November 14, 2011

November 14, 2011. New York. Most Americans suspect their government is corrupt, but they just can’t prove it enough to put anyone in prison. Similar surveys show that most Americans also believe that US stock markets are also corrupt. Again, they just can’t prove it enough to put people in jail. A recent report by CBS News puts the two accusations together and comes up with the evidence that proves both claims. The shocker – US Congressmen are immune and exempt from insider trading laws, and they’ve been milking their status of being above the law for years, and millions of dollars.

There’s an old saying on Wall Street, “For every winner there’s a loser.” Too often, it seems like the losers are always the small mom and pop investors who are forced to play by one set of rules. And the winners always seem to be the same rich and powerful elites. There are many examples, all of which are surprisingly legal. Stock markets open and close at certain times, yet special people can make trades during closed hours when market changing news is breaking.

Companies like Facebook haven’t done a stock offering because it would open them up to a slew of government regulations. But somehow, the law allowed Goldman Sachs to issue Facebook stock, but only to its hand-picked elite investors. When companies execute ‘initial public offerings’ (IPO’s), we have to wait until markets open on the first day to buy the new stock. Unfortunately, millions of shares have already been bought and sold by those same elites, hours and days before the rest of the investing world legally could. And the biggest shocker of them all – members of Congress engage in illegal insider trading, because they’ve voted themselves exempt from financial fraud laws like those.

So when the American people complain that the investment industry is rigged in favor of the rich and powerful, they might not be able to give examples of illegal activity, but they most definitely know what they’re talking about. The recent CBS News investigative report is the most scathing yet.

The Library of Congress provides a document to all Congressmen defining ‘insider trading’. The simple three page document gives the definition:

“Insider trading in securities may occur when a person in possession of material nonpublic information about a company trades in the company’s securities and makes a profit or avoids a loss. Two federal statutes have provisions which forbid insider trading: the Securities Exchange Act of 19341 and the Insider Trading Sanctions Act of 1984.2.”

Members of the US Senate and the US House of Representatives have been voting themselves above the law for decades. In fact, a voter revolution in 1994 swept enough reform-minded representatives into Congress that the freshman legislators enacted the ‘Congressional Accountability Act’. The law removed the Congress’ immunity from arrest and prosecution for a handful of federal crimes that they were previously exempt from.

They included: The Age Discrimination in Employment Act of 1967, The Federal Service Labor-Management Relations Statute, Veterans’ employment and reemployment rights at Chapter 43 of Title 38 of the U.S. Code, The Americans with Disabilities Act of 1990, Title VII of the Civil Rights Act of 1964, The Employee Polygraph Protection Act of 1988, The Fair Labor Standards Act of 1938, The Family and Medical Leave Act of 1993, Occupational Safety and Health Act of 1970, The Rehabilitation Act of 1973 and The Worker Adjustment and Retraining Notification Act of 1989.

One law missing from the list – Insider Trading

When current and former House Speakers John Boehner (R-OH) and Nancy Pelosi (D-CA) refused to answer questions about Congressmen making fortunes trading stocks of corporations they were simultaneously regulating and voting on, CBS News correspondent Steve Kroft went to Washington to get some answers.

While talking with Peter Schweizer from Stanford University’s Hoover Institution, Schweizer points to the first offender – US Rep. Spencer Bachus (R-AL). In the days prior to the US economic collapse, Treasury Secretary Paulson and FED Chairman Bernanke were holding private meetings with ranking members of the House Financial Services Committee. They warned the Representatives of the impending economic meltdown only days away. Congressman Bachus act of patriotism was to immediately invest in the markets. Except Bachus didn’t bet on America. Instead, he used the apocalyptic insider briefings from Secretary Paulson to ‘short’ options, betting that the economy was about to collapse – something nobody expected in the days prior to the actual meltdown, nobody except Hank Paulson and Spencer Bachus. Congressman Bachus declined to comment for CBS News.

