public trust. since the founding this has remained vital underpinning of our democracy and informed periodic reforms to address shortcomings in standards of conduct for public officials. for example, this week marked the tenth anniversary of the enactment of the stock act. that measure which president obama signed into law on april 4, 2012, amended the ethics in government act of 1978. impose new financial disclosure requirements among other provisions. overwhelming bipartisan majorities decided then that the existing statutory framework to combat government corruption, improve financial disclosure and transparency, and curb financial conflict of interest in government had to be strengthened, or as the founders might put it, that more effectual for cautions were necessary to keep our public officials virtuous. while they continue to hold a public trust. accordingly, the stock act enhanced public disclosure requirements by introducing a a requirement to report securities transactions throughout the year close in time to the transactions rather than just the following year on an annual statement. among other things the stock act affirmed insider trading prohibitions apply to federal officials and clarified that all federal officials have the duty of confidentiality and trust to the united states and its citizens with respect to material, nonpublic information that they derive from their positions. these were important steps forward. a friend to many of us, the late chairwoman louise slaughter was a primary champion of the stock act and worked for years to see if passed into law and it is sitting congress named the law in her honor. the tenth anniversary of the s.t.o.c.k. act would on its own provide a good opportunity to review how officials have complied with the law and whether there are ways that could be updated. unfortunately there have been examples in all branches of government that further reforms are needed. consider the following examples brought to light by government oversight and ethics groups, several who are represented today, in public reporting. reporting by the insider and other publications found that a member of congress failed to file the periodic transaction reports required by the stock act on time. reporting is also question whether members engage in improper trading activities or have financial conflicts of interest. in the early weeks of the pandemic several senators bought and sold millions of dollars in stock after attending closed-door confidential briefings with top national security and health experts on the pandemic and the looming economic shutdown. this included selling stocks that would soon take a hit after the stock market plunged, and buying stock in industries that received a boom due to the pandemic such as remote work technology, telemedicine companies, car companies, manufacturing ventilators and pharmaceutical makers developing vaccines. the department of justice reportedly reviewed the trading activity of several senators and according to the security and exchange commission it is still investigating one senators trading activities and related conduct. also early in the pandemic the chief of staff to then president trump sold between a quarter of a million dollars and a half a million dollars in publicly traded securities the same day that president trump said the economy was doing quote fantastically. the next day the value of those holdings plummeted. at the federal reserve multiple senior officials including presidents of two of the fed's 12 reserve banks, engage in large financial transactions when the fed was playing a key role in decisions about the nation's economy during the pandemic. even before the pandemic though there were other troubling signs. the wealthiest president and the richest cabinet in modern history which included a significant number of billionaires also exposed have lost disclosure requirements are out of date. and particularly inadequate to the superrich to become government officials. in one case a former member of the house was investigated by both the department of justice and sec for insider trading and other violations related to his action and sharing insider information about a failed clinical trial in an australian biotech company. he ultimately pleaded guilty to conspiracy to commit securities fraud and false statement charges, and he was sentenced to 26 months in prison but former president trump pardoned him and he was released. one trump administration cabinet secretary, a a billionaire, repeatedly came under criticism from the office of government ethics for failing to abide by his ethics agreement and for repeated errors in his financial disclosure reports. errors significant enough that ote determine if not certify his reports. he reportedly made between 53 million, and $127 million while heading the commerce department and it's possible he earned even more than that we don't really know how much more due to the outdated loopholes in the disclosure laws. last month a federal judge imposed a penalty more than $60,000 against a former trump white house official after finding that you knowingly failed to file a financial disclosure report as required by law for more than a year, despite repeated warnings that is her obligation to do so. in the judicial branch as work by good government groups and reporting by the "wall street journal" has been revealed, there been widespread problems with financial conflicts of interest and failures by judges to recuse themselves. according to those reports, between 2010-2018, more than 130 federal judges than 130 federal judges improperly heard hundreds of court cases in which they or their family members held stock in a party to the litigation. under federal law, federal judges are required to recuse themselves from cases in which they are there spouse or minor child have a financial interest in the subject matter or party. last the problem could be even worse than that. the judiciary is literally years behind and making changes fl disclosures publicly available. only this year will judges annual financial disclosure filings covering 2019 finally be available. 2020 still won't be ready. by comparison, when a member of the house files financial disclosure report, the clerk must make it publicly available within 30 days. across the entire federal government had been significant and troubling stories about financial conflicts of interest in relation to stock trading and ownership. our hearing today is a continuation of our review of the diverse legislative reform proposals. while there's growing bipartisan consensus that reforms are necessary, there remain significant policy questions about the appropriate approach and the details. today we will have the opportunity to hear from well-respected expert in government ethics and security law and regulation about what has prompted significant momentum for financial conflict of interest reforms. the details variations, implications of various introduce bills in specific policy recommendations for reform. it's our hope that this hearing today will bring us closer to developing a consensus on recommended policy reforms that will combat financial conflicts of interest and restore public faith and trust in our government. frankly, i have been asked by several reporters what is the work product that is going to emerge from this hearing it and i been is to say, we don't know. we have got a series of experts who are going to help us understand the intricacies of these issues and will help us in formulating good policy that will trust in the american government, and we do think the witnesses for their participation. i would now recognize the ranking member -- did you want to go to -- the ranking member for any statement he may wish to make. >> don't give mr. steil record of my opening statement here, madam chair. first question, yes, please, please. nice to see you, ms. spanberger. saw you walking, welcome. thank you, john lofgren. i'm glad we're holding a hearing on this very important topic. the public has spoken and the band is clear. americans want more certainty that their elected representatives are acting in good faith with their financial decisions. today provides a unique opportunity to bring together experts from across the political spectrum to assess proposals on how best to move forward to increase transparency and accountability across congress. i look forward to these discussions and i'm confident this hearing will serve to inform us as we move forward in the legislative process. i would like to begin by discussing some of the financial transparency measures already in place. the intent of the 2012 s.t.o.c.k. act is good. it was meant to create a public disclosure system for members of congress to report their trades in a timely manner. however, as we witness on multiple occasions since its passage the s.t.o.c.k. act has deficiencies and compliance with its requirements is not as straightforward for members as it should be. we have given the s.t.o.c.k. act ten years and this time