The world of investing comes with inherent risks – recent corrections of the Dow Industrial Average remind what goes up can often come way down. There are no guarantees when playing the stock market. If you hold or are applying for a security clearance, it’s important to consider how your investments could affect your security clearance.
In most cases merely owning a small portfolio of stocks isn’t a problem.
“Aside from any financial disclosure and ethics obligations mandated by the Office of Government Ethics – the 287 form is the relevant one – merely holding stocks or trading stocks isn’t a security concern on its own,” explained BradP. Moss, Esq of the Law Offices of Mark Zaid. “That’s standard financial behavior for millions of Americans.”
That sentiment was mirrored by Moss’s colleague Mark Zaid, Washington D.C. attorney specializing in litigation and lobbying on matters relating to international transactions, torts and crimes, national security.
“There is nothing within the adjudicative guidelines that would prevent a clearance holder from owning stocks,” Zaid told ClearanceJobs. “Absent violating a rule or law regarding ethics or insider trading, simply owning stocks – even foreign mutual funds – is not a security disqualification.
Where stocks can present a problem could come down to how heavily you are invested and whether it could create other financial issues. In other words, being financially leveraged to “play the market” could become a problem.
“Engaging in financially risky behavior akin to “gambling” can raise concerns if it starts to lead to financial troubles, but that isn’t unique to asset trading,” Moss told ClearanceJobs.
Objectivity Concerns for contractors
There are some gray areas however with investments, but many of these would be the same that federal regulators could take issue with as well.
“There is the objectivity issue,” said John Dvorak, chief information officer at Salient CRGT.
“If you are involved in offshore investments this could be looked at more closely as this involves foreign investments,” Dvorak told ClearanceJobs.
For contractors owning stocks for their employers’ companies or even rivals shouldn’t be an issue, unless there are conflicts of interest.
“Most contractor positions aren’t involved in the decision making process for government contracts, but if you are involved in the influencing of decisions that can affect the price of the stock, and that could be an issue,” explained Dvorak.
This comes down to the “reasonable test” added Dvorak.
“Is it a ‘significant investment’ – that is something to consider,” he notes. “Buying a small amount of Apple stock is one thing, but making a purchase of stock involving a contractor that could even drive up the sales prices is another issue. This is the same thing as dealing with insider information in the business world.”
In most cases the amount isn’t an issue.
“Where it becomes an issue is if you were to own 10 percent of a company, even a start up, and you were then put in a position to make decisions that could affect that stock price,” said Dvorak. “That could be a bad thing.”
One other point that some people might not consider are the terms of divestment.
“In some cases you can buy stock during an IPO, but you can’t divest it until a certain point,” said Dvorak. “That could be an issue if your employer wants or needs you to divest it for some reason but are required to hold the stock. That is something to think about up front.”
Types of Stocks
Another issue to consider is the type of stock. Again, most blue chips and other stocks aren’t an issue. Contractors for the DoD shouldn’t hesitate to invest in aerospace stocks anymore than someone working at the Department of Energy investing in energy sector stocks – again, as long as normal rules regarding insider information and other laws are followed.
Just as you should consider the type of stock, individuals should also consider the type of business they invest in – and make sure they’re adhering to federal law. One example would be investing in companies with holdings in marijuana.
“That would concern me,” said Ronald C. Sykstus, attorney at law for Bond, Botes, Sykstus, Tanner & Ezzell, P.C. “This may not actually involve using the drug, but that is still a product that is illegal on the federal level. Even if I had a client in a state where marijuana is legal for recreational use I would want it disclosed but better still I would advise not to invest.”
Other gray areas could include stocks that actually involve gaming or gambling.
“This is an issue if you are working at the FBI and investigating gambling businesses for example, but the same thing applies to most white collar crimes,” said Dvorak.
Disclosure of any of these investments certainly becomes important if there is worry of a conflict.
“I’m much more concerned about the potential for false statements than any behavior, so if you are invested in something that could be questionable it is best to be upfront,” Sykstus told ClearanceJobs.
One other investment to consider is Bitcoin. This “cryptocurrency” technically isn’t a stock, but its recent fluctuations in price have mirrored more volatile stocks. One immediate red flag for those considering Bitcoin as an investment is that it isn’t being embraced by most governments or traditional financial institutions.
It has been a currency of choice for use on the “dark web.” Even where it can be exchanged for U.S. currency is another gray area.
“We’ve seen situations where people didn’t realize that bitcoin transaction were occurring internationally and even involved U.S. adversaries,” warned Chuck McCullough III, partner & chair of the national security practice group at Tully Rinckey PLLC.
Last month the Defense Security Service announced it was preparing policy guidance on bitcoin – and whether or not it would need to be reported. Until guidance is released, clearance holders should remain cautious.
“If you are going to invest in these digital currencies I would advise doing so through a legitimate exchange such as Coinbase (based in San Francisco), but even then this is something I’d want to see disclosed,” said Sykstus.
A final word of caution with any investment is to be careful where you monitor your portfolio.
“I’d avoid checking Bitcoin or most investments when using a government computer or any government resources,” McCullough told ClearanceJobs.
Again this isn’t to say that investing should be avoided, but the key to all of this might be transparency and full disclosure.
“Investing is something you want to be upfront about,” said McCullough. “It is no different from disclosing who holds your loan for your house or your cars. All this stuff is reported.”