Congress: Trading stock on inside information?

 

(CBS News) 

Editor's Note: The report "Insiders" received quite a reaction the week after it aired. Democratic Congresswoman Nancy Pelosi's office called the report a "right-wing smear." While Republican Speaker John Boehner's office called his inclusion in the story "idiotic." But now, at least 93 members of Congress have signed on as cosponsors of the Stock Act, and for the first time the bill has been introduced in the Senate.

Washington, D.C. is a town that runs on inside information - but should our elected officials be able to use that information to pad their own pockets? As Steve Kroft reports, members of Congress and their aides have regular access to powerful political intelligence, and many have made well-timed stock market trades in the very industries they regulate. For now, the practice is perfectly legal, but some say it's time for the law to change.

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The following is a script of "Insiders" which aired on Nov. 13, 2011. Steve Kroft is correspondent, Ira Rosen and Gabrielle Schonder, producers.

The next national election is now less than a year away and congressmen and senators are expending much of their time and their energy raising the millions of dollars in campaign funds they'll need just to hold onto a job that pays $174,000 a year.

Few of them are doing it for the salary and all of them will say they are doing it to serve the public. But there are other benefits: Power, prestige, and the opportunity to become a Washington insider with access to information and connections that no one else has, in an environment of privilege where rules that govern the rest of the country, don't always apply to them.

Questioning Pelosi: Steve Kroft heads to D.C.
When Nancy Pelosi, John Boehner, and other lawmakers wouldn't answer Steve Kroft's questions, he headed to Washington to get some answers about their stock trades.

Most former congressmen and senators manage to leave Washington - if they ever leave Washington - with more money in their pockets than they had when they arrived, and as you are about to see, the biggest challenge is often avoiding temptation.

Peter Schweizer: This is a venture opportunity. This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends, and your family.

Peter Schweizer is a fellow at the Hoover Institution, a conservative think tank at Stanford University. A year ago he began working on a book about soft corruption in Washington with a team of eight student researchers, who reviewed financial disclosure records. It became a jumping off point for our own story, and we have independently verified the material we've used.

Schweizer says he wanted to know why some congressmen and senators managed to accumulate significant wealth beyond their salaries, and proved particularly adept at buying and selling stocks.

Schweizer: There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it's not illegal, but I think it's highly unethical, I think it's highly offensive, and wrong.

Steve Kroft: What do you mean honest graft?

Schweizer: For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply.

Kroft: So congressman get a pass on insider trading?

Schweizer: They do. The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is-- is considering not reimbursing for a certain drug that's market moving information. And if you can trade stock on-- off of that information and do so legally, that's a great profit making opportunity. And that sort of behavior goes on.

Kroft: Why does Congress get a pass on this?

Schweizer: It's really the way the rules have been defined. And the people who make the rules are the political class in Washington. And they've conveniently written them in such a way that they don't apply to themselves.

The buying and selling of stock by corporate insiders who have access to non-public information that could affect the stock price can be a criminal offense, just ask hedge fund manager Raj Rajaratnam who recently got 11 years in prison for doing it. But, congressional lawmakers have no corporate responsibilities and have long been considered exempt from insider trading laws, even though they have daily access to non-public information and plenty of opportunities to trade on it.

Schweizer: We know that during the health care debate people were trading health care 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.

Schweizer: 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.

Congressman Bachus declined to talk to us, so we went to his office and ran into his Press Secretary Tim Johnson.

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[Espirence]

Can you show me the exact legislation that makes this insider trading and selling of information legal for the Congress?

[indepedent1]

Whoa!! Lets not be hasty, wait until this is passed and see how much they have doctored this bill for personal gain, closed door sessions, open gov hah!! If this law is already in force then prosecute, thats what would happen to us, you know, the people you work for!! OH well, probably like Rangel, bad boy shame shame, How about a follow up 60 minutes, the changes, the facts. The new loopholes for wallstreet, the firms that are trying to be excluded, that gather information and sell it for huge profits, be interesting to know if our employees in Washington are holding any stock in these companies.

[Mormon_Mafia_Corruption]

Thank you 60 minutes for this story. Please come to Idaho and investigate the rampant Mormon Mafia Political Corruption problem in our state and local government. LDS politicians overwhelmingly control every county seat and state position in Idaho granting preferential legislation to LDS controlled Agribusiness, Contractors and jobs. Additionally, the Attorney General and local prosecutors DO NOT protect non-LDS citizens from criminal actions of these elitist.

[indepedent1]

How about a follow up, when this is finalized, after they doctor this up for their on benefit.