for congress to take another look at this issue. according to business insider at least 59 members have reportedly violated the requirements of the s.t.o.c.k. act since 2019. these alleged violators come from both sides of the aisle making this a bipartisan issue that requires a bipartisan response. given the broad distribution of these alleged violations across the various ideological groups in congress, i am confident the majority if not all of them were not malicious but inadvertent, illustrating the felt uncomfortable levels. this particularly can certainly because it suggests that we are not adequately educating our incoming members on their responsibility to comply with the s.t.o.c.k. act. it is the responsibility of this committee to ensure members are aware of their responsibilities when they come to congress and i pledge to fix this lapse for new republican members. i would ask the chair to join in this initiative for any incoming members of her party. while the legislative fixes we discussed today are a critical step forward, i would like to say also that this committee should hold further discussions on how best to educate and assist all members, especially freshmen members, with compliance issues and questions so that we can achieve the transparency that the american people demand. the public and our members deserve better from this committee, and as ranking member i will do everything i can to fix that. i'm sure the chair will agree with the sentiment at a welcome the opportunity to work together on this bipartisan issue. regarding potential s.t.o.c.k. act updates, i'm excited to hear from our witnesses today. since this issue has captured the attention of the public we seen a wide range of proposals for reform. these suggestions are diverse both in the proposed requirements and with their enforcement mechanisms to ensure compliance. now i don't really have many stock holdings other than retirement but in anticipation of this hearing i spoke with my financial advisor from my home district, actually my wife's financial advisor, , a little bt of me, mostly her. he's from a home district in illinois and a water to get a better sense of how some of these proposals would affect members especially middle class members. he raise the concern that blind trust for example, can be cumbersome and expensive. would create perverse incentives and did not provide a level of transparency that some assumed they would. for example, most financial firms won't even take on a client for a blind trust unless they meet certain asset holdings and activity requirements. i don't meet either of those requirements today, and i would guess that that's true for many members. these cost restrictions would put us in a situation where these perverse incentives might force members to engage in more market trading in order to meet blind trust minimums and other requirements. i hope we can address some of these concerns here today because i am sure many members of congress share them with me. i'm hopeful the majority will take this opportunity to work together to build a bipartisan solution instead of proceeding with a knee-jerk reaction that sense of one party built immediately to the floor. i look forward to our expert witnesses testimony and for the discussion, and i hope we can lay this hearing with a better understanding of the ramifications of any proposed solution as we embark on working together, hopefully, to craft bipartisan legislation. thank you, and with that i yield back. >> thank you mr. davis. in just a moment i'll introduce today's witnesses but before i do, as as a reminder to our witnesses, each of you is recognized for five minutes. there is a lighting system and the time in front of you. when your time is up we ask you to try and wrap up. your full written statements will be made part of the record and will inform that ali this committee but members of the public. and the record will remain open for at least five days after this hearing for additional material, to be submitted and we also have additional questions for you, if that is the case we would ask that you would respond to this questions. let me introduce each of our witnesses. jacob straus is a specialist on caucus at the congressional research service he has worked since august of 2007. 2007. he specializes in american government and politics with a focus on congress and other governmental institutions. he's an adjunct professor on governmental studies at johns hopkins university and an adjunct professor at the university of maryland, baltimore county in the political science department. prior to that he served as an assistant professor of political science at star. >> state university and holds aa phd in political science from university of florida and ma in political science from university of florida and the ba in government and politics from the university of maryland. liz hempowicz serves as director of public policy on the project of government oversight come sometimes referred to as pogo. she is an expert on whistleblower protection, conference of interest, ethics, freedom of information act, separation of powers and the national emergencies act. she develops and advances a policy solutions to combat corruption and promote openness and accountability in government and she strategize is the best way to translate pogo report findings to legislative reforms or executive action. she has participated in efforts to improve the inspector general act, the national emergencies act, lobbying and congressional ethics rules, whistleblower protections, and the freedom of information act and other government accountability issues. she graduated from university of bridgeport with a bachelors in international political economy and diplomacy, and earned her j. d. from american university's washington college of law. donald sherman, welcome. you serve as a senior vice president and chief counsel for citizens for responsibility and ethics in washington, otherwise known as crew. he's a leading policy adviser on racial justice and equity, government ethics and congressional investigation and oversight picky serve in various roles in the house, said an executive branch including special assistant to the president for racial and economic justice of the white house come senior counsel to ranking member claire mccaskill on the senate homeland security and governmental affairs committee, and chief oversight council too late representative elijah cummings, then ranking member of the house committee on oversight and government reform. mr. sherman began his career on capitol hill as counsel on house ethics committee, when i chaired the committee, and where he investigated allegations of ethical violations by members of congress and staff. prior to that he practiced law in washington, d.c. and served as a law clerk to the honorable kravitz of the district of columbia superior court. he graduated from georgetown university with a degree in american studies and earned his j. d. from georgetown university law center. donna nagy is c. ben dutton professor of business law at indiana university our school of law. she joined the law faculty in 2006 and teaches and writes in the area of securities litigation, securities regulation and corporations. her scholarship includes co-authoring two macbooks, one on the law insider-trading, and the casebook on securities litigation and enforcement. she's written numerous review articles on topics including the selective disclosure of government information, government officials and financial conflict of interest, insider-trading and fiduciary principles. she is a member of the american law institute and served as appointed member of the aba report laws committee. she also served a three-year term as a member of the national adjudicatory council of the financial industry regulatory authority, and before teaching she was an associate with the -- in washington, d.c. where she specialized in securities enforcement and litigation. she received her ba from vassar college and her j. d. from nyu university law school. and finally jennifer schulp is a direct of financial regulations studies at the cato institute center for monetary and financial alternatives where she focuses on the regulation securities and capital markets. prior to joining cato she was the director at the department of enforcement at the financial industry regulatory authority where she represented then run investigations and disciplinary proceedings relating to violations of federal securities laws and self-regulatory organization rules. before joining bindra she was litigation associate at gibson, dunn & crutcher and she clerk for the honorable -- of the u.s. court of appeals for the fifth circuit. she received her j. d. from university of chicago law school and her a.b. in political science from university of chicago. as all can see we have a very distinguished panel of witnesses before us. we do thank you and we will now hear from you for five minutes each, and we'll start with you, mr. straus. >> chairman