Insider Trading? Not If You Are Member Of Congress

Members of Congress engage in practices which in the private sector might be considered insider trading, a charge which can net years in prison as Martha Stewart can tell you. As revealed in a recent Washington Post article, members of Congress, including Bush point man House Minority Leader John Boehner, rearranged their holdings before critical announcements were made which would affect them. While the Post found no direct insider trades, they did find an eerie coincidence between policy meetings and financial transactions.

Boehner himself had several hundred thousand dollars in transactions which happened shortly after these meetings, 43 transactions to be precise. Mitch McConnell, the Senate Minority Leader, previously traded with the pace of a turtle, not having made any adjustments to his holdings for months before a call to Boehner in order to hammer out a deal for the passage of the stimulus. Suddenly, he made 4 transactions in the same day, and then went back into his trading hibernation and did not do a further transaction for three more months. And these kinds of actions are not limited to GOP leaders either, with retiring Congressman Barney Frank made similar moves which accounted for nearly 10% of his entire portfolio after a meeting with Treasury Secretary Paulson. Senator Ben Nelson, retiring Democrat from Nebraska, made similar maneuvers after his meetings with the Treasury Secretary, selling just under a half million dollars in Lehman Brothers securities on January 11th.

Lehman Brothers bond holders were wiped out with the firm’s collapse later that year.

If the members of Congress were held to the same rules by which Paulson and other members of the Treasury Department and Federal Reserve were, all of this would be illegal.

What stood out in this period, however, was the Congresswoman involved in these negotiations who was not engaging in trading. Then Speaker of the House Nancy Pelosi is a known day trader, many times engaging in multiple transactions per day on a regular basis. Yet, during the financial crisis, she shut down her trading entirely. But she remains the exception, as hundreds of transactions by members of Congress continued throughout the crisis, spurred shortly after critical meetings with the Secretary of Treasury and Chairman of the Federal Reserve.

This behavior exists far beyond just the financial crisis. During the debates over the Keystone XL pipeline, John Boehner casually neglected to mention his varied investments in 7 firms which would make a direct gain from the pipeline. Again, if this were Secretary Paulson who was in this position, he would be under criminal indictment.

Congress did pass the Stock Act earlier this year in response to previous pressure, however the key anti-corruption provisions were eliminated by House Majority Leader Eric Cantor before passage. Without those provisions, the measure becomes little more than a disclosure bill, allowing better insight into the members of Congress’s personal finances, but having no accountability for misbehavior.

There is a history of corruption in Congress, from former House Majority Leader Tom Delay’s involvement in the Jack Abramoff affair to William Jefferson’s freezer full of cash. This policy, however, of financial gain from congressional acts, is a far more dire an issue than an individual corruption charge. It undermines the tough decisions that Congress must make when deciding its laws. It also undermines the trust placed in our members of Congress.

And that is the real victim in all of this, the public trust.