Tag Archives: Insider Trading

How Big Government and the Permanent Political Class Facilitate Scandal

by Whitney Pitcher
corruption

Yeah, the permanent political class – they’re doing just fine. Ever notice how so many of them arrive in Washington, D.C. of modest means and then miraculously throughout the years they end up becoming very, very wealthy? Well, it’s because they derive power and their wealth from their access to our money – to taxpayer dollars. They use it to bail out their friends on Wall Street and their corporate cronies, and to reward campaign contributors, and to buy votes via earmarks. There is so much waste. And there is a name for this: It’s called corporate crony capitalism. This is not the capitalism of free men and free markets, of innovation and hard work and ethics, of sacrifice and of risk. No, this is the capitalism of connections and government bailouts and handouts, of waste and influence peddling and corporate welfare. This is the crony capitalism that destroyed Europe’s economies. It’s the collusion of big government and big business and big finance to the detriment of all the rest – to the little guys. It’s a slap in the face to our small business owners – the true entrepreneurs, the job creators accounting for 70% of the jobs in America, it’s you who own these small businesses, you’re the economic engine, but you don’t grease the wheels of government power.

-Governor Sarah Palin, September 3, 2011

More than a year and a half later, prescient Palin is still right,and there’s a reason she uses the phrase “permanent political class” rather than simply “D.C. politicians”. The permanent political class does not just include elected officials, but also those who have become entrenched in the federal government in some manner due to government’s constant growth. The permanent political class also include revolving door appointees who oversee various agencies, donors who get plum ambassadorships, and bureaucrats whose connection to government allow them to unethically pad theirs and others’ pocketbooks. The expansion of government provides the perfect breeding ground for corruption, cronyism, and unethical behavior–compounding the scandalous assault on America’s liberties.

Meet Mike McConnell. McConnell is the vice chairman of Booz Allen Hamilton– the government contractor whom Edward Snowden worked for prior to fleeing to Hong Kong and informing the world that the government was seizing the phone records of Americans. McConnell has netted $1.8 million in Booz Allen Hamilton stock sales in 2013 and has secured over a billion dollars in government contracts. Of course, there is nothing wrong with making money off investments or profiting from your business’s success. McConnell, however, is not simply a successful private sector businessman. McConnell was head of the NSA during President Clinton’s administration before going to Booz Allen Hamilton in 1996. He has revolved back to the public sector when President Bush selected him as director of national intelligence in 2007 before returning to Booz Allen Hamilton in 2009. As the Daily Beast summarizes (emphasis added):

In 2007 he returned to government employment when President Bush selected him to be the second director of national intelligence (a bureaucratic position created out of the 9/11 Commission to manage bureaucracy). According to excerpts of Dana Priest and William Arkin’s Top Secret America: The Rise of the New American Security State posted by The Washington Post, as DNI, McConnell pushed for increases in intelligence contracting. After serving as DNI, McConnell returned to Booz Allen in 2009 as executive vice president in charge of the firm’s intelligence business. In 2011 he was named vice chairman of the company.

That revolving door sure is nice, huh, Mr. McConnell? While a government appointee he pushed for more contracting, then return to the private sector to reap the private sector fruits of his public sector lobbying.

Next, let’s meet Howard Guttman. Guttman was a major donor to both President Obama’s 2008 campaign and his 2009 inauguration (who also, as an Obama surrogate, bashed Governor Palin’s parenting skills). President Obama returned the favor by giving him an ambassadorship in Belgium. It has recently been revealed that Guttman’s security detail allegedly turned a blind eye when Guttman solicited underage prostitutes. Additionally, the investigation into these matters have been halted by the state Department. The is a prime example of the way things work for the permanent political class. Political donations lead to plush appointments, and wrongdoing is swept under the rug.

Additionally, a story broke earlier this week that scores of federal bureaucrats may have benefited financially or facilitated insider trading from having foreknowledge of changes in Medicare policy:

The surge of trading in Humana’s and other private health insurers’ stock before the April 1 announcement already has prompted the Justice Department and the Securities and Exchange Commission to investigate whether Wall Street investors had advance access to inside information about the then-confidential Medicare funding plan.

Sen. Charles E. Grassley (R-Iowa) told The Washington Post late last week that his office reviewed the e-mail records of employees at the Department of Health and Human Services and found that 436 of them had early access to the Medicare decision as much as two weeks before it was made public.
[…]

Grassley’s investigators have interviewed Hayes and private-sector political-intelligence consultants. But Grassley made clear Friday that while the SEC continues to investigate who made large trades in advance of the Medicare announcement, he will focus on adding transparency to the political-intelligence-gathering process, including asking more about “how the government handles market-sensitive information.” That kind of data, he said, “should be available to everyone at the same time, not handled loosely in a way that allows special access to some individuals.”

