Insider trading in Congress was legal when our piece "Insiders" was first broadcast in November. As Steve Kroft reported, members of Congress could use non-public information -- gathered in the course of their work on the Hill -- to make stock trades, and there appeared to be very little will to change that. After our piece aired, all that changed. In January, President Obama called for reform during his State of the Union address, and sponsorship for the STOCK Act, which had been minimal in the past, took off. In April, the STOCK Act was signed into law.
The following is a script of "Insiders" which originally aired on Nov. 13, 2011 and was rebroadcast on June 17, 2012. Steve Kroft is the correspondent. Ira Rosen and Gabrielle Schonder, producers.
Congressmen and senators are expending much of their time and energy right now 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're 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. When we first broadcast this story in November it was legal for members of Congress to trade stock based on non-public information gathered during the course of their duties -- this story would change that.
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.