Congressman Bachus instead released a statement saying he, “never trades on non-public information, or financial services stock.” The CBS News investigation found that to be an outright lie. Rep. Bauchus invested in General Electric. GE was one of the handful of financial firms that received the massive bank bailout.

Another Republican, House Speaker John Boehner (R-OH), also appears to be guilty of insider trading. Days before Congress defeated a provision of President Obama’s healthcare overhaul, subsequently known as ‘Obamacare’, Boehner invested in health insurance companies. When the bill was proposal was defeated a few days later, the stocks surged higher and Boehner made a tidy profit. Speaker Boehner also declined to comment…so CBS’ Steve Kroft tracked him down at his weekly press conference. Boehner denied making any day to day decision on his personal stock trades and his spokesman confirmed that a financial adviser makes all the decisions.

The report also mentions a third House Speaker, yet another Republican – former Illinois Congressman Dennis Hastert (R-IL). Hastert made a fortune on land deals while he was in Congress. When elected as Speaker in 1999, Hastert had a net worth of a few hundred thousand dollars. He left the post eight years later a multi-millionaire.

In just one example of former Speaker Hastert’s double dealings, the CBS News report details how in 2005, Hastert was successful in having one of his personal pork barrel projects funded by Congress. $207 million dollars was earmarked for a new highway through the Congressman’s Illinois district. Hastert didn’t do anything as obvious as purchase the land the highway would be built on and resell it to the government at a huge profit. Instead, he purchased swaths of land directly adjacent to the highway. As soon as the highway funding was approved, Speaker Hastert sold the land to commercial developers. His quick profit – $2 million dollars. When CBS attempted to interview Hastert, they found him away in Washington where he now works as a lobbyist.

Another example the article gives of elected officials using taxpayer-funded projects to make a fortune is yet another Republican – Senator Judd Gregg (R-NH). Gregg was successful in steering a $70 million dollar grant to an air base that he and his brother had a commercial interest in. The Senator insists he broke no laws.

The article doesn’t only concentrate on the GOP. Yet another former House Speaker, Nancy Pelosi (D-CA), receives her share of criticism.

Schweizer and the author give us the following example, “If you were a senator, Steve, and I gave you $10,000 cash, one or both of us is probably gonna go to jail. But if I’m a corporate executive and you’re a senator, and I give you IPO shares in stock and over the course of one day that stock nets you $100,000, that’s completely legal.” Former Speaker Pelosi has participated in no less than eight IPO’s.

In one recent example, legislation that would hurt credit card companies was making its way through the House of Representatives. At the same time, Pelosi purchased 5,000 shares of Visa stock. When the Democratic leader refused to bring the bill up for a vote, the anti credit card bill died. Pelosi’s stock jumped from $44 per share when she bought it to $64 per share after the legislation was tabled in her chamber. The former Speaker also declined to comment, but invited CBS News to pose the question at one of her press conferences. When asked publicly, Pelosi denied her legislative actions had anything to do with her stock transactions.

The report makes another startling observation. An entire Wall Street industry has grown up around the practice of using Washington’s insider information to make highly profitable investment decisions.

While low-level secretaries, sub-minimum wage messengers and even prostitutes have been indicted for soliciting insider information to resell to fund managers and other high-dollar investors, the same fund managers and traders have recently developed a new tactic – political intelligence. It’s rapidly become a $100 million dollar per year industry that employs countless former Congressmen and other former elected officials. Their jobs are to stalk the halls of Congress to squeeze their former colleagues for any non-public information they can get their hands on.

The CBS News report reminds us that the President of the United States, Federal Judges, and even corporate executives are all bared from using insider information to personally profit or avoid loss, but not the people who wrote and passed the laws. Congress is exempt. Members of the various Banking Committees can trade bank stocks all day. Members of the Defense Committees can trade defense stocks all day. And all the while, they’re writing and passing legislation that will have a dramatic effect on their personal stock investments, as well as America’s future.