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While the Middle Class Suffers, Congress is Getting Richer – With Help From Legal Insider Trading

While many Americans continue to struggle to save money, members of Congress are getting richer.

A Roll Call analysis of Congress members' financial disclosure forms showed their collective net worth was more than $2 billion in 2010 – a 25% leap from 2008. Minimum net worth in the House of Representatives rose to $1.26 billion, with minimum Senate net worth at $784 million.

With a median net worth of $891,506, Congress members are nine times wealthier than the average American household – and some Congressional leaders are exceedingly richer.

About 11% of Congress has net worth of more than $9 million, landing them in the top 1% of America's wealthy.

And these numbers aren't even the whole picture. They don't include members' homes and other non-income-generating property, which could add hundreds of millions of dollars to total net worth.

Congressional leaders' presence in the top 1% is one of the catalysts that angered citizens enough to start the global "Occupy Wall Street" movement. It also has prompted a closer look at how these elected representatives are gaining such riches, especially on an annual salary of $174,000.

According to a CBS News "60 Minutes" segment that aired Nov. 13, congressional "insider trading" might be a key factor in their financial success. Congress members may be using information gained from their "insider" positions to make highly profitable trades in the stock market.

This form of insider trading may be unethical, but it's also legal.

"This is a venture opportunity," Peter Schweizer, a fellow at Stanford University's conservative think tank the Hoover Institution, told "60 Minutes" correspondent Steve Kroft. "This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends, and your family."

Congressional "Insider Trading"

Schweizer has extensively reviewed Congress members' financial disclosure records for his book, "Throw Them All Out," released this week. He wanted to know how our elected representatives manage to accumulate so much wealth while in office.

Schweizer found that congressional representatives were trading stocks related to hot topics being discussed and debated in Congress before information had been disclosed to the public.

"We know that during the health care debate people were trading health care stocks," Schweizer said to Kroft. "We know that during the financial crisis of 2008 they were getting out of the market before the rest of America really knew what was going on."

Take for example Rep. Spencer Bachus, R-AL, chairman of the House Financial Services Committee. According to the "60 Minutes" report, Bachus attended closed-door briefings in September 2008 with then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. Congressional leaders in those meetings were warned that a "global financial meltdown" was about to occur.

The next day, Bachus bought stock options that allowed him to profit if and when the economy tanked.

Bachus' office released a statement that he never trades on nonpublic information, or in financial services stock, but a disclosure showed he turned a profit trading General Electric Co. (NYSE: GE) during the financial crisis.

Such an action by a corporate executive, executive branch member, or federal judge would fall under insider trading, a punishable criminal act.

Just ask Galleon Group founder Raj Rajaratnam, who was sentenced Oct. 13 to 11 years in prison, the longest-ever sentence for insider trading. Rajaratnam's position as a $7 billion hedge fund manager qualified him as an "insider" who used nonpublic information to net $64 million.

Congressional leaders, however, even though privy to non-public information, are not considered corporate insiders, and can trade on such information and escape penalty. Congressional staffers and lobbyists also are exempt.

Bachus is not the only representative highlighted in the report.

Rep. John Boehner, R-OH, was one of the members of Congress who bought health insurance stocks during the 2009 healthcare debate. Boehner fought against a government-funded insurance plan that would compete with private companies, which rose in share price after the provision died in Congress – and after Boehner bought the related stocks.

Former Rep. Dennis Hastert, R-IL, made $2 million from selling land he owned after receiving a federal earmark to build a parkway near his property. Former Sen. Judd Gregg, R-NH, helped get $70 million in funds to go toward redeveloping a U.S. Air Force base in which he and his brother had a commercial interest. And Rep. Nancy Pelosi, D-CA, bought shares of the 2008 Visa Inc. (NYSE: V) initial public offering (IPO) while legislation affecting credit card companies was debated in the House.

Congressional leaders defend their actions by saying their financial advisers do their trading without consultation, or that representatives' spouses are the ones directing the trades, or the trades are coincidental.

An End in Sight?

Former Rep. Brian Baird, D-WA, told "60 Minutes" correspondent Kroft that the insider situation in Washington is worse than ever. He said there's a "political intelligence" industry in our nation's capital involving former congressmen and staffers hunting around town for nonpublic information they can sell to hedge funds and traders.

And until all of our political leaders are considered "insiders," this activity will continue legally unless Congress itself does something about it.

Baird spent about six years during his time in office – he retired last year – trying to gain support for the "Stop Trading on Congressional Knowledge," or STOCK, Act. Together with Rep. Louise Slaughter, D-NY, and Rep. Tim Walz, DFL-MN, he introduced the act that would make it illegal for Congress members to trade stocks on nonpublic information, as well as change financial reporting requirements to every 90 days instead of one year.

Not surprisingly, the movement got little support.