lofgren, ranking member davis and members of the committee, on behalf of the congressional research service thank you for the opportunity to appear today. my testimony focuses on two areas, current financial disclosure and periodic transaction reporting requirements, and legislative proposals introduced during the 117 congress to limit or prohibit certain financial transactions by members of congress and covered congressional employees. federal government officials and employees including members of congress when taking official action are expected to, quote, place loyalty to the constitution, laws and ethical principles above private gain. using this guide in principle the ethics to government act as amended including by the stock act in 2012 requires covered officials, including members of congress and certain congressional employees, to file annual financial disclosure statements that report income, gifts, liabilities and property, and they periodic transaction reports that disclose the purchase or sale of certain financial assets. further, the stock act affirms members of congress, congressional employees and other federal officials are not exempt from insider-trading laws. in the 117th congress as of march 1, 2022, we identified 14 bills are resolutions the proposed limitations on members of congress and other covered congressional employees from engaging in certain financial transactions. broadly, these measures proposed to amend the ethics in government act and/or the stock act create new law or admin house rules to prohibit the holding, purchasing, selling and/or actively managing certain types of assets. currently congress does not prohibit the ownership as specified financial assets but certain targeted restrictions do exist in some executive branch agencies. with regard to the legislative proposals before congress, six points are pertinent. first, to address member and covered individuals financial holdings and transactions, several legislative proposals would either i'm in the ethics in government act, the stock act, or both. others would create new law. second, each of the legislative proposals were generally prohibit covered officials from holding, purchasing, selling and/or actively managing certain types of assets. third, a number of the proposals would allow or require a a mer of congress to place covered assets and a qualified blind trust that is approved by the official supervising ethics office, the house ethics committee for the house of representatives. qualified blind trust separate the covered official from day-to-day decision-making about their holdings which can serve to remedy potential conflicts that might arise from official actions that could impact their individual holdings. fourth, four of the proposals would expand public access to information in the financial disclosure statements and periodic transaction reports. fifth, ten of the 14th legislative proposals which ain't available penalties for noncompliance. within these proposals to basic penalty strategies are suggested. find individuals for noncompliance, and/or publish the names of individual or found in violation of the law on a public webpage. finally, to legislative proposals within that house rule 233, house code of conduct, to add a new section that would prohibit members from trading stocks. in closing these legislative proposals include a range of options to limit or prohibit certain financial activities. policy makers may wish to consider the scope of these proposals, the benefits of particular proposals, any potential administrative adjustments that might be necessary to implement the modification of ethics laws, at the potential costs to covered officials to comply with the proposed laws. my written testimony raises particular questions that might be considered. should congress choose to act, a can of it a particular measure as introduced or incorporate various concepts from several different measures. each choice likely has advantages and disadvantages that crs is available to discuss further. thank you again for the opportunity to testify. i look forward to your question. >> thank you very much for your testimony and also your willingness to continue to work with us as we sort through the various proposals. ms. hempowicz, you are now recognized. >> chairperson lofgren, ranking member , ranking member davis and members of the committee, thank you for inviting me to testify today about addressing topics of interest in congress is relate to the owning of individual stocks. there is no denying that this issue is has captured public attention in a unique way. in fact, a strong majority of voters from both major political parties support the congressional stockmen. a fox news poll recently found 70% of those surveyed favored banning members of congress and their immediate family and staff from trading stocks. those numbers didn't come out of nowhere. an avalanche of eye-opening press coverage has demonstrated a congressional stock trading problem that ranges from seemingly benign and public disclosure deadline to criminal insider trading. in response to our entire online communities dedicated to tracking congressional sales, not only told members accountable but because many members of congress outperform the market and an enterprising few in the public want in on the action. it's no wonder the polling reflects an overwhelming desire for change. congress is listening. more than 12525 members are now cosponsoring legislation into dude to address will be some aspects of this problem. it is encouraging to see elected officials so in tune with what their constituents want. and so now congress is poised to restrict stock trading with bipartisan support and we're here to help hammer out the details. the details are everything. there are several competing bills and both chambers of congress and when we see legislation advanced it will either be a first step towards creating real ethics rules from herbs of congress or mere window dressing for legalized corruption. i want to spend a few minutes i have with you today talk about what we see a sum of the important bright minds for you to consider as you move forward. first, as of four would recommend to do best duplicate aspects with the option to put any remaining assets and a blind trust that is subject to new public disclosure. the logic is simple. members of congress have nonpublic information and the power to move markets. we must eliminate opportunities for insider-trading and insulate members from even the perception that they're making decisions based on the benefits to their own financial interest rather than the public interest. second to be meaningful, these requirements must cover spouses and minor children. again the reasoning is simple. it is a safe presumption that marriage partners discuss their work dealings and the minor child's affairs are under some motor, of their parents supervision. in both cases that needs the spouse or child also has the same access to market-moving information that the public is so concerned about being misused. and the less generous reading exempting spouses or minor children with light and easy opaque way for corrupt member to hide itself didn't make any added restriction totally moot. third, the new standards cannot exempt assets of her own before taking office. in less members of congress are willing to recuse from votes are too many sinus base under financial holdings prior to the office and exemption for previous health assets great potential conflict without serving any discernible public policy objective. i want to be clear, pogo once a much stricter ban than any of those you are considering today. we would limit the holdings that members, their spouses, dependent children and senior staffers can't own to diversified mutual funds a u.s. treasury bonds with narrow exemption applicable only in truly unusual circumstances. by today we focus on bright lights on improvement to the law that will enhance accountability and public trust related to concerns about insider trading. and there is incredible momentum for these reforms that would respond directly to one of the publics most acutely expressed institutional concerns. but now some have suggested cargo congress should slow down this current effort so it may include reforms to the financial conflict of interest that apply to the judiciary and executive branch. but you faced the very real possibility of passing no reforms if you slow down now. i urge you to focus your surpassing restriction for congress and then use that momentum to pass additional and yes critically necessary, fuchs of interest reforms to the other branches of government. i want to close with this thought. the reason we're having this conversation today isn't because of any one scandal or miss stock act filing deadline. we're here because the barrage of the many different examples across both chambers and parties has given the public and overwhelming perception that congress is engaged in corrupt behavior when members are allowed to freely own individual