Members of Congress are repeatedly using their positions to personally profit at the expense of other investors as described in Hoover Institute fellow Peter Schweizer’s recently published a book entitled “Throw Them All Out.” Among other things, it details insider trading by Congressmen that would be clearly illegal if done by anyone else. Last Sunday, a 60-Minutes report featured Schweizer, his book and a number of Congressmen, throwing a harsh light on this practice (“It’s time to ban insider trading by Congress,” Roger Parloff, CNNMoney).
Congressmen apparently do trade stocks on inside information that they obtain while performing their legislative work. Many observers have criticized it. Bills to eliminate it have been introduced, but they went nowhere.
There is a debate as to whether a member of Congress who comes into possession of material, non-public information about a company must refrain from trading in that company’s securities while the information is non-public. This uncertainty has doubtless dissuaded regulatory and/or prosecutorial actions against Congressmen for insider trading. As one observer put it: “Any government agency is likely to be reluctant to bite the budgetary hand that feeds it.” Assuming members of Congress may lawfully trade on material, non-public information, many still consider it unfair and improper, because ordinary folks could be sued or prosecuted for doing that.
In his book and on 60-Minutes, Schweizer exposed a suspiciously timed trade by Spencer Bachus, ranking member of the House Financial Services Committee. Bachus had reportedly attended closed-door meetings in which Treasury Secretary Hank Paulson and Federal Reserve chairman Ben Bernanke warned congressional leaders that a global financial meltdown was imminent. “Literally the next day,” according to the Schweizer, Bachus purchased stock options that would make money if the market went down. (Bachus has denied he engaged in insider trading.)
After the 60-Minutes episode, two new versions of the previously introduced bills that would prohibit insider trading by members of Congress were hastily put in the hopper. A hearing has already been scheduled for the House version before the House Financial Services Committee ? chaired by none other than Representative Bachus. The hearing is scheduled for December 6.
Mr. Parloff concluded: “Now that it’s made it onto the agenda, can you seriously imagine anyone opposing it?” Depends on how much media coverage there is. We will see.
Page Perry is an Atlanta-based law firm with over 150 years collective experience protecting investor rights and fighting Wall Street greed.