Last November, 60 Minutes aired a report showing that House Financial Services Chairman Spencer Bachus (R-AL) made tens of thousands of dollars trading stock as he was receiving private economic briefings during the height of the 2008 financial crisis. Due to weak insider trading rules, Bachus was cleared of any legal wrongdoing by the Congressional Ethics Committee, but the case still motivated Congress to pass the Stop Trading on Congressional Knowledge (STOCK) Act, which supposedly prevents lawmakers from profiting off information they receive in private briefings with top economic officials.
However, the problem may go far beyond just Bachus. As the Washington Post reported on Monday, 34 lawmakers — including Speaker of the House John Boehner (R-OH) — shuffled their investment portfolios during the financial crisis, after speaking to high-ranking economic officials:
Boehner is one of 34 members of Congress who took steps to recast their financial portfolios during the financial crisis after phone calls or meetings with [Treasury Secretary Hank] Paulson; his successor, Timothy F. Geithner; or Federal Reserve Chairman Ben S. Bernanke, according to a Washington Post examination of appointment calendars and congressional disclosure forms.
The lawmakers, many of whom held leadership positions and committee chairmanships in the House and Senate, changed portions of their portfolios a total of 166 times within two business days of speaking or meeting with the administration officials. The party affiliation of the lawmakers was about evenly divided between Democrats and Republicans, 19 to 15.
After speaking with Paulson, Boehner shifted $50,000 to $100,000 out of a risky mutual fund, and spent tens of thousands of dollars more on a less-risky fund. Other lawmakers who were making investment decisions after receiving private information at the time included Sen. Kent Conrad (D-ND), Senate Minority Leader Mitch McConnell (R-KY), and Sen. Ben Nelson (D-NE). The lawmakers contend that their investments are overseen by outside advisers and that the private information had no bearing on their portfolio moves.
The STOCK Act would not have prevented this sort of trading, according to the Post. “If this was going on in the private sector or it was going on in the executive branch, I think the SEC would be investigating,” said University of Minnesota securities law Prof. Richard Painter. While the trades were permissible for members of Congress, members of the executive branch could not legally have made the same trades.
At the time it passed, the STOCK Act faced criticism for being too weak. And if dozens of members could trade securities as they received private information about the extent of the economy’s troubles, perhaps that is the case.