Monday, November 14, 2011

Congress Caught Trading Stock on Insider Information

Steve Kroft of CBS 60 Minutes reported (transcript) tonight that, ‎"[I]t is not illegal for member of Congress to make stock trades using inside information they learn while working on legislation" because legislators are not part of a corporation and insider trading laws only apply to corporate employees.



Big Government reveals
Former Speaker of the House–and current Minority Leader–Nancy Pelosi apparently bought $1 million to $5 million of Visa stock in one of the most sought-after and profitable initial public offerings (IPO) in American history, thwarted serious credit card reform for two years, and then watched her investment skyrocket 203%.
(...)
In early 2008, Nancy Pelosi and her real estate developer husband, Paul, were given an opportunity to buy into a Visa IPO. It was a nearly impossible feat–one that average citizens almost certainly could never achieve. The vast majority of purchase opportunities went to institutional investors, large mutual funds, or pension funds. 
Despite Pelosi’s consistent railing against credit card companies, on March 18, 2008, the Pelosis bought between $1 million and $5 million (politicians do not have to report the exact amounts, only ranges) worth of Visa stock at the IPO price of $44 per share. Two days later, the stock price rocketed to $65 per share, yielding a 50% profit. The Pelosis then bought Visa twice more. By their third purchase on June 4, 2008, Visa was worth $85 per share.
From 60 Minutes,
We know that during the healthcare debate people were trading healthcare stocks. 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. 
In mid September 2008 with the Dow Jones Industrial average still above ten thousand, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke were holding closed door briefings with congressional leaders, and privately warning them that a global financial meltdown could occur within a few days. One of those attending was Alabama Representative Spencer Bachus, then the ranking Republican member on the House Financial Services Committee and now its chairman. 
These meetings were so sensitive-- that they would actually confiscate cell phones and Blackberries going into those meetings. What we know is that those meetings were held one day and literally the next day Congressman Bachus would engage in buying stock options based on apocalyptic briefings he had the day before from the Fed chairman and treasury secretary. I mean, talk about a stock tip. 
While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.
Bachus' office released a statement saying, "that he never trades on non-public information, or financial services stock. However, his financial disclosure forms seem to indicate otherwise. Bachus made money trading General Electric stock during the crisis, and a third of GE's business is in financial services."

Speaker John Boehner's financial records show investments at political and financial advantageous moments.
During the healthcare debate of 2009, members of Congress were trading healthcare stocks, including House Minority Leader John Boehner, who led the opposition against the so-called public option, government funded insurance that would compete with private companies. Just days before the provision was finally killed off, Boehner bought health insurance stocks, all of which went up. Now speaker of the House, Congressman Boehner also declined to be interviewed, so we tracked him down at his weekly press conference.
Kroft: You made a number of trades going back to the healthcare debate. You bought some insurance stock. Did you make those trades based on non-public information? 
John Boehner: I have not made any decisions on day-to-day trading activities in my account. And haven't for years. I don't-- I do not do it, haven't done it and wouldn't do it.
Later Boehner's spokesman told us that the healthcare trades were made by the speaker's financial advisor, who he only consults with about once a year.
Former Speaker Nancy Pelosi has been particularly lucky at picking winning investments in initial IPO offerings.
"In 1993, Pelosi purchased IPO shares in a high-tech company named Gupta, watched the stock price leap 88% in 24 hours, then seized the profits by selling the stock the next day. The Pelosis did the same thing with Netscape and UUNet, resulting in a one-day doubling of their initial investment. Other fast and lucrative IPO flips included Remedy Corporation, Opal, Legato Systems, and Act Networks."
Later, in December 1999, Pelosi executed a stock purchase
"of between $250,000 and $500,000 in shares from high-tech company OnDisplay. A few months later, OnDisplay was bought by Vignette, which resulted in up to $1 million in capital gains for the Pelosis. What was unusual about the transaction is that Vignette’s IPO was underwritten by a major campaign contributor and longtime friend of Nancy Pelosi, William Hambrecht."
Then in November 2007,
"Pelosi bought $500,000 in the IPO for Quest Energy Partners before proceeding to champion the natural gas-related legislation that stood to significantly benefit the company. When Tom Brokaw asked her whether her significant personal investments in natural gas represented a conflict of interest, Pelosi shrugged off the question by hiding behind the crony capitalist’s false credo: "That’s the marketplace.""
Over the years, bills have been introduced to make insider trading as illegal for members of congress as it is for anyone else, but Congress makes the rules and they have let such bills die before they are introduced. This latest report demands that many heads should role in this scandal and a general house cleaning is in order, if not with immediate resignations and impeachments, then most certainly by popular vote in November 2012.




The life of Indigo Red is full of adventure. Tune in next time for the Further Adventures of Indigo Red.

1 comment:

Always On Watch said...

As Orwell warned us: "Some animals are more equal than others."

Our government has become a despicable oligarchy!