In mid April, just a few weeks after this trading spike and just ahead of the reporting deadline, Congress and the President overturned a provision of the STOCK Act that, in part, removes the requirement for some government officials to report their stock trades and other financial information. It has not been revealed if these hundreds of federal employees made trades with foreknowledge of the policy change, and it is unclear if any of these individuals were among those “senior officials” who would have been required to report their financial information if the STOCK Act provision would have remained.  Whether it was the bureaucrats themselves or others who benefited, this proves to be yet another example of the permanent political class benefiting at the expense of the American people.

Additionally, such unethical activity points to the concern with the burgeoning $100 million industry of political intelligence (an oxy moronic phrase, of course) where these consultants provide information to Wall Street based upon action in Washington D.C.. The bigger government becomes, the bigger this industry becomes and the greater the opportunity for the permanent political class to benefit at the expense of taxpayers. Legislation has been proposed to require political intelligence consultants to register,similar to the way that lobbyists do. However, such proposals were shot down by people like Congressman Eric Cantor, whose wife works in securities and investments and who received a lot of campaign donations from the industry, as Peter Schweizer detailed in a Forbes article in April:

But the Grassley provision was struck down. Leading the charge to kill the political intelligence language were House Majority Leader Eric Cantor (R-VA) and Sen. Joseph Lieberman (D-CT). When Rep. Cantor introduced the House version of the bill, it lacked provisions to regulate the political intelligence industry. Asked why the measure had been omitted, Rep. Cantor’s spokesperson Laena Fallon said the language was “extremely broad” and that the “unintended consequences on the provision could have affected the first amendment rights of everyone participating in local rotaries to national media conglomerates.”

[…]

What Cantor and Lieberman failed to mention were their relationships to the financial services industry. In the 2012 election cycle, Cantor raked in $896,900 from securities and investment firms. And his wife, Diana Cantor, is an investment committee member for an investment adviser that manages almost $900 million in private fund assets. During the 2010 election cycle, Sen. Lieberman bagged over $2 million in campaign donations from securities and investment firms, the most of any industry.

As government grows, more opportunities arise for the permanent political class–be they politicians, political appointees, donors, or bureaucrats–to benefit at the expense of taxpayers and to engage in scandalous activity. These is the result of one party’s policies or leadership, it is the result of an ideology where the hand-in-hand relationship of  “big business” and  “big government” is seen as preferable to the invisible hand of the free market.

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Insider Trading: John Boehner, Ben Nelson, Barney Frank, and 31 Other Lawmakers Adjusted Financial Portfolios During 2008 Financial Meltdown

By Gary P Jackson

Imagine this: In early 2008, as the financial markets were in free-fall, members of Congress, including John Boehner, Ben Nelson, Mitch McConnell, and Barney Frank, were burning up the phone lines between their offices and Treasury Secretary Hank Paulson’s, Fed Chair Ben Bernanke’s and Tim Geithner’s offices. The results of these calls saw them using the insider information given to them by Paulson in order to make adjustments to their financial portfolios. All in all, 34 members of Congress used insider information to save their own stock portfolios, while the rest America took a bath on their investments, losing big time.

The Washington Post has published an explosive [and lengthy] accounting of the behind the scenes wheeling and dealing that was going on as America teetered on total financial collapse. [emphasis mine]

Lawmakers reworked financial portfolios after talks with Fed, Treasury officials

In January 2008, President George W. Bush was scrambling to bolster the American economy. The subprime mortgage industry was collapsing, and the Dow Jones industrial average had lost more than 2,000 points in less than three months.

House Minority Leader John A. Boehner became the Bush administration’s point person on Capitol Hill to negotiate a $150 billion stimulus package.

In the days that followed, Treasury Secretary Henry M. Paulson Jr. made frequent phone calls and visits to Boehner. Neither Paulson nor Boehner would publicly discuss the progress of their negotiations to shore up the nation’s financial portfolio.

On Jan. 23, Boehner (R-Ohio) met Paulson for breakfast. Boehner would later report the rearrangement of a portion of his own financial portfolio made on that same day. He sold between $50,000 and $100,000 from a more aggressive mutual fund and moved money into a safer investment.

The next day, the White House unveiled the stimulus package.

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 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.

The period covered by The Post analysis was a grim one for the U.S. economy, and many people rushed to reconfigure their investment portfolios. The financial moves by the members of Congress are permitted under congressional ethics rules, but some ethics experts said they should refrain from taking actions in their financial portfolios when they might know more than the public.

