Federal Judiciary Financial Disclosures

via Unsplash

Now this is a terribly un-festive and rather unseasonable post to publish so close to Thanksgiving! I already had most of this one written before things got really hectic at work in early November, so I figured I should just go ahead and publish now that it's ready. Even if almost no one who reads here is as interested in the United States federal judiciary as I am, I still like to think and write about these things...

Because I've been so busy at the office recently, I haven't had any interest in Black Friday sales this year. I'm even a bit too frazzled to think about the year-end holiday gifts I'm somewhat obligated to buy, but have not yet started shopping for (which is probably going to cause headaches for me with all the ongoing supply chain and shipping issues). Long story short, I don't think I'll be making any posts fully dedicated to Black Friday/Cyber Monday sales or holiday gift shopping this year. 

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The Wall Street Journal recently did some in-depth reporting about what's apparently a significant number of US federal judges who have - sometimes through the judge's spouse, financial advisor, or a family trust - either held or actively traded the stocks of companies with active litigation pending before them. I was shocked and appalled. It's critically important that our federal courts avoid even the appearance of impropriety, and this is an obvious and profound failure in that area. The law is also extremely clear, holding the stock of a particular company - however small the number of shares - means the judge must recuse themselves from all cases concerning said company. 

Based on the WSJ articles, it seems these were generally not knowing violations of the judicial ethics rules and laws. In the federal courts I'm familiar with, case assignment is random, done by a spin of the wheel, whether virtual or physical. The clerk of the courts' offices - not the judges' individual offices - automatically screen cases to ensure no judge is assigned to one they have personal conflicts with. Judges have the responsibility of providing their court clerk's office with an updated conflicts list or "recusal list." Any case including a company the judge owns stock in is obviously off limits, the judge is automatically recused from cases involving those companies. Or at least, that's what happens when things work as they should.

Certain judges probably didn't keep their recusal lists fully updated to reflect all stock transactions as the trades occurred. Some of the judges have stated the trades were done by a spouse or financial advisor, and the judge had no idea they happened.  

Ah, and this doesn't excuse things or make it okay in the least - the mere appearance of impropriety is damning - but it's generally likely that the amounts of stock the judges or their spouses held or traded in the companies at issue likely represented... an extremely small portion of those judges' personal or familial wealth. Keep in mind that, by the time most US federal judges are nominated to the bench, they've typically been working as fairly well-compensated attorneys for close to two decades or longer. (Some of the shockingly young judges our last president appointed are obvious exceptions.) That's a lot of time for saving, investing, and wealth-building, before even factoring in any possible help from spouses/partners, parents, grandparents, or other extended family. 

Most judges generally spent at least some time at a biglaw firm. Even for the ones who spent lengthy periods working in the public sector, most did so at the more well-compensated types of government jobs, where an attorney with my total years of experience in a very high cost of living area like NYC would probably earn at least ~$110,000/year to start. And because law school tuition used to be much cheaper, most of these judges never owed anywhere near as much in student loans as K or I did, even without wealthy families to help them pay.  

The numbers and trades discussed in these WSJ articles are taken from the judges' publicly available financial disclosures, which report most things in broad ranges, rather than in specific numbers. After taking a look through the disclosure forms for some of the specific judges named in these WSJ articles for the years in which some of their holdings or trades were called out, it seems like most of these stock trades or holdings at issue were in the $0 to $15,000 range or, more rarely, in the $15,001 to $50,000 range. (There's now an easily searchable public database of these judicial financial disclosures, so you can see the underlying documents for yourself.) 

I've worked for more federal judges than most - mostly in internships during law school - all from a range of different ages and professional backgrounds. After working with them - however briefly and in however limited a capacity as an intern - I respected all my supervising judges greatly as being excellent public servants of utmost integrity. 

When I looked through the database of financial disclosures from the judges I worked for, I was gratified to find they all invested exclusively in mutual funds and other pooled investment vehicles in their reportable accounts. It appears "my" judges and their spouses do not trade individual stocks or have financial advisors trade individual stocks on their behalf. Given the importance of judges' financial disclosures and of avoiding conflicts of interest and the appearance of impropriety - combined with the logistical challenges of frequently reporting and updating recusal lists as necessary if one is an active investor in individual stocks - it seems to me that the best investment approach for a federal judge who wishes to proceed in an abundance of caution is to invest exclusively in mutual funds and other pooled investment vehicles. 

When reviewing federal judges' financial disclosures, keep in mind that retirement accounts from their federal employment - including from the judgeship itself and including the thrift savings plan or TSP - are exempt from disclosure, see Section 315.20 of the relevant rules. I assume these federal retirement accounts do not allow investment in individual stocks. Gifts from wealthy parents or other family members to federal judges are also both allowed and exempt from disclosure. 

Incidentally, these exemptions probably account for some of the widely reported on alleged strangeness with now-Supreme Court Justice Kavanaugh's financial disclosures. He spent essentially his entire career working in federal jobs, so it stands to reason most of his personal retirement savings from those jobs were exempt from disclosure and are accordingly not reported anywhere on his forms. And well, I think we can all make educated guesses about the possible role of familiar wealth or gifts in this scenario. I think I was vaguely aware of all this back in 2018, but probably didn't actually take the time to look through all the relevant rules for myself, so my commentary on this situation back then didn't fully it into account.