(This is one of those stories that heats my blood; ergo – 2 articles in one are posted here. This just shouldn’t happen. Jan)
Congress cashes in on stocks
Timing of 1 in every 8 trades coincides with legislation that affects companies
By Dan Keating THE WASHINGTON POST
Sen. Tom Coburn bought bonds in a company around when he freed up a bill the firm supported.
WASHINGTON — One hundred thirty members of Congress or their families have traded stocks collectively worth hundreds of millions of dollars in companies lobbying on bills that came before their committees, a practice that is permitted under current ethics rules, a Washington Post analysis has found.
The lawmakers bought and sold between $85 million and $218 million in 323 companies registered to lobby on legislation that appeared before them, according to an examination of all 45,000 stock transactions by Congress members contained in computerized financial-disclosure data from 2007 to 2010.
Almost one in every eight trades — 5,531 — intersected with legislation. The 130 lawmakers traded stocks or bonds in companies as bills passed through their committees or while Congress was still considering the legislation. The party affiliation of the lawmakers was almost evenly split between Democrats and Republicans, 68 to 62.
Sen. Tom Coburn, R-Okla., reported buying $25,000 in bonds in a genetic-technology company around the time that he released a hold on legislation that the company supported. Rep. Ed Whitfield, R-Ky., sold between $50,000 and $100,000 in General Electric stock shortly before a Republican filibuster killed legislation sought by the company. The family of Rep. Michael McCaul, R-Texas, bought between $286,000 and $690,000 in a high-tech company interested in a bill under his committee’s jurisdiction.
The trades were uncovered as part of an ongoing examination by The Post of the intersection between the personal finances of lawmakers and their professional duties.
- Earlier this year, Congress responded to criticism of potential conflicts of interest by passing the Stock Act, which bars lawmakers, their staffs and top executive-branch officials from trading on inside information acquired on Capitol Hill.
- But the act failed to address the most-elemental difference between Congress and the other branches of government: Congress forbids top administration officials, for instance, from trading stocks in industries they oversee and can influence. The lawmakers, by contrast, can still invest in firms even as they create laws that can affect the bottom line of the companies.
“If you have major responsibility for drafting legislation that directly affects particular companies, then you shouldn’t be trading in their stock,” said Dennis Thompson, a professor of public policy at Harvard University’s John F. Kennedy School of Government and author of Ethics in Congress: From Individual to Institutional Corruption.“Committee chairs especially shouldn’t be in the position of potentially benefiting from trades in companies that stand to gain or lose from actions the committee takes.”
The Post analysis does not provide evidence of insider trading, which requires showing that lawmakers knowingly used confidential information to make trades benefiting themselves. Instead, the review shows that lawmakers routinely make trades that raise questions about potential conflicts.
More than a dozen lawmakers contacted by The Post defended the timing of their trades and the legislation before their committees as coincidental and said they did not know that the companies whose shares they traded were registered to lobby on bills they were considering. In interviews and through spokesmen, they said brokers made the trades, and they had little or no input. Some said their spouses handled their investments. With diverse portfolios, they said, overlap is inevitable.
- Richard Painter, who was chief ethics lawyer for President George W. Bush, said those explanations do not provide ethical cover.
“If you truly want to create some distance, you should set up a blind trust.”
Under ethics rules, lawmakers may establish a blind trust by shifting all their assets into an account managed by a financial adviser. The lawmakers may set general parameters for the blind-trust investment decisions, but they surrender control and cannot know the details of the decisions.
Only six members of the Senate have set up blind trusts that have been approved by the ethics committee. The House does not keep a tally of the number of members who set up such trusts.
Georgia State University professor Alan Ziobrowski said lawmakers who own stocks of companies lobbying on legislation before them have built-in conflicts.
“You can’t get into their heads to know what is motivating them,” said Ziobrowski, whose research helped prompt the initial push for the Stock Act by showing that members of Congress outperformed the market — senators by 10 percent, and representatives by 6 percent. “Are they thinking about their investment, or about what is best for their constituents ?”
The Post analysis does not include 2011 data because it has not yet been computerized.
Former Rep. Brian Baird, D-Wash., who co-authored the original, unsuccessful version of the Stock Act in 2006, said members of Congress and their staffs do not understand that public trust is eroded when people see lawmakers take actions that have the potential to benefit themselves.
“They don’t get it, but they need to,” Baird said. “Why? Because people who are taking actions for venal and nefarious purposes might make the same argument you’re making about your innocence. That’s why if there is an appearance of an impropriety, there just might be an impropriety. Members need to bend over backwards to show people they are there for the good of the country.”
