Friday, April 29, 2022

House sends judicial insider trading disclosure bill to president

By Mark S. Nelson, J.D.

The House passed the Courthouse Ethics and Transparency Act (S. 3059) by voice vote, thus sending the bill, which previously had also passed the Senate by voice vote, to the White House for the president’s signature. The bill was introduced in response to news media revelations that some federal judges had heard litigated cases in which they or their family members had financial stakes in one or more of the litigants. The Senate version of the bill emerged with bipartisan support after Congressional hearings probed the depth of the problem, ultimately finding existing laws to be insufficient to prevent ethical abuses by federal judges. Legislation to further strengthen similar safeguards for members of Congress and the executive branch are ongoing.

STOCK Act for federal judges. The Courthouse Ethics and Transparency Act is based on the Representative Louise McIntosh Slaughter Stop Trading on Congressional Knowledge (STOCK) Act, which imposed on members of Congress and certain executive branch officials requirements to publicly disclose their financial holdings. The Courthouse Ethics and Transparency Act would amend the Ethics in Government Act of 1978 to explicitly include federal judicial officers, bankruptcy judges, and magistrate judges among those government officials subject to financial disclosure requirements. The inclusion of federal judges under the Ethics in Government Act would be effective 90 days after enactment.

Within 180 days of enactment, the Administrative Office of the U.S. Courts must create a searchable database to enable public access to any report required to be filed by a federal judicial officer, bankruptcy judge, or magistrate judge. The Administrative Office of the U.S. Courts also must make a federal judge’s report available on the database 90 days after the report is required to be filed. Reports must be made publicly available in a full-text searchable, sortable, and downloadable format.

Consistent with existing law, however, the Courthouse Ethics and Transparency Act would not require the immediate and unconditional availability of reports filed by an individual if the Judicial Conference finds, after consulting the U.S. Marshals Service, that revealing personal and sensitive information could endanger that individual or a family member of that individual. Moreover, a report could be redacted only to the extent necessary to protect the individual who filed the report or a family member of that individual and only for as long as the danger to the individual exists.

Bipartisan support for bill. Although efforts to strengthen the STOCK Act regarding members of Congress remain ongoing, those same members have united in a show of bicameral and bipartisan support for imposing additional financial disclosure requirements on federal judges. What would become the Courthouse Ethics and Transparency Act emerged from an accelerated lawmaking process that spanned a mere seven months beginning with a House hearing in October 2021 that was inspired by an article on federal judges that had appeared in The Wall Street Journal. The House passed its version of the bill in December 2021 by a vote of 422-4, while the Senate passed its version in February 2022.

During the interim period between the House hearing and passage of the Senate version of the Courthouse Ethics and Transparency Act, U.S. Supreme Court Chief Justice John Roberts, in his 2021 year-end report, acknowledged that some federal judges had violated ethics rules as reported by The Wall Street Journal, but he also sought to contextualize media reports by emphasizing that those judges’ ethical lapses represented only a small fraction of recusal decisions made by federal judges in several millions of federal cases litigated during the article’s study period. During this same time, the Presidential Commission on the Supreme Court of the United States also weighed-in on judicial ethics, while the early impact of media revelations about failures to recuse began to appear in several private federal lawsuits (For more on these developments, see the Insider Trading section in Mark S. Nelson, 2022 Congressional preview: China, insiders, and stablecoins remain likely topics , January 12, 2022, pp.8-15).

Representative Deborah Ross (D-NC), the author of the House version of the bill, commented via press release shortly after the House passed the Senate version of the bill. “Our judicial system was founded on the principle of blind justice,” said Rep. Ross. “Yet, recent reporting revealed that federal judges have ruled on scores of cases in which they had a personal financial interest. The enactment of our Courthouse Ethics and Transparency Act will improve transparency, accountability, and public faith in the ability of our courts to carry out fair, impartial justice.”

Democratic floor manager Rep. Hakeem Jeffries (D-NY) told members the bill aligns federal judges’ financial disclosure obligations with those of members of Congress and senior members of the executive branch. He also noted that the bill explicitly includes judicial officers, those persons traditionally thought of as federal judges, as well as bankruptcy judges and magistrate judges. With respect to the creation of the required database, Rep. Jeffries said that lawmakers expected the Administrative Office of the U.S. Courts to set a date certain for launching the database and not to use its authority under the bill to delay that launch.

Representative Darrell Issa (R-Calif), the Republican floor manager and co-sponsor of the House version of the bill, sought to counter what he characterized as judicial branch pushback based on a separation of powers theory about Congressional authority to regulate courts. According to Rep. Issa, only Congress can initiate transparency and accountability laws because neither the executive nor the judicial branch can pass laws and, thus, Congress is not interfering with the judicial branch by extending STOCK act requirements to federal judges.

Representative Issa also said he hoped that courts will recognize that Congress had no choice but to legislate because lawmakers were faced with clear examples of the absence of transparency by some federal judges. Still, Rep. Issa said he did not foresee more federal judge recusals, although he said attorneys will have needed information when representing clients before federal judges and that the bill empowers the public to view information about federal judges that is not private information.

Senator John Cornyn (R-Texas), co-sponsor of the Senate version of the Courthouse Ethics and Transparency Act remarked: “One of the bedrocks of American democracy is our independent judiciary, and it is imperative that federal judges are held to the same standard of transparency as other federal officials under the STOCK Act. This legislation will help bring potential conflicts of interest to light and bolster public trust in our judicial system, and I’m glad it is on its way to the President’s desk.”

Fellow co-sponsor, Sen. Chris Coons (D-Del), echoed Sen. Cornyn’s remarks: “This law will help protect our legal system from conflicts of interest by increasing transparency around federal judges’ financial interests. It’s an important step toward ensuring equal justice under the law.”