Atlantic Wire - A 60 Minutes report examined the ways that members of Congress trade on inside, privileged information to make themselves rich — without breaking any laws. Even though many positions in the federal government are bound by conflict of interest laws, Congresspeople are exempt from insider trading rules and are perfectly free to make business deals based on information they learn through their jobs.
The story is based on the work of Peter Schweizer, a researcher at the Hoover Institution. (Others have been studying the issue. As Bloomberg's Lizzie O'Leary and others have pointed out, The Wall Street Journal has reported on this issue quite recently and Megan McArdle dedicated her column in The Atlantic's November issue to the phenomenon of "congressional insider trading.") Schweizer and his team have looked at financial transactions made by Representatives and Senators and found that many, including the past three House Speakers, have made deals that appear to be based on non-public information that they had access to thanks to their position in Washington. Schweizer calls it "honest graft," since many people would consider it unethical, even though it's not illegal.
Some times it's stock trades (John Boehner reportedly invested in several health care stocks shortly before killing the public option in last year's legislation) and other times it's simply making a well-timed business deal. (Like when former Speaker Dennis Hastert secured an earmark for a federal highway project that just happened to pass by some land he already owned. He later sold the land for $2 million dollars.) Nancy Pelosi has participated in eight IPOs, including some involving companies that had business before her House. Schweizer says that giving a Senator or Congressperson pre-IPO shares in a company is allowed under current rules, even though giving them an equal amount in cash would be considered a illegal bribe.
The problem, of course, is that not only are these transactions perfectly legal under existing law, the people who benefit the most are the ones who write the laws. Naturally, most members of Congress don't seem eager to take away these special benefits that can turn humble public servants in the multi-millionaires.
Joshua Kennon, About - The definition of insider trading occurs when someone makes an investment decision based on information that is not available to the general public. In some cases, the information allows them to profit, in others, avoid a loss. (In the Martha Stewart - ImClone scandal, the latter happened to be the case.)
Insider trading was not considered illegal at the beginning of the twentieth century; in fact, a Supreme Court ruling once called it a “perk” of being an executive. After the excesses of the 1920s, the subsequent decade of depression, and the resulting shift in public opinion, it was banned, with serious penalties being imposed on those who engaged in the practice.
Depending upon the severity of the case, insider trading penalties generally consist of a monetary penalty and jail time. In recent years, the Securities and Exchange Commission has moved to ban insider trading violators from serving as an executive at any publicly traded company.
Wall Street Journal - A higher percentage of those found guilty of such crimes are receiving significant time behind bars than in the past, according to a Wall Street Journal analysis. In the past two years, defendants sent to prison on insider-trading charges in New York federal courts have received a median sentence of about 2½ years, according to the Journal analysis of white-collar sentencing data from court records and archives involving 108 cases.
Meanwhile, a higher percentage of guilty insider-trading defendants on Wall Street and in corporate America have been incarcerated in recent years, according to the analysis. In the past two years, 79% of defendants sentenced in New York have been sent to prison, compared with 59% in the 2000s and less than half from 1993 to 1999, the analysis shows.
Political Wire - The 60 Minutes report lon insider trading by lawmakers and their staffs was inspired by a new book out this week, Throw Them All Out, written by conservative activist Peter Schweizer.
Dave Weigel notes one of the "ugliest revelations" in the book is the degree to which Rep. Spencer Bachus (R-AL), then ranking member of the House Financial Services Committee, bet against the stock market as it collapsed in 2008.
Schweizer details "no less than forty options trades" in Bachus's records from July 2008 to November 2008 as he sat in secretive meetings with Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke -- Blackberries and phones were confiscated to avoid leaks -- to discuss the state of the financial markets. The trades "made him wealthier" as "almost nobody else had the information he had."
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