They shouldn’t be making these trades when they know what they are going to do,” said Richard W. Painter, who was chief ethics lawyer for President George W. Bush. “And what they are going to do is then going to influence the market. 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.

Boehner, now the speaker of the House, declined to discuss his transactions. His spokesman said they did not pose a conflict because a financial adviser executed them and they were made in diversified mutual funds. Other lawmakers also said their financial advisers handled their trades. They said that the timing of the trades and the conversations was “coincidental and that they did not adjust their portfolios based on what they were told by the administration officials.

Questions about conflicts of interest and possible insider trading on Capitol Hill prompted Congress to pass the Stock Act this year. The act specifically bans lawmakers, their staffs and top executive branch officials from knowingly using confidential information gleaned from their legislative roles to benefit themselves, their family members or friends.

The act does not prohibit lawmakers from trading stocks in companies that appear before them or from reworking their portfolios after briefings with senior administration officials. Top executive branch officials are banned from investing in industries they oversee and can influence — for example, Fed chairmen are prohibited from investing in the financial sector.

The Post analysis did not turn up evidence of insider trading. Instead, the review shows that lawmakers routinely make trades that raise questions about whether members of Congress have an investing advantage over members of the public.

Members of Congress are still loosey-goosey about what they require of themselves,” said Painter, who teaches securities law at the University of Minnesota. I think it’s time for Congress to impose the same rules on themselves that they impose on others. The Stock Act doesn’t do that.

A shift to Treasury securities

In late 2006, Congress started crafting legislation to overhaul Fannie Mae and Freddie Mac, a major effort to stem a rising tide of defaults on risky loans given to home buyers with poor credit.

As Congress worked to rein in the two government-sponsored lenders, Fannie and Freddie pushed back with aggressive lobbying campaigns, stalling the effort in early 2007.

Paulson started working the Hill, trying to break the deadlock and win support for the revisions. He called and met with a number of members of Congress, including Sen. Ben Nelson (D-Neb.), on this and other reform efforts.

Paulson and Nelson spoke on Jan. 10. The next day, Nelson sold between $250,000 and $500,000 in Lehman Brothers certificates of deposit. (Congressional financial disclosure forms list only approximate ranges.) Nelson also purchased between $100,000 and $200,000 in Treasury notes, a safer investment.

On Feb. 12, Paulson met at 4 p.m. with Nelson in the lawmaker’s office in the Hart Senate Office Building. That day, Nelson bought $50,000 to $100,000 in Treasury bills.

That year, Nelson had only one other call with Paulson and no other meetings, records show. He made 103 other trades during the year, eight of which exceeded $100,000.

Nelson declined to be interviewed. A spokesman said that the senator discussed only policy matters related to disabled veterans during the call and meeting with the Treasury secretary and that the senator learned nothing that would have influenced his trades.

Like everyone in Congress, Senator Nelson is bound by the laws, rules and guidelines established for members of Congress,” Nelson spokesman Jake Thompson said in a statement. “He carefully follows both the spirit and intent of them. He has not, and would not, have conversations with Executive Branch officials about matters affecting his personal finances.”

Under congressionally imposed ethics laws that cover Treasury secretaries, Paulson and Geithner would have been prohibited from making the same investments. Congress prohibits Treasury secretaries from investing in financial institutions or Treasury securities.

Nelson “has often sought and had one-on-one conversations with numerous cabinet secretaries under both President Bush and Obama on dozens of issues before Congress,” Thompson said in an e-mail. “That’s what good legislators do, they seek dialogue and understanding at the senior level about local, state and federal policy matters, as well as foreign policy issues.

Read much more, starting here.

The article goes on to lay out more of these trades, and while it doesn’t name all 34 lawmakers, it does expose ranking members from both parties. It seems in Washington, the one thing that is always bi-partisan, is corruption.

Though the post claims then Speaker of the House Nancy Pelosi wasn’t involved in these schemes, as we reported in November of last year, she is up to her ears in corruption.

Though they might not meet the legal definition of insider trading, these actions by trusted lawmakers certainly do in spirit. Members of both parties have bee writing legislation, or in some cases defeating legislation, depending on nothing more than how it effects their personal fortune.

In December of last year, Sarah Palin, who made her bones sending corrupt politicians to prison, wrote:Congress, It’s Time to Stop Lining Your Pockets demanding reform. She championed a much tougher law than what was eventually passed. The law we have now is weak and mostly window dressing. It was passed to make it look like Congress cared what the people want, but doesn’t actually do much.

