Start the conversation
As Washington works on finalizing a Congress insider trading ban, Rep. Spencer Bachus, R-AL, could be the first member to be penalized for profiting from power.
The Office of Congressional Ethics is investigating Bachus, the chairman of the House Financial Services Committee, for possibly violating insider trading laws, The Washington Post reported Thursday.
Activity disclosed on Bachus' annual financial disclosure forms triggered the investigation, which started late last year.
This is the first insider trading case involving a member of Congress. It was announced days after the House approved the Stop Trading on Congressional Knowledge (STOCK) Act, which basically says that members of Congress must obey insider trading laws.
The House voted 417-2 to approve the bill; the Senate approved it last week in a 96-3 vote. It took more than two months to get the bill through both houses. The House amended the Senate bill, meaning the process still has to go through another step: a conference to produce a common version.
Bachus issued a statement Thursday.
"The Office of Congressional Ethics has requested information and I welcome this opportunity to present the facts and set the record straight," Bachus said in a statement released by his spokesman, Tim Johnson.
The "Inside Trades" of Rep. Spencer Bachus
The Post reported that most of Bachus' investments were for less than $10,000, and almost all involved options rather than stock purchases.
Bachus' Fidelity brokerage statement for 2008 shows $30,474 in short-term investments, many of them bought and sold in a matter of days, some even in the same day.
In the summer of 2008, when then-President George W. Bush's fiscal stimulus bill was in the works, Bachus bet that the stock of Burlington Northern Santa Fe would rise, and he cashed out that July for a $16,588 profit. In August, he made the same bet – but lost $2,900.
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 would allow him to profit when the economy tanked. He made $5,715.
He also cashed out of options betting on the rise of General Electric Co. (NYSE: GE), and made $12,713.
But Bachus' bets weren't always winners. In October 2008, Bachus bet on the market going up, but lost $21,558.
Bachus' office released a statement last year that he never trades on nonpublic information, or in financial services stock. Bachus has said he gave up his "hobby" of trading when he became chairman of the House Financial Services Committee in November 2010.
Congress Insider Trading: Who's After Bachus?
Bachus isn't the only Congress member recently highlighted in the news for possible insider trading, although no one else has been known to be under investigation.
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, and her husband bought 5,000 shares of the 2008 Visa Inc. (NYSE: V) initial public offering (IPO) while legislation affecting credit card companies was debated in the House.
Pelosi's actions led to the so-called "Pelosi Provision" added to the House version of the STOCK Act. The provision would tighten rules regarding participation in initial public offerings.
Washington insiders who tip off Wall Street could also start to face charges. Financial firms pay handsomely for inside information on issues debated in Congress.
New York-based broker-dealer JNK Securities Corp. arranges about 12 meetings a month between legislators and hedge fund managers, according to The Wall Street Journal. If the information discussed turns into a useful stock tip, the hedge fund must execute the trade with JNK so it can earn a commission.
The Office of Congressional Ethics would not comment on the Bachus investigation.
News and Related Story Links:
- Money Morning:
Monday's STOCK Act Vote Could End a Major Congressional Perk
- Money Morning:
Your Vote Will Help Us Put the Squeeze on Congress
- The Washington Post:
Rep. Spencer Bachus faces insider-trading investigation