Did Rep. Spencer Bachus Abuse His Power?

According to a Washington Post article (link below), the Office of Congressional Ethics has launched an investigation into whether House Financial Services Committee Chairman Spencer Bachus violated insider trading laws.

Bachus has been under the spotlight before for his trading, but the scrutiny really ramped up in late 2011 after a "60 Minutes" report aired that called into question some of the financial positions that Bachus, along with John Boehner and Nancy Pelosi, have taken in the past.

The central question - did Bachus use his privileged position to enrich himself using non-public information, as some have alleged? The Office of Congressional Ethics is currently investigating that very question.

A few of Bachus' trades that are being closely scrutinized - the selling of GE call options on September 19th, 2008, and the trading of "short" options, to bet against the markets, on the same day. According to the Washington Post, Bachus collected a profit of $5,715 on the short options, and a profit of $12,713 on the sale of his GE options.

According to the Post, Bachus "participated in a closed-door briefing with then-Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben S. Bernanke" on September 18th, 2008. During the meeting, Paulson reportedly told those in attendance that there was a "high likelihood of decline across the entire economy" if drastic steps weren't taken.

The next day, Bachus bet against the markets and sold his GE call options. There is absolutely no doubt that Bachus took these positions - you can see them in his 2008 Financial Disclosure filing (*.pdf).

Bachus' rebuttal? Anybody could see that the economy was in for a rough ride after September 18th..

--

So what's the deal - can Members of Congress trade using insider information?

From Robert Khuzami, Enforcement Division Director at the SEC:

Members of Congress aren't explicitly exempt from insider trading laws, but "no court has expressly held" that they have a "duty not to exploit nonpublic information for personal benefit."

Link

--

Another issue here that nobody is really talking about - is it really proper for a high-ranking Member of Congress to be actively trading against the markets?

To me, this is improper. On top of that, short sellers were VILIFIED during the financial crisis of 2008-2009 - where's the outrage when a Member of Congress (especially one on the House Financial Services Committee) actively bets against the markets and profits from such actions?

Source: Washington Post - Rep. Spencer Bachus faces insider-trading investigation

Filed under: General Knowledge