stocks. my colleagues at the project on government oversight standby ready to aiding efforts in addressing this problem however we can. thank you again. i look forward to your question. >> thank you very much. mr. sherman, you are now recognized. >> chairperson lofgren, ranking member davis and members of the committee, thank you for the opportunity to appear before you today to address the ethics problems created when members of congress and the families own or trade individual stocks and other securities. i'm especially grateful for this opportunity to testify before chairperson lofgren to 13 years ago hide me to join the nonpartisan staff of house ethics committee. my organization, citizens for responsibility and ethics in in washington, is a nonpartisan anticorruption watchdog committed to ensuring that government officials act ethically on behalf of of the people they serve. it is with this purpose in mind that i encourage congress to embrace comprehensive legislation that satisfies three principles. one, prohibiting members from owning and trading stocks and other similar commodities or securities. two, extending this prohibition to members spouses and dependent children. and three, incorporating a clear civil penalty that is a significant deterrent and easy to administer. in addition to these priorities congress must also ensure that any relevant oversight enforcement bodies had the authority and resources necessary to do their jobs effectively and to provide the public with real transparency. the ethics problems posed by members of congress only and trading stocks are not theoretical. at the beginning of the pandemic a moment when public confidence in our government was critical, congress was rocked by scandal. reports of cindy does making significant financial transactions following private briefings about the coronavirus pandemic was just the tip of the iceberg. at least 75 members of congress own shares in covid-19 vaccine makers pfizer, moderna, and johnson & johnson in 2020. these members were asked repeatedly to vote on legislation that impacted these companies share prices. similar issues have been spotted in other sectors for example, 15 members that sit on committees overseeing u.s. military policy have financial ties to military contractors working session worth nearly $1 million to these facts are both egregious and sadly unremarkable. one reason for this litany of questionable content is the weakness of her current legal regime. the s.t.o.c.k. act passed in 2012 2012 to ensure that members do not trade on nonpublic information gained through their government jobs and to enforce public transparency of their holdings has failed to police this kind of behavior. exposing s.t.o.c.k. act violations has proven difficult in part because. transaction reports and financial disclosures are hard to access. still, the near constant drumbeat of repeated and reported violations is a death by a thousand cuts of credibility for the institution. since the passage of the s.t.o.c.k. act that also been significant changes to get individual members even greater ability to affect the market. members now have a much larger presence on social media enabling them to impact corporate stock prices with a single tweet. congress has expanded the power of committee chairs to issue you and allow subpoenas, and a growing number of members are conducting oversight from their personal offices. congressional rules need to change to address members expanded ability to influence the market. banning members from owning or trading individual stocks would address several problems including the actual conflict of interest that arise when they take official actions that affect a company or industry where they or their families have a direct financial stake, the event of financial conflict of interest, and the public outrage over members appearing to trade on confidential information. i ban is necessary because, unlike other officials and other branches of government, recusal is not a viable option for members of congress. both the executive and judicial branches have higher standards. merely placing individual assets into a qualified blind trust will not fully address these concerns absent a requirement to sell the original assets. the band must also extend to members spouses, independent children to ensure that members can sadly circumvent the law by transferring their individual assets to a close family member. finally, the band must include an enforcement mechanism that is both clear and significant enough to serve as a deterrent. for example, the legislation should not create a standard of intent would make enforcement unlikely. while it is understandable that some members may have questions about the impact of these reforms on their own or the families interests, these concerns are not more important than the publics right to know with certainty that the people they choose to write their laws are acting on their behalf and not in the service of their own financial interests. in closing, the public is right to hold the representatives in congress to the highest ethical standards and to demand accountability windows representatives failed to live up to them. wide bipartisan majority are demanding that congress make changes to address members buying and owning stock in industries that they oversee. banning this practice will to restore public faith, also confidence in our democracy. thank you for the opportunity to address the committee today. i look for it to question. >> thank you. will turn now to professor nagy. >> chairman lofgren, ranking member davis, and members of the committee, thank you for inviting me to testify. i have been teaching and writing about corporate and securities law for more than 27 years. for nearly half of that time i've also been writing about government ethics what first drew me to that field where the controversies that resulted in the s.t.o.c.k. act of 2012. i degree positive testify positive testify about insider trading law in the house and senate hearings that preceded that legislation. in connection with today's hearing what i i can also brio the table are my gears of studying how conflict of interest undermining the legitimacy of decision-making by officials entrusted with power. whether the decision making occurs by corporate directors inside a boardroom or by lawmakers here in the capital, financial conflicts of interest contribute to a corrosive belief that those entrusted with power are making self-serving decisions that may not be in the best interest of those they had been elected to serve. my testimony today strongly supports your efforts towards reform, and i've four points to highlight. the first emphasizes a key difference in the many bills i reviewed. where as some seek to restrict the ownership of certain investments i members of congress, others seek to restrict only the trading of such investments during congressional service. in my view, trading restrictions alone will not be an effective solution to the conflict of interest problem that is plaguing congress. successful reform must also reduce lawmakers opportunities for personal gains in their investment portfolios when they sponsor support, oppose and vote on legislation. so i urge this committee to focus on ownership and not merely trading. what is most needed in my opinion as a federal statute that prohibits members of congress and the spouses and dependent children from owning the securities of individual publicly traded companies. my second point contrasts the lax conflict interests of restraints that could operate in the legislative branch with the very strict at the conflict laws that congress has enacted for officials in the executive and judicial branches. to be sure, ethic rules in both chambers prohibit members from deriving personal financial benefits from congressional service. but long-standing interpretations permit and facilitate a lawmakers ability to work and vote on legislation likely to, in fact, -- affect their own investments, so long as they are not the sole beneficiaries. the lack of parity among the three branches underscores the urgent need for reform. my third point refutes the notion that public disclosure of personal investment, coupled with the discipline of the electoral process, can adequately deter these troubling financial conflicts. neither annual ownership disclosures nor specific 45 day transaction reporting has managed to deter lawmakers from owning and trading hundreds of millions of dollars in stock in companies subject to their oversight. if anything it is made the perception of corruption worse because, , thanks to journalists and good government groups, the american public now sees even more quickly how frequently and extensively some lawmakers are benefiting from the legislative activity. moreover, self interested legislative activity affects the entire country, whereas only voters and a members district or state can have a say in whether conflicts are serious enough to warrant an electoral defeat. my final point