About two weeks ago, The Wall Street Journal ran an expose on the number of judges who held or traded the stock of companies over which they presided in legal proceedings. The article identifies 131 federal judges nationwide who did this during the period of 2010 to 2018. Of those 131 members of the judiciary, 61 judges purportedly traded the public company stock of litigants during the case. Imagine that! It’s quite incredible, actually.Powers On… is a monthly opinion column from Marc Powers, who spent much of his 40-year legal career working with complex securities-related cases in the United States after a stint with the SEC. He is now an adjunct professor at Florida International University College of Law, where he teaches a course on “Blockchain, Crypto and Regulatory Considerations.” It seems there would be ethical reasons for judges to not allow themselves to fall into that situation. When I litigated cases, parties were required to disclose the public companies affiliated with the party so that the judges could assess if they had any possible conflict in handling a particular case assigned to them. These conflicts could be that the judge knows the parties in the action personally, or the witnesses. The parties’ written disclosure is also supposed to trigger an obligation for the judge to see if they, or a family member, own stock in the public corporation involved in the lawsuit. There is also a 1974 law that prohibits a judge from presiding over a case when their family members own shares of stock of a public company litigant. It was passed shortly after the Watergate crisis and President Richard Nixon’s resignation from office. This is an outright ban; it is not discretionary by the jurist. It cannot be waived by the parties. The judge is supposed to disqualify, or recuse, themself from the litigation. So, why does this happen, and should we tolerate it from our judicial branch of government? The Federal ReserveNow, let’s turn to the Federal Reserve, which is part of the executive branch of our government, and its 12 reserve bank presidents. The Boston and Dallas Federal Reserve Bank presidents — Eric Rosengren and Robert Kaplan, respectively — both resigned in the last month, perhaps from allegations coming to light that they traded stocks over the last year while helping direct macroeconomic policy for our country. To me, this was, for sure, ill-advised conduct by these former presidents. They know on a continuous, confidential basis how the Fed might use certain monetary tools that tend to favor certain industries and, as a corollary, the stock prices of companies in those industries. In another publication by The Wall Street Journal just last week, it was reported that Fed Chairman Jerome Powell imposed sweeping personal-investing restrictions on the Fed presidents and the seven governors on the central bank’s board. These include prohibiting the purchase or sale of individual stocks, a one-year holding period, and a 45-day pre-approval process for buying or selling mutual funds. No wonder the crypto crowd is losing faith in our institutions and seeking autonomously driven technology like blockchain to cleanse us and give everyone a level playing field.The STOCK Act of 2012Now, while it may seem to many that there was nothing prohibiting judiciary or Federal Reserve officials from owning or trading stock before this new investment policy by Powell, I disagree. Enter The STOCK Act of 2012, passed by Congress in April of that year during the administration of Barack Obama. “STOCK” stands for “stop trading on congressional knowledge.” Catchy, right? Congress loves its acronyms.The STOCK Act applies to members of Congress, executive branch employees — including the president and vice president — and judicial officers and employees. The stated purpose of the act is: “To prohibit Members of Congress and employees of Congress [and the executive and judicial branch] from using nonpublic information derived from their official positions for personal benefit [or profit], and for other purposes.”It was in part enacted because “political intelligence” companies started popping up, advising hedge funds on the likelihood of governmental action. Sometimes, these companies learned information from government officials, information not otherwise readily available in the public domain, and passed it on to hedge fund managers who traded stocks based on that information. There is also a requirement to report stock transactions.Before the law’s passage, it became a problem for regulators and prosecutors that the securities law on insider trading was somewhat gray as to whether the source of the information — the government officials — did anything wrong by passing it on to the intelligence company. This law makes clear that it is wrong and, in fact, a felony to do so. A section of the act explicitly addresses these government officials, stating that “Each Member of Congress or employee of Congress owes a duty arising from a relationship of trust and confidence.” It also states that the covered government workers are “not exempt from the insider trading prohibitions arising under the securities laws.” So, with the disclosure of the trading activities by certain jurists and Fed presidents, the question that now arises is whether they were in possession of nonpublic information and used it to trade stocks. For argument, I think a judge is clearly in possession of nonpublic information before they rule in favor of one party in a litigation, before the decision is rendered in writing or orally in court. For a Fed president, it gets even more problematic. Don’t they always possess nonpublic information, meaning any stock trades to avoid losses or to gain profits from upcoming Fed policies can be arguably in violation of this law?To date, I am unaware of even one criminal prosecution under the STOCK Act. The closest thing to using the act was the 2018 indictment of former Congressperson Chris Collins. But the insider trading charge related to his purported learning of information while sitting on a public company’s board, not from his congressional duties. It will be interesting to see if the Securities and Exchange Commission or criminal investigations are made known in the coming days or months arising from the reports by the WSJ.Marc Powers is currently an adjunct professor at Florida International University College of Law, where he is teaching “Blockchain, Crypto and Regulatory Considerations” and “Fintech Law.” He recently retired from practicing at an Am Law 100 law firm, where he built both its national securities litigation and regulatory enforcement practice team and its hedge fund industry practice. Marc started his legal career in the SEC’s Enforcement Division. During his 40 years in law, he was involved in representations including the Bernie Madoff Ponzi scheme, a recent presidential pardon and the Martha Stewart insider trading trial.The opinions expressed are the author’s alone and do not necessarily reflect the views of Cointelegraph nor Florida International University College of Law or its affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice.