The Office of Congressional Ethics is investigating the House Financial Services Committee chairman Representative Spencer Bachus (R-Ala.) for possibly violating insider-trading laws, as well as using his public position for private gain. The probe is said to have opened last year, after investigators identified suspicious trades on Bachus's annual financial disclosure forms.
The Washington Post reportsthat Bachus has made multiple trades in recent years, some of which coincide with major policy announcements by the federal government and industries under congressional oversight:
The case is the first of its kind involving a member of Congress. It comes at a time of intense public scrutiny of congressional ethics, with the House passing legislation Thursday to tighten rules against insider trading by lawmakers. The impetus for the legislation, a version of which passed in the Senate a week earlier, came from a “60 Minutes” report and a book mentioning Bachus’s trades, “Throw Them All Out,” by Peter Schweizer."
Most of his investments are for less than $10,000, and almost all involve options rather than stock purchases. The options allowed Bachus to buy or sell stocks at certain prices in the future — betting that the value of those stocks will rise or fall.
A Fidelity brokerage statement Bachus submitted for 2008 shows that he made $30,474 in short-term investments, many of them bought and sold in a matter of days, sometimes during the same day.
The former member of the House Transportation and Infrastructure Committee made several options bets on railroads. While President George W. Bush’s fiscal stimulus bill was being crafted in summer 2008, Bachus bet that the stock of Burlington Northern Railroad would rise, and he cashed out that July for a $16,588 profit. In August, he made the same bet but lost $2,900.
On Sept. 18, 2008, at the height of the economic meltdown, Bachus participated in a closed-door briefing with then-Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben S. Bernanke. At the time, he was the highest-ranking Republican member of the Financial Services Committee. According to a book Paulson would later write, the topic of the meeting was the high likelihood of decline across the entire economy if drastic steps were not taken.
The next day, Sept. 19, Bachus traded “short” options, betting on a broad decline in the nation’s financial markets, and collected a profit of $5,715. Also that day, he cashed out options in which he had bet that General Electric stock would rise, and collected a $12,713 profit, before GE’s stock price started to tumble, The Post found.
The short options betting on an economic downturn were reported in “Throw Them All Out,” which was the basis of the “60 Minutes” story, which aired Nov. 13. Bachus criticized the reports, calling allegations that he engaged in insider trading “absolutely false.”
But the book inaccurately said Bachus bet on GE’s price to fall rather than rise. Schweizer acknowledged his mistake but said it made no difference to his larger point.
Bachus has said that he predicts "full exoneration."
Read more here.