relates to insider trading. not withstanding the clarity brought about by the stock act, investigating suspicious trading by congressional officials has proven to be more challenging for the sec and the doj than most have supposed a decade ago. the constitutions featured debate clause puts in place a very high hurdle for obtaining evidence that relates to what i congressional official learned through legislative activity, and without evidence, prosecutions are not possible. this hearing constitutes a monumental step toward bringing about real and profound change. i am truly honored to be a part of it. i look forward to your questions, and i stand ready to be of whatever help i can as the legislative process progresses. thank you very much. >> thank you very much. and now we have our final witness, ms. schulp. we welcome your testimony. >> thank you. john lofgren, ranking member davis, and distinguished members of the committee on house administration. my name is jennifer schulp and i'm the director of financial regulation studies at the cato institute center for monetary and financial alternatives. thank you for the opportunity to take part in today's hearing. as you know the questions raised by members of congress trading stocks are not new. a decade ago the stock act clarified the applicability of insider trading prohibitions to lawmakers and required periodic disclosure of stock transactions, but concerns have persisted about lawmakers stock trading. although recent polling shows widespread public support for banning lawmakers from owning or trading stocks, such measures are too broad for preventing insider trading and too narrow to effectively address the question of financial conflict of interest. because financial conflicts of interest recent complex trade-offs, not easily solved by simple probation, it is better to focus on increasing transparency through disclosure. despite headlines to the contrary, there is little evidence that unlawful insider trading is widespread on capitol hill. recent research looking at post s.t.o.c.k. act trading data has found a lawmakers do not read outsized returns including for investment in areas where lawmakers hold committee assignments. yet questionable trading has been a public perception that lawmakers have financial advantages. analyzing lawmakers trading is more than fair and has been made possible in part by the stock acts reporting requirements. but current law already delineates when such trading is unlawful. it does not follow that all stock ownership or trading should be prohibited just because no start act prosecutions have been brought. this is especially true where there is no evidence of widespread insider trading. moreover, taking opelika action to combat insider trading does not address the actual issue. there is reason to believe that those calling for congressional stock trading reform are not motivated by faith in the market but rather lack of trust in lawmakers. a focus solely on individual stocks distracts from the broader issue that the public perceives lawmakers to be using their positions for financial gain. members account is uniquely positioned to not only have access to information impacting stock values but also the ability to influence those values directly and indirectly. but this complication exist not only for individual stocks but for mutual funds, exchange traded funds, crypto hold links, business interest and of the financial interests. individual stock restrictions address only a narrow portion of these potential conflicts, and as such may do little in the long term to enhance voters trust in congress. the question then is how to manage this multitude of potential conflicts while it is tempting to save that conflicts should be eliminated, the solution is not practical across the range of potential financial couplets of interest don't lawmakers face. importantly, seeking to eliminate a particular conflict such as trading in individual stocks may have unintended effects on the quality of representation that voters receive either by discouraging some from running for office or by decreasing the connectedness between representatives and the impact of their decisions. disclosure provides a more complete solution, bringing the conduct of lawmakers into the light, discouraging questionable trading, and providing voters with information about the conflict of interest that there representatives face. the s.t.o.c.k. act provides a good foundation for this transparency but it has fallen short of its potential and enhancement should be considered to provide additional transparency. the first place to focus is ensuring that penalties for noncompliance i consistently applied. it is worth examining whether the penalty framework is sufficiently deterrent and consider republic reporting of delinquent disclosure. and it is also worth considering aspects of reporting can be automated to these compliance burdens. second, the disclosure requirements themselves could be improved. for example, by shortening the long lag between execution of a trade at the deadline for disclosure. enhancing transparency permits voters to choose whether the conflicts faced by their elected representatives are problematic even if the trading itself is perfectly legal. empowering voters with information limits unintended consequences of restrictions and puts the choice in the hands of voters where it belongs. thank you, and i welcome any questions that you may have. .. >> i appreciate your willingness to let me jump in. i think maybe where we should begin is one, what's legal and illegal under current law and what are the priorities and objectives and goals of putting forth this framework. as i look at this and i'd love for you to comment on this, facilitate compliance with the law and under current law, insider trading is illegal, including for members of congress. we can have a conversation about the enforcement of that using information derived from information learned in congress is illegal and enforcement mechanism. kleins with the law, ensuring members, families and staff don't use information gained from their work. a topic to look into this and provide confidence to the american people that we are in compliance with that, that we avoid the appearance of inpropriety. i think those are three key principles amongst others. are there other principles that you consider? >> i believe those are the key principles that you're correct that insider trading is already illegal. >> let's dive in. we've heard ways to enhance this and enforce the law and members are in compliance with the law. the blind trust. would first the compliance cause relate today blind trust? what would be the cost for members in a blind trust scenario. >> costs for blind trust tend to be substantial, usually takes multiple thousands of dollars to set one up and ongoing-- >> i'm going to move quickly, it's substantial, we couldn't decide whether or not that's good or bad, but a substantial cost and then would members of the public have confidence in the execution of the blind trust? meaning a blind trust is only as good as it is blind, is that a fair assessment. >> that's a fair assessment. >> the structure of that blind trust becomes paramount with congress chose doing down that. a complete stack trading ban, implementation of that, a member of congress coming here and say she was previously an executive at a publicly traded company, she had a significant portfolio, would she then be required to divest that entire portfolio upon arrival of congress? >> some would-- >> and what would happen if she would fully divest the portfolio, what would be the general implications to her. >> there could be substantial impacts and substantial loss. >> or substantial gain, but substantial implications for her upon arrival and maybe a consideration whether or not she chooses to run in the first place, something worthwhile for us to consider is how we would begin that implementation for somebody who arrives in had a capacity. let me shift gear, i was involved in a publicly traded company and compliance with security laws, gives us a framework which to understand how publicly traded companies deal with this insider information, appearance of impropriety for insiders as well. do you think that members should be banned from what i'm going to call sophisticated trades, swaps, options, shorting stocks, would that improve-- would that improve the public's confidence that members are not engaging in insider trading? >> no, i think it would have little difference in the public's confidence on that trustments i may or may not fully agree with that. there are opportunities we may want to consider and look in that space. with, let me shift gears then. in particular with other ways of adjusting the protocols to accomplish the same benefit without maybe a full ban of to explore this space. would minimum holding periods i am move the public's confidence in members of congress abiding by the law? >> it may have some effect. >> so if you had to just for sake throwing a number