No one begrudges anyone, even lawmakers, for making money, but it’s quite troubling to see how many come to Washington with little or no money, and become multi-millionaires while in office.

It’s beyond time we stop putting up with this nonsense. We need sudden and relentless reform. Congress must be made to live under the same rules as the rest of us, and that includes going to jail when they break these rules.

Make no mistake about this, corruption exists in both political parties and at the highest levels. The democrat party is unacceptable for so many reasons beyond the corruption, but if the Republican Party doesn’t get it’s act together, it may well be time to start working on a serious, viable third party. Or should I say a strong viable replacement for the Republican Party.

When the new Congress convenes in January, the first order of business will be to elect a Speaker of the House. In my opinion John Boehner must be replaced. The same goes for Minority Leader Mitch McConnell. Surely, out of 535 Senators and Congressmen, there are suitable replacements for both. If not, we have bigger problems than just a few corrupt lawmakers, that’s for sure.

Congress needs to take up sudden and relentless reform and they need to do it now. What Congress is doing now is unacceptable.

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Big Win for Sarah Palin and Peter Schweizer: Congress Passes STOCK Act

By Gary P Jackson

Back in November, CBS’ 60 Minutes ran an exposé featuring Peter Schweiser and information from his new book Throw Them All Out. 60 Minutes exposed massive insider trading schemes that were going on in Congress.

Though illegal for us mere mortals to engage in [ask Martha Stewart about that] members of Congress were exempted from these laws, and were actually writing legislation based on, not what was best for America, but what would enlarge their bank accounts.

Legislation banning this criminal activity has languished for years. Louise Slaughter, a N.Y. democrat, has been trying for years to get something done. The 60 Minutes broadcast lit a fire under members of Congress.

As Politico reports, not everyone was happy though, as some, such as Senators Patrick Leahy, John Cornyn, and Chuck Grassley wanted stronger language, and even tougher rules:

After weeks of delays, the Senate on Thursday sent a bill banning congressional insider trading to President Barack Obama for his expected signature.
The Senate voted 96 to 3 to pass a watered-down STOCK Act, which would bar members of Congress, their staff and some federal workers from profiting from non-public information obtained through their jobs.

I believe those who make the laws should live under the same laws as everyone else,” Sen. Scott Brown (R-Mass.), who authored an early version of the bill last fall, said in a statement. “The passage of this legislation is an important step toward restoring trust in our government.”
Sen. Kirsten Gillibrand (D-N.Y.), who was also involved in shaping the STOCK Act, echoed Brown, calling it “a strong bill with teeth” and a “good step forward” to begin reestablishing trust with the American people.

Others downplayed the significance of the legislation. “It’s a modest gesture,” Sen. Lamar Alexander (R-Tenn.) told POLITICO, adding that he believes lawmakers are already prohibited from insider trading under existing law.

In a statement, President Obama said: “After I sign this bill into law, Members of Congress will not be able to trade stocks based on nonpublic information they gleaned on Capitol Hill.  It’s a good first step.  And in the months ahead, Congress should do even more to help fight the destructive influence of money in politics and rebuild the trust between Washington and the American people.

In early February, the Senate approved a tougher version of the legislation on a near-unanimous vote. But Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell agreed this week to move forward on the House-passed bill, which dropped two provisions that had been in the Senate-passed package — a move that infuriated a handful of lawmakers from both parties.

One of those proposals, authored by Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) and Sen. John Cornyn (R-Texas), would have expanded federal laws against bribery, theft of public money and other types of public corruption.

The other provision by Sen. Chuck Grassley (R-Iowa) would have required greater disclosure from so-called “political intelligence consultants” who seek information from Congress or the executive branch to trade stocks.

Before the vote, Grassley lashed out at Senate leaders for striking a deal to take up the House measure. Grassley, Sen. Richard Burr (R-N.C.) and Sen. Tom Coburn (R-Okla.) all voted no.

This is bipartisanship, but it’s not the kind of bipartisanship, cooperation, intended or not, that this nation deserves,” Grassley said during in a 20-minute floor speech. “I know that today’s actions only serve the desires of obscure and powerful Wall Street interests, and it undercuts the will of the overwhelming majority of Congress.

For her part, Slaughter vows to continue the push for tougher measures.

It’s a disappointment that Mitch McConnell, once again, caved.

This isn’t as tough of a measure as hoped for, but it’s a solid start. Both Sarah Palin and Peter Schweizer [a top Palin adviser] have been pushing for major ethics reforms like this for some time. Had Peter’s book, and 60 Minutes appearance not been there to expose this activity, it’s unlikely this legislation would have come to pass.

It’s an important win for all of us who seek to hold Congress accountable.

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