(And now a second article a day later – same subject. Sad isn’t it? Jan)
Lawmakers were active traders during crisis
By Dan Keating THE WASHINGTON POST
WASHINGTON — In January 2008, President George W. Bush was scrambling to bolster the economy. The subprime mortgage industry was collapsing, and the Dow Jones industrial average had lost more than 2,000 points in less than three months.
House Minority Leader John Boehner became the Bush administration’s point person on Capitol Hill to negotiate a $150 billion stimulus package.
In the days that followed, Treasury Secretary Henry Paulson made frequent phone calls and visits to Boehner.
On Jan. 23, Boehner, R-West Chester, met Paulson for breakfast. Boehner would later report the rearrangement of a portion of his own financial portfolio made on that same day. He sold between $50,000 and $100,000 from a more aggressive mutual fund and moved money into a safer investment.
The next day, the White House unveiled the stimulus package.
Boehner is one of 34 members of Congress who took steps to recast their financial portfolios during the financial crisis after phone calls or meetings with Paulson; his successor, Timothy Geithner; or Federal Reserve Chairman Ben Bernanke, according to a Washington Post examination.
The lawmakers, many of whom held leadership positions and committee chairmanships, changed portions of their portfolios a total of 166 times within two business days of speaking or meeting with the administration officials. The party affiliation of the lawmakers was about evenly divided between Democrats and Republicans, 19 to 15.
The period covered by the Post analysis was a grim one for the U.S. economy, and many people rushed to reconfigure their investment portfolios. The financial moves by the members of Congress are permitted under congressional ethics rules, but some ethics experts said members should refrain from taking actions in their financial portfolios when they might know more than the public.
- “They shouldn’t be making these trades when they know what they are going to do,” said Richard W. Painter, who was chief ethics lawyer for Bush. “And what they are going to do is then going to influence the market. If this was going on in the private sector or it was going on in the executive branch, I think the SEC would be investigating.”
Boehner, now the speaker of the House, declined to discuss his transactions. His spokesman said they did not pose a conflict because a financial adviser executed them and they were made in diversified mutual funds. Other lawmakers also said their financial advisers handled their trades. They said that the timing of the trades and the conversations was “coincidental.”
Lawmakers are not prohibited from trading stocks in companies that appear before them or from reworking their portfolios after briefings with senior administration officials, and the Post analysis did not turn up evidence of insider trading. Instead, the review shows that lawmakers routinely make trades that raise questions about whether members of Congress have an investing advantage over members of the public.
Consider the case of Sen. Kent Conrad, D-N.D.
Toward the end of the summer of 2007, the foundation of the nation’s real-estate market started to shake. On Aug. 6, the American Home Mortgage Investment Corp., the nation’s 10th-largest mortgage firm, filed for bankruptcy. On Aug. 9, the Dow fell nearly 400 points, its second-biggest one-day drop in five years.
On Aug. 13, as the markets closed, Paulson called Conrad, chairman of the Budget Committee. The next day, Conrad adjusted his family’s portfolio for the first time in four months. Conrad reported that a total of between $150,000 and $300,000 was shifted out of three mutual funds in his wife’s 401(k) retirement account. He moved $100,000 to $250,000 of that money into a lower-risk money-market fund within the retirement account.
- Conrad said his conversation with Paulson had nothing to do with his trades.
“There is absolutely no connection between the two,” Conrad said.
“The decision that my wife and I made with our financial advisers to diversify into lower-risk investments had everything to do with what was happening that was on the front pages over every paper, including yours.”
There are other examples. On Jan. 31, 2008, Sen. Mitch McConnell, R-Ky., the minority leader, reported making four trades, each worth between $15,000 and $50,000 in his portfolio, and rearranging four mutual funds. He reported selling shares in one international fund, buying shares in another and reconfiguring his investments in two domestic funds. He hadn’t made a trade since Nov. 20, 2007, and he would not make another until April 14, 2008.
- The Jan. 31 trades were made after several days of repeated phone conversations between Paulson, who was trying to salvage the administration’s $150 billion stimulus deal, and McConnell.
McConnell’s spokesman, Michael Brumas, said the senator does not own specific stocks, to avoid the appearance of a conflict, and he relies on his investment adviser to make trades.
Barry Barlow, the adviser who works for Merrill Lynch in Louisville, said the moves he made were suggested by Merrill Lynch. Barlow said he couldn’t recall whether he spoke to McConnell before the readjustment, but he said the senator frequently tells him to stay away from purchasing individual stocks to avoid the appearance of a conflict.