out. a 90-day minimum holding period to remove quick movements in and out of stocks, it would be longer than the duration of the publicly traded company's financial reporting, it may improve the confidence of the american people in members? >> there may be some effect. >> it may be worth us considering that, the other our current regime has a disclosure after the sale of stocks, some public companies have gone forward with a disclosure prior to the sale or acquisition, and a delayed closing, if you will. let's say for sake of discussion, 10 days where an announcement would be made 10 days in advance prior to the sale or acquisition of a stock. would that alter the appearance of the impropriety as people would be analyzing a member of congress or another insider from engaging in a trade? >> it may have some effect. >> would the burden placed upon that member or a spouse be significant or lighter than a blind trust scenario or forced sale? >> it should be lighter than a blind trust or a forced sale. >> i appreciate your insight. i yield back. >> the gentleman yields back. >> mr. butterfield is recognized. >> thank you for convening this very, very important hearing and i especially want to thank the five witnesses for your testimony as well. mr. chairman, it's good to see you again. i was on the ethic excite when you served as counsel and thank you for your many years of service, madam chair were you the chairman of the ethics committee when i was there, i will say publicly that out of the 18 years that i've served in congress those two years or four years on the ethics committee were the worst years of my life. [laughter] >> i don't take it personally because i concur. >> it had nothing to do with you, madam chair. or you, mr. chairman. i have spent 30 years in a courtroom before coming to congress and you know, in a courtroom, the rules are so much different than the rules for ethics, for members of congress, one, for example, there's a presumption of guilt. i don't know if members really fully know that or appreciate it. if you have not been confronted with an ethics violation, but there's a presumption of guilt and the burden of proof is on the member to prove that she is not guilty for the offense for which she is charged and that was just so, so different from what i had been exposed to in a courtroom, and the final thing that i found very interesting is that a member's failure to cooperate with the process was deemed to be a violation of ethics rule and so, when i say those are some very difficult years, they were. but while i'm with you, mr. chairman. let me just start with you. you've testified that your organization recommends a legislative proposal that requires a comprehensive ban on both trading and ownership of individual stocks and other securities by members and their spouses and dependents. so my question to you, and i have great respect, what is the perspective of the various legislative proposals that ban stock trading, but permits stock ownership through the use of qualified blind trusts, which are currently allowed by law. i know you touched on it earlier, but if you would be more illuminating in your response? >> absolutely, and thank you for the question. i think the misnomar with respect to qualified blind trusts is that it only works if it's truly blind. our position is that qualified blind trusts could be a useful option if the member is required to effectuate the sale of all the assets that would go into that trust, but beforehand. right, a trust can't be blind if the member knows that they owned microsoft the day before it went into the trust, they know that they still own it the day after. >> let's talk about judges. half of my legal career i was a judge back in north carolina and i have great interest in judicial service, but does your organization have any recommendations for addressing the crisis of widespread recusal failure, failure to recuse and lack of transparency regarding financial conflicts of interest in the judicial branch, in the federal judicial branch? >> absolutely, i agree with you the conflict of interest issues risen through the judiciary and exposed detail of reporting are crisis of confidence and need to be addressed by the congress. i would note though that one disturning between the ethics regime that applies to the federal judiciary versus members of congress, recusal is an option. the problem with the federal judiciary is that judges didn't recuse. here in congress, recusal is not a viable option for members of congress that have a financial conflict in interest because it denies their constituents effective representation in this body. >> and finally, professor, prefer nagy, i can't pronounce that exactly. >> nagy. >> thank you for your service, thank you for your testimony. thank you for your testimony 13 years ago or whenever you testified before the stack act was passed. some people have argued that new prohibitions of stock trading and ownership are unnecessary and they're saying that because of public disclosure and electoral process should be enough to address conflicts of interest and argue that disclosure allows for the public and good government groups to track trading active whether elected officials have acted letically and that informed by those disclosures, they can remove those by the ballot box, that seems extreme to me. what is your perspective on that argument. >> my perspective in 1978 congress enacted the ethics in government act with disclosure as the solution or the proposed solution for the conflicts of interest. 10 years ago in the stock act, we put in transparency reporting requirements where 45 days after and disclosure hasn't worked. if anything, disclosure has-- disclosure of financial transactions puts it glaringly obvious to the public that conflicts of interest are there. the voters decide, let the voters and the ballot box decide, that reflects a misconception of the corrosiveness that conflicts of interest have. a voter only in one district decides the answer for representative, but that representative's conflicts affect us all. >> i agree, thank you, i yield back. >> the gentleman yields back. >> the ranking member recognize. >> thank you, madam chair, this is a very interesting hearing. i appreciate all the witness' testimony and i'm hoping that some of the witness' testimony hasn't led the majority to assess what type of legislative proposal they are going to put forth i think the discussion we're asking is too important not to step back and understand where we are as an institution and there's a common theme here that corrupt people do corrupt things, right? and we should make sure that corrupt people don't have an opportunity to do that, but our goal, also, is to make sure that those who want to follow the law and those who want to follow transparency measures have the ability to do so without being labeled corrupt. that's our charge. our charge is to develop something that makes the public comfortable that we, as members of coping, are transparent in what we do financially, but at the same time we're working through a prism of testimony that was based upon corrupt individuals. did any of you research our-- or log into our financial disclosure portal before you came here to testify today? raise your hand if you did. okay. any of you look at mine? raise your hand if you did. nobody? [laughter] >> why wouldn't you? why wouldn't you look at our disclosures, those of us who are questioning you because if you did, you would see that, i don't trade a lot of stocks, i got my only individual stock holdings when i was a child because my father happened to work as a franchisee for a corporation called mcdonald's. i haven't traded that stock since i got here. my kids, my dependent children have that same asset. you know, one reason i don't trade it because i don't want to go through the paper work of the stock act reporting requirements, however, because i've owned the stock since i was a child much of your testimony says that maybe i should sell it, right? now, since i own that one stock, mr. sherman, i've got to question for you, i was really interested in the comment that you said that, you know, owning and trading individual securities undermines the critical work of the entire federal government. does my owning an individual stock since a child, since my childhood undermine the credibility of the federal government? >> i think it is reasonable for any constituent to question whether their member's stock ownership. >> they can do that, i'm going to reframe my time quickly and i want to go further on this. >> sure. so now that i'm a member of congress and i own that one stock, my dependent children own similar stock that they were gifted, my wife does not. so if i go to, let's say an mcdonald's restaurant because that's the only stock that i've owned since a child, and buy lunch. is that something that's unethical? >> certainly not. i think, i think we need to craft ethics policy around the concept of one, public service is a public trust and we need to design