[harleybud]

What about Boehner and the Keystone pipeline issue...he owns a lot of their stock and is really pushing for this deal to go through...its a obvious conflict of interest...dont you think

[harleybud]

Demand That John Boehner Be Expelled Or Resign For Keystone XL Scandal....Boehner's 2010 financial disclosure form reveals his investment of $15,001 to $50,000 in Canadian Natural Resources Ltd, and they are in the business of tar sands oil and are just one of seven companies Boehner bought stocks in. His 2009 disclosure shows no stocks in Canadian Natural Resources Ltd leading any semi-intelligent American to believe Boehner bought stock in Canada's tar sands just in time to reap financial benefits if and when the pipeline was completed and carrying Canadian oil to Texas for refinement and sale on the foreign market. Boehner's push, as Speaker of the House, to build the pipeline is beyond simple conflict of interest; he is performing official acts for favors (campaign contributions) and money in the form of dividends from his oil sands stocks. Boehner's gifts in exchange for performing official acts for the oil industry are $144,150 in the form of campaign contributions in 2010 alone. Boehner must resign or face an ethics investigation that may result in his expulsion from the House.

Boehner makes his unethical activity worse by lying to the American people about the number of jobs the pipeline will create and his assertions have been disproven time and time again. The fact that Boehner lies to the American people for pure personal financial gain and future oil industry campaign contributions is a matter for a House Ethics panel investigation. If Boehner wants to avoid a campaign to remove him from office, he must resign voluntarily to save himself and his family the embarrassment of a protracted ethics investigation.

As Speaker of the House, Boehner could have bought stock in Canada's tar sands oil companies and let the State Department and Environmental Protection Agency conduct studies to grant a permit for the Keystone pipeline without pushing the project by lying and now, potentially holding 160 million Americans' payroll tax cut extension hostage. However, the lure of personal financial gain was too enticing to Boehner and he took the only path available to an unethical congressman who stands to profit from performing official acts for money and gifts. Boehner must resign.

Boehner has obstructed, lied, and cheated the American people long enough. He is a hypocrite for calling for Anthony Weiner's resignation for sending sexually charged pictures over his phone at the same time Boehner bought stocks in Canadian tar sands companies. Pushing the pipeline that only benefits the Canadian companies Boehner invested in, foreign oil markets, and the oil industry while jeopardizing prime agricultural land and critical aquifer is unethical at least and inherently despicable. John Boehner can resign and go to work as a lobbyist for Canada's tar sands industry, but he cannot be their lobbyist and Speaker of the House at the same time. When Boehner was caught handing out payments for the tobacco industry, he promised he would desist from any act that appeared unethical, but his arrogance and love of oil money proved too tempting and drove him to perform official acts for gifts and money, and if it was enough to expel another Ohio congressman, then it is good enough for Speaker Boehner. Mr. Speaker, it is time for you to go.

[tommyjimjim]

Corzine Hiding what happened to MF Global Money with loop hole in 2005 Bankruptcy & Consumer protection law?

Corzine is Hiding the fact of what happened to the MF Global Money with this Loophole I bet . You know what is Ironic about this is that Corzine when he was in the Senate voted against the 2005 Bankruptcy Bill that he NOW is using to hide the MF Global Money Loss behind and claim stupidity by .

I bet this loop hole in the 2005 Bankruptcy and Consumer protection reform law helped Pelosi make a killing off insider trading too , http://market-ticker.org/akcs-www?post=198650 , because each time a bank collapsed Pelosi's bank investments gained from these failed banks and investment firms assets and private citizen bank accounts that are seized in the Collapse which would make the Stock prices rise in the To Big to fail banks that Pelosi would have investments in this I Bet . I wonder if President Obama has Investments in the Multi-National banks that would be benefiting from this kind of Insider trading schemes like Pelosi is that 60 minutes reported on ??

We can create more Jobs by amending the 2005 Bankruptcy and Consumer Protection bill and close the Loop Hole that is allowing assets to be swallowed up by Derivatives holders like the Multi-National banks because the bill allows them to be first in line to seize these assets .
Here is why this 2005 Bankruptcy and Consumer Protection Law is so bad for the Middle Class , all the small banks that have gone broke, see here, http://www.fdic.gov/bank/individual/failed/banklist.html ,or will have had their assets and those assets that belong to Middle Class people swallowed up by the International Bankers because of this 2005 Bankruptcy Law and that Directly infringes on the State sovereignty and commerce laws .

[Enough2011]

I know many are frauds in Congress. I know that many are dishonest and lying. I know that there are only few that really care about the country and it's citizens. I know there are many that are immoral and unethical.

Thanks for the evidence Steve Kroft. I think they should be criminally charged.

[LetsGOoohAmerica]

We have gotten away from the 'citizen legislator' and MUST get back to TRUE representation of the people and by the people. If you would like to be a part of a process that encourages regular people to select/elect candidates for Congress from their districts, please check out http://goooh.com/.

