioned.
“It’s not to say they are motivated by personal financial interest, but it’s fair to question their advocacy.”
On the other hand, Reiners doesn’t hide his dislike for any asset that is not under government control, as demonstrated by his Twitter history. In one instance, Reiners referred to billionaire Charlie Munger as “my man“. Munger is a staunch critic of Bitcoin, who had previously described the asset as a tool for “kidnappers and extortionists“.
Likewise, Rep. Alexandria Ocasio-Cortez of the House Financial Services Committee noted on Instagram that any asset amenable to government-induced appreciation should not be owned by Congress members.
“Because we have access to sensitive information and upcoming policy, I do not believe members of Congress should hold/trade individual stock and I choose not to hold any so I can remain impartial about policy marking,”
In response, Sen. Toomey observed that setting up such a standard would prevent politicians from investing entirely in any part of the economy.
“Tell me what part of the economy we don’t get involved in? Following that logic, then I guess no one in the Senate can invest in anything. That would be ridiculous.”
However, this does pose a legitimate question. In many countries, politicians have term limits. Perhaps, the limit to invest should be balanced with term limits alongside mandatory divestiture. This way, politicians would have drastically less motivation to enter politics for the sake of enriching themselves instead of serving those who elected them to represent the people.
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How Much Cryptos Has the IRS Seized in 2021?
On the other side of insider trading are outright frauds and ill-gained crypto funds. According to the annual IRS:CI report, the agency seized $3.5 billion in crypto assets during the fiscal year of 2021. Compared to 2020 at $137 million, this represents a 25X increase in seized crypto funds. When this happens, the government puts them on auction, usually at a discount. This is in line with traditional illiquid assets seized as well, such as cars, boats, or artworks.
The largest such auction to be held is connected with the BitConnect Ponzi scheme, disguised as a crypto lending program in 2016. Worth $56 million, the auction will be conducted by the United States Marshals Service (USMS) as civil forfeiture matter.
This is a tiny portion of the BitConnect fraud, which is estimated to have accrued 325,000 BTC. However, unlike most auctions where the proceeds go to funding federal agencies, this one will be distributed to the victims if they can prove their identity is tied to an affected crypto wallet address.
Interestingly, due to the complexity of tracking down illegal crypto proceeds, it is typically a multi-agency effort involving the FBI, ATF, DEA, Homeland Security, and even the Secret Service. Nonetheless, USMS ends up handling the auction part with the help of private firms, such as Anchorage Digital, one of the first federally chartered crypto banks.
Thus far, the USMS has conducted auctions for over 185,000 BTC. Last year, the agency returned a total of $1.18 billion in assets to the hands of crime victims and claimants.
Do you think it is feasible to disincentivize public officials from taking advantage of their levers of power, or should this be taken as a perk of doing politics? Let us know in the comments below.