a policy that would give the public the greatest confidence that their elected representatives and the body as a whole does not have financial conflict of interest and that members aren't acting on them. >> well, it took me about two minutes that find my disclosure. i would urge you all to go in and find out if any of us here have any so-called conflicts of interest because we need a baseline. we need a baseline of what all of you experts think would be a conflict of interest because i mean, we think we're complying with all of the rules and requirements that we need. ms. nagy, i'm interested in your testimony, you talked about the placement of a-- you testified accumulated assets in qualified blind trusts is only minimally effective conflict of interest measure. how much does it normally take to actually have a financial company offer awe blind trust? don't they have minimums, minimum investments? they do. >> what are they? >> i think it varies according to the financial company. a significant amount. >> a significant amount. my wife because her financial advisor is a friend of ours and because of our reporting requirements, he is not allowed to change any investments in her mutual funds on any given year because it's very difficult to comply and we want to be sure. we want to do the right thing here, but i asked her financial advisor, how much the minimum amount would be. you can go look at how many stocks i own, which again is one, and i am nowhere near the minimal amount for a $500,000 minimum investment to create a qualified blind trust. were you all aware of those limitations? >> do you know how many members of congress would have that amount of money to put into a qualified blind trust? anyone? >> may i respond? >> sure. >> i think it's important to remember when we're talking about blind trusts, i don't think that any of the legislation in front of congress would force a member to take advantage of the blind trust. they're in the option is given to members who choose not to divest. we see that same structure in the executive branch and for the most part, most individuals going in who are subject to very similar restrictions in the executive branch choose to divest and successful millionaires and billionaires. >> there are instructions for divesting in the executive branch. >> you can receive some of the legislation would include here, if members are selling their stock they would incur a penalty they would get a certificate of devestiture which would put off-- it wasn't give them a benefit or a tax penalty, it would maintain their status quo after after their government service and then have to pay whatever taxes they would have had to pay on assets, whatever they did with them whenever. which is the same thing they do in the executive branch. >> i know i'm out of time, but mr. sherman did raise your hands. did you know the members of congress that would be able to afford that? >> i don't, but as my colleague mentioned, divestment is an option and it's an option that i think is preferable from the statement of certainly of crew and qbt's may work for some members, but there are other options that members should avail themselves of for-- forced divestment is the option you're talking about, right? >> well, you use force. i would say that being in public service is a choice. >> it is a choice. >> and so --. >> and that's what i'm concerned about with many of the proposals that are out there that the choice for those who are not independently wealthy are -- is going to be limited compared to those who are wealthy and can afford a qualified blind trust. i certainly am aware that there are more limited choices for individuals with less net worth than those with more and i think this is another example of that, but i think that divestment remains a viable option. >> the gentleman yields back. mr. aguilar. >> thank you, madam chair and i appreciate you holding this hearing and the opportunity to hear from our witnesses despite what the ranking member said, my belief, and i feel i speak for folks on our side here, is this is about gathering more information. this is about ensuring that we need to hold ourselves to the highest ethical standards, to realize that we need to follow the letter and the spirit of the law, and to recognize that there might need to be some changes, along the way and that the idea of crafting good public policy means that we have to weigh options and weigh equities and that individuals who run for this office have to make choices on what public service and public sacrifice means. and so, i appreciate hearing the information and reading the testimony as well. ms. nagy, there have been ongoing conversations about the scope of covered persons within stock trading and ownership. should stock trading reform efforts capture members alone or should they include dependent children and the covered individuals, senior staff members? what's the importance of the scope being widened here? >> sure. thank you, representative aguilar. i think the scope being wider relates to my very first point. it's that the concern of the conflicts of interest concerns about the ownership of securities and it's the concern is that a member of congress may be tempted into self-interested decision making, then that self-interested decision making is also going to relate to one's spouse and potentially to one's dependent children whose lawmaker has control often of the assets, and so insider trading issues and trading issues are serious ones, but conflict of interest ones are very serious as well and that's the area where congress and the rules that apply to congress and the laws that apply to congress are very, very different than what currently applies in the executive branch and the judicial branch. >> i appreciate that. and then i'll go to ms. nagy on this question, there's been debate over the ideal enforcement mechanism within the stock act. some potential bodies, sec, securities and exchange commission, and office of special counsel, what are some of the challenges facing these specific enforcement mechanisms? >> i high level principles. if you're asking my preferred mechanism is it's the senator ossoff. >> ms. nagy? >> i'm sorry, the enforcement mechanism could get more complicated when there are various options to divest or put in a blind trust. i think the administration of blind trusts would be the administrative challenges would be immense and if we look at the difficulties that members have had in complying with the stock acts 45-day reporting requirements, adding more disclosures, more forms, more supervisions does not seem to me as a way to remedy the current problem. i think the enforcement mechanism, the simplest one is to say that members of congress cannot own covered securities, exempt certain types of securities, like widely held diversified mutual funds, treasury bills and others, and i think there might be other exceptions, and drilling down to that. the simpler the prohibition, the easier enforcement. >> mr. sherman, you're the only one that mentioned-- i'm sorry, you may not be the only one. you specifically mentioned enforcement and oversight mechanisms and can you talk with me briefly about how we bolster the enforcement bodies to improve our ability to tackle insider trading and other conflicts? >> absolutely. >> i think it's incumbent to speak to the enforcement bodies, whether that's the oce or the house ethics committee or some of the federal law enforcement agencies that were mentioned to understand their capacity and how much resources they would need to implement these policies. i agree with my colleagues though, i think the simplest and the cheapest mechanism of enforcement is to implement an absolute ban on members and their families owning and trading individual stocks and other securities. >> thank you, mr. chairman. yield back, madam chair. >> the gentleman from georgia is recognized. >> thank you, madam chair. it's an interesting hearing and i think it's something we should discussing and talking about. one quick question, i learned, mr. sherman was part of the ethics committee. just since i've been here. curious, how many ethics violations were prosecuted per year? i mean, you know, versus, you know, there's-- i know that it's politicized and there are tons of ethics complaints for political purposes, but on the average how many members of years of congress were we actually held accountable for ethics violations? >> with apologies, i don't know the answer to that question. i served on the ethics committee before it was passed. >> not just with stocks, but anything. >> would the gentleman yield? because i was chair at the committee at that time and we had a very vigorous enforcement mechanism at that time, one that mr. sherman was very actively involved in. >> and wondering whether it's stocks or not, how many ethics violations do we catch people will that are prosecutable or however the term you want to use, in a year. >> again, i would be guessing if i told you. >> that's fine, but there are some? >> there are