[Whodatt_999]

I just read the book "Throw Them All Out" and I encourage every American to read it. There is HUGE insider trading going on by Congressmen and Senators with the WORST offenders being John Kerry and Nancy Pelosi. Yes there are some Republicans doing it too but nothing as large in amount and as frequently as Kerry and Pelosi. Yes they wrote their own rules so this insider trading does not technically break the law, but ethically and morally is a whole other story. They should resign immediately. If the public knew the amount and depth of this immoral/unethical acitivity they would be outraged. Pelosi has made tens of millions and Kerry has made hundreds of millions. They also put through Earmarks that result in value of property they own doubling or trippling in value. It is disgusting.

[jimtx-wordpress]

Thank you CBS and 60 minutes for engaging in a true piece of investigative journalism and FINALLY calling the politicians on their collective BS. This report reflected poorly on current and past congressional leadership and was not focused on one party or the other.

It is a like a breath of fresh air after having a plastic bag tied over my head for literally years. This is the kind of journalism that once was commonplace but has recently disappeared with the partisan entertainment based news programming of the last several years. I have believed for sometime that the press has been a totally complicit party to the wreckage our politicians have led this country into. It gives me a glimmer of hope that all is not lost and that maybe, just maybe, there are members of the press willing to do their jobs and protect us from the charlatans that have risen to power in this nation.

Please do not make this a one time shot. I, for one, will tune into 60 minutes every week in the coming months as I would like to see your ratings improve in the near term... perhaps if that were to happen, others would see that when the press begins to live up the tremendous responsibility of protecting our freedom that it might even be profitable to do so.

Again thank you. Journalism might not be dead after all... please do more of this. We need it.

[TLM007]

Steve Kroft and Peter Schweizer should receive a gold medal for exposing but one more ring in the ladder of congressional corruption and self dealing, particularly as it relates to insider trading. It may be legal for them, only because they passed the law, but certainly not ethical. Insider information breeds investor genius and illegal profits whether you are the investor or the investment advisor. Many of our illustrious Congressional Representatives may plead innocence, even though their fingerprints are INSIDE the vault. But then it's always that way from their perspective, "Do as we say, not as we do". It is sad to face the realization, when it comes to ethics and integrity, Congress would rival any crime syndicate in the free world. The Stock Act should be passed and passed now!

[hansjuergen1950]

I was so angry after seeing this piece, I wrote my Congressman, Patrick Tiberi, to urge him to support the STOCK act. I received a reply from him, in which he stated:

"You may be interested to know that under current law Members of Congress must abide by the same insider trading laws that apply to the general public and are prohibited from profiting directly from decisions made during the course of their official duties."

Doesn't this statement directly contradict the assertions made in this 60 Minutes story ? So, who is right, Steve Kroft or Pat Tiberi ?

Full text of Congressman Tiberi's response follows:

"Thank you for your recent communication. I appreciate this opportunity to correspond with you.

I understand your concerns. I believe every elected official must be held accountable for his or her actions. It is imperative that Members of Congress maintain a high level of integrity and conduct themselves in an ethical manner.

As you may know, on March 17, 2011, Congressman Tim Walz (D-MN) introduced H.R. 1148, the Stop Trading on Congressional Knowledge (STOCK) Act. This bill would prohibit Members of Congress and federal employees from purchasing or selling securities and commodities based on nonpublic information regarding pending or prospective legislation.

Additionally, the STOCK Act would require formal disclosure of certain securities and commodities futures transactions to either the Clerk of the U.S. House of Representatives or the Secretary of the Senate.

The STOCK Act was referred to the U.S. House Financial Services Committee, the U.S. House Agriculture Committee, the U.S. House Administration Committee, the U.S. House Judiciary Committee, the U.S. House Ethics Committee, and the U.S. House Rules Committee. While I am not a member of these committees, rest assured that I will monitor this legislation as it is considered by the U.S. House of Representatives.

You may be interested to know that under current law Members of Congress must abide by the same insider trading laws that apply to the general public and are prohibited from profiting directly from decisions made during the course of their official duties.

As your Representative, I take my position very seriously and will continue to represent my constituents in an honorable manner. Your opinions are essential, and I appreciate you taking the time to share them with me. I will continue to monitor the discussions and ultimately the findings of this investigation.

Thank you again for taking time to contact me about this issue. If I may be of assistance in the future, please do not hesitate to contact me.

Sincerely,

Patrick J. Tiberi
Representative to Congress

[Whodatt_999]

As you probably noted, his later comment makes no sense. IF they are currently prohibited, why would there be a need for the new Act to prohibit insider trading? I read the Book "Throw Them All Out" and it clearly said that these trades are not technically illegal...but morally and ehtically is a completely different story. We need to blast Congress w/ Emails and phone calls until they do something about this. Many of them come into their offices with $100k or less to thier name and leave as multi-millionaires....all on the backs of taxpayers and stockowners.