Applying the prohibition against illegal insider trading to members of Congress – shockingly, members of Congress and their staff are exempt from the law against insider trading – may come down to one leader: Rep. Spencer Bachus, chairman of the House financial services committee. Thursday, Bachus took a monumental step by announcing a hearing Dec. 6 on legislation to apply the insider trading laws to Congress where his own Wall Street transactions may be Exhibit A.
In response to allegations that Baucus may have used non-public information gleaned through congressional oversight for stock trades, the chairman released a letter Nov. 16 making several promising points. Chairman Bachus’ letter followed the publication of the book, “Throw them All Out,” by Peter Schweizer, and a related CBS “60 Minutes” broadcast.
First, the Alabama Republican wrote he did not profit from inside information. “The claim in the book is I shorted GE because I obtained ‘insider information’ that GE was having difficulty and its stock would likely go down. The truth is demonstrably the exact opposite,” he said. Shorting is a means of profiting from the decline of a stock price.
Second, the House leader most responsible for oversight of the agency that combats illegal insider trading stated that he has “a personal policy of not investing in financial companies under the jurisdiction of the Financial Services Committee.” In an interview, Bachus said he’s stopped trading in stocks when he became committee chairman.
What’s encouraging is that instead of defending his right to profit from insider information, Bachus takes special effort to prove that he did not advantage any secrets, and does not as a matter of “policy.”
Leaving aside the fact that GE maintains a major finance subsidiary, it seems a small step for this member of Congress to endorse codification of his personal policy in law. Sustaining his authority to steward financial law certainly invites such a clear pronouncement. And given his position of seniority and reputation as a deregulator, a Bachus endorsement could be pivotal.
To date, however, Rep. Bachus has not added his name to the 46 House co-sponsors of the STOCK Act, H.R. 1148, introduced by Reps. Timothy Walz (D-Minn.) and Louise Slaughter (D- N.Y.). Explained Rep. Slaughter, “Members of Congress should not have special privileges when it comes to trading on the stock market. To make decisions on the House floor or in committee hearings, members of Congress sometimes need access to non-public information. But they should not be able to profit off that information.”
In the Senate, Massachusetts Republican Scott Brown and New York Democrat Kirsten Gillibrand are introducing their own versions of the STOCK Act – quite a fete given that such a measure has never previously been introduced in the Senate. Sen. Joe Lieberman (D-Conn.), chairman of the Senate’s homeland security committee, announced he will hold a hearing. “Insider trading by members of Congress – if it occurs — is a serious breach of the public trust,” Sen. Lieberman said.
In Bachus’ district, constituents from a broad political spectrum are raising questions. For example, on Nov. 17, Tea Party activists reportedly planned to protest outside his Birmingham congressional office. Henry Bloget of “Business Insider,” among others, called for Bachus’ resignation.
Rep. Barney Frank (D-Mass.), former chairman of the financial services committee, called on his Republican colleague to repair the law, “which, I acknowledge, should have been addressed when I was the Chairman,” he said.
Responsible for banking legislation and regulatory oversight, Rep. Bachus has navigated a path different than what progressives such as the Occupy Wall Street movement might advise. The committee chairman noted, “In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.”
It may stretch credibility to expect such a deregulator to support the STOCK act. If he did, however, imagine how quickly the logjam against this anti-corruption legislation would break. We eagerly await hearing what the chairman has to say about this bill on Dec. 6.
Note: Public Citizen and six other reform groups sent letters today to the House and Senate, urging members of Congress to support the STOCK Act.