"The first time this legislation was introduced, 14 people endorsed it," Victoria Dillon, Slaughter's press secretary, told MarketWatch. "The last time, it got nine. Congresswoman Slaughter is saying, "We shouldn't have the opportunity to do this. It shouldn't be legal. This is not one of the more complex pieces of legislation. This is common sense.'"

But shedding more light on the problem could start to change things. Sunday's "60 Minutes" segment triggered new support for the bill.

Sen. Scott Brown, R-MA, on Tuesday introduced the STOCK Act of 2011, prohibiting members or employees of Congress, as well as executive branch employees, from using nonpublic information gathered through their public service for investing or any attempt at personal financial gain.

"Members of Congress should live under the same laws as everyone else," Brown said in a statement Tuesday. "If they trade on inside knowledge to line their own pockets, they should be punished. Serving the public is a privilege and honor, not an opportunity for personal gain."

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  1. SCOTT A SANDERS | November 18, 2011

    This is yet another prime example of how Congress passes laws that apply to us as citizens, but exempts themselves. No wonder why many of them spend hundreds of thousands to get elected to a position that pays less than 200K, the benefits far out weigh the salary…all at the expense of the people they were elected to represent.

  2. Bernard Durey | November 18, 2011

    I guess whether we agree,disagree or reach a compromise which seldom happens in some things. However,whether one agreees or disagrees the Health Care Reform was and probably is a prime example of split partisan politics. I have often pondered the provisions of this or these clauses as follows: Article III;Section 2—The judicial Power shall extend to all Cases,in Law and Equity,arising under this Constitution,the Laws of the United States,and Treaties made,or which shall be made,under their Authority;—to all Cases of admirality and maritime Jurisdiction;—to Controversies to which the United States will be a party;—to Controversaries between two or more States;—between a State and Citizens of another State(this clause has been affected by amendment XI.)—between Citizens of different States,—between Citizens of the same State claiming Lands under Grants of different States,and between a State,or the Citizens thereof,and foreign States,Citizens or Subjects. —That section continues on but in many controversaries it is believed that it may go to court,however,it also may end up right back in Congress when the house and senate seats are different when the controversaries are between those representing the citizens of America,etc. Some of which goes with the saying their is nothing written in stone because it just keeps spinning around and goes no where or without end. In others lawyers won't even tangle with it because there is no compromise on some issues. All one sided their way or the highway.

  3. RICHARD MURRAY | November 19, 2011

    This is just so common in today's society, the poor are getting subsidized by the middle class and a little by the wealthy. The middle class supports the illegals by paying more for services, health insurance and health care services, since they don't pay for anything. The middle class is losing ground in annual salary increases, while Congress gets richer, by their illegal "Insider Trading" that the middle class would be sitting in jail for! And the wealthy, just keep getting wealthier, by all of the tax loop-holes that they are afforded to, that the middle class can not afford.

    So, just when is "the day of the middle class"? When will we stop paying for kids in our schools that are not even the offspring of American parents? When will our auto insurance rates start going down, because we no longer have to pay for non-insured illegals? When will we get "Insider Trading" tips, without fear of jail? And finally, when will we make enough salary so that we can take advantage of these "Tax Loopholes", that maybe someday we will not have to work until the day we die? Don't get me wrong, I am not bitter, I just want to live in a fair society!!!

  4. robert g talamini | November 29, 2011

    when will the limit terms,having same health insurance same as our,not being able to vote their raise,not being npaid when nther not in session,there retirement olan same as our ie their own 401-k ,none of this a full generous pension for only one term,,and now we have another disgrace..using the information they are privy to to steal money from us………they are all shamless the way they use the office they hold……..we all need to remove those that abuse the office …its a helpless feeling,,,,washington is a mess……and they don't get it……..a %15,000,000,000,000 debt and still counting…… adding yearly $1,500,000,000,000.

  5. Terry McCraw | November 29, 2011

    Steve Kroft and Peter Schweizer should receive a gold medal for exposing but one more rung in the ladder of congressional corruption and self-dealing, particularly as it relates to insider trading. It may be legal for them, only because they passed the law, but certainly not ethical. Insider information breeds investor genius and illegal profits whether you are the investor or the investment advisor. Many of our illustrious Congressional Representatives may plead innocence, even though their fingerprints are INSIDE the vault. But then it’s always that way from their perspective, “Do as we say, not as we do”. It is sad to face the realization, when it comes to ethics and integrity, Congress would rival any crime syndicate in the free world. The Stock Act should be passed and passed now!

  6. Chris Roberts | December 7, 2011

    I guess Congress and Senate is stocking up now . At the rate its going the dollar will be virtually worthless . A loaf of bread will run someone , the ones that can afford it , ten to twelve dollars . At that point , if it hasnt already , what will follow is the shit colliding with said fan . I think we all know that everything has breaking point and its bowed ninty degrees off vertical . Most of us dont know had times . My father grew up in the depression and mother weathered WW2 England .That being the sole reason they did so well when times were lucrative . So buckle up folks we might be in for bumpy ride . Peace

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