some. >> which is a violation of an existing rule or regulation or law, correct? >> absolutely. >> that's all that i was wondering. i'll turn it over. insider trading, has there been insider trading done by members of congress in the last phi years? >> there have been no prosecutions brought under the stock act provisions on insider trading. >> so there were some-- but there have been members of congress convicted of insider trading. >> right, which is illegal. >> correct. >> i'm kind of getting to a point is the misconception that we have here is that government can change behavior, it cannot. laws can't change or shape behavior. it can only punish for violations of those and if enact something like that that restricts the rights and freedoms of individuals and everybody in this committee is a free american citizen that has rights and part of the rights is explicitly defined by our founders was the right to participate in a free market society. the first stock market came in 1790, shortly after the ratification of our constitution. it is part of a free market system. it's no different than having a bank savings account that you can draw interest. now, i'm speaking from somebody, if you've pulled the disclosures on me and maybe you have, you found that there were none. no stock trades, why? because the minimal stock trades that i do is below the threshold of reporting. and so, it's not going to affect me what you do one way or the other. but let me also bring this up. i'm on the financial services committee and part of the oversight we have is the stock markets, the sec. there was an article written about me a few months ago or a year ago, criticizing me that i'd have oversight and regulatory authority over the stock markets and i don't even trade stock. so how could i know anything about it. and versus one of the reasons i started trading a few stocks on my own so i could learn the intracacies of what i am doing. that's not a conflict of interest, that's using the interest i should have to further my knowledge to know what is right, what is wrong, how do we do that and how can we correct these things. look, we cannot change behavior at the founding of our country, there were four federal felonies, four. today we have rooms of code books, of laws, but yet, murders still happen. if government could change behavior, we would have no murders, no thefts, no fraud. so, we can't change behavior. if we-- if we enact a law that prohibits members of congress from owning or trading stocks, it will still happen by bad players. john adams put it this way. he said, our constitution is for religious and moral people as wholey inadequate for the government of any other. what he was saying is basically, the only way that you can control behavior is have such a strong and powerful government that it strips the freedoms away from everybody. we have freedoms, if we have rights. you have to accept that bad people are going to do bad things, but you put the guardrails in for punishment of those things. and whatever happens here, we have to keep in mind that every person in this room is an american citizen that has rights and freedoms and part of that right and freedom is to participate in a free and fair market economy. and if you look, there are so many ethics controls on members of congress right now, i think you're going to run some people out and i just, i want today take my few minutes to bring a different perspective on this for somebody who it's not going to make a difference to me personally. but it does make a difference to me as an american citizen and yes, 70%, look, if you polled a republican districts after a came out that the speaker's husband made all of these millions of dollars on a stock trade i guarantee they would stay ban it, ban it. if you went to a democrat area, it wouldn't be as much. people are emotional and our founders put in a system that was slow and methodical so we wouldn't react emotionally, but thoughtful based on law and protecting freedoms. madam chair, i see my time expired and i yield back the time i no longer have. >> the gentleman yields back. the gentle lady from pennsylvania. >> and obviously the public is appalled about reporting of members of congress and senate, and the point of service is not-- is to serve the public and not to line their pockets. >> there's a lot of awesfulness in establishing firmer laws. i would have to disagree that laws have no impact thinking of smoking or speeding, certainly sets some guardrails when people know what the rules are, they follow them better. certainly, find myself in the unusual position of agreeing with the ranking member that we do need to do a better job of educating members of congress about what those guardrails are because the whole process of getting here is such a fire hose of information that this is not one that is well-emphasized. a couple of you have talked about executive branch guidelines being maybe something we should be considering. and maybe we could start with mr. sherman. i know, you, ms. nagy on this and maybe chime in. can you talk about how the executive branch guidelines with respect to stock trading might inform what we're trying to do here? is there any important differences we should be thinking about? >> sure, well, the conflict of interest statutes that applies to the executive branch, but does not apply to congress creates provisions that ban federal employees from working on specific matters where they have a conflict with their-- with their financial holdings, but it doesn't name specific securities, it's pretty broad. it applies to spouses and applies to dependent children and i think that is a good model for congress in part because we know congress thought that it was important. i don't know why congress opted themselves out of it, but i think that is a good floor with the recognition, however, that members of congress are differently situated than executive branch employees because executive branch employees have the opportunity to recuse themselves from matters where there is a financial conflict. and again, with respect to members of congress, it hurts your constituents if you are recused from any matter that is within the purview of congress. it denies them representation, which is why the prophylactic measures for members of congress should be higher, not lower than applied to members of the executive branch. >> yes, thank you. if someone is a member of the executive branch and one is charged with shaping health care policy, one cannot own health care stocks, full and simple. sometimes it's prohibited by statute directly. sometimes it's prohibited because of the conflict of interest statute that mr. sherman just took us through. members of congress can own stocks and shape health care policy. and they do. and they are complying with all current rules and all current disclosure requirements when they do. which says to me a change needs to be made. we've had instances where legislative branch officials, lawmakers, when the president nominates them to move to the executive branch have to sell their stocks because they can't do their jobs, but they went for decades doing their jobs here in congress and they were supplying with congressional rule, which says to me, congress militia rules need to change and i think the federal statute is the way to change that. >> it's interesting since the scope is so broad, i mean, we have to deal with wars in ukraine and we have to deal with child care tax credits and everything in between so that's an interesting distinction. i think you had something? >> yes, in addition to what my colleagues have said. it's important that the executive branch provides a good model for particular exemptions and situations that come forward. people asked how would you handle cryptocurrency underneath the new restrictions and i think the executive branch has provided a really good road map how to do that and there are questions about nonnuclear families and how would they be approached and the executive branches had restrictions that are stronger than in many ways than what is considered right now for congress and has found a way to make it work and found a way to make it work without deterring successful people or, you know, people from the lower economic ring in our society in participating in the executive branch while under those stricter restrictions. >> i have a gazillion more questions and also wondering how much public financing of campaigns would help, but thank you, and i'll yield back. >> we -- a vote has been called on the floor of the house, we have two votes, so we will recess at this time to go vote. it will-- it's probably going to take at least 40 minutes to come back so you may want to go get a cup of coffee or something and we have at least three members who have questions and there's been discussion of maybe having a second round if you all are game to stick around for that. so at this point we'll recess and we'll come back promptly after the second vote. 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