WASHINGTON — One hundred thirty members of Congress or their families have traded stocks collectively worth hundreds of millions of dollars in companies lobbying on bills that came before their committees, a practice that is permitted under current ethics rules, a Washington Post analysis has found.
The lawmakers boughtand sold between $85 million and $218 million in 323 companies registered to lobby on legislation that appeared before them, according to an examination of all 45,000 individual congressional stock transactions contained in computerized financial disclosure data from 2007 to 2010.
Almost one in every eight trades - 5,531 - intersected with legislation. The 130 lawmakers traded stocks orbonds in companies as bills passed through their committees or while Congress was still considering the legislation. The party affiliation of the lawmakers was almost evenly split between Democrats and Republicans, 68 to 62.
Sen. Tom Coburn, R-Okla., reported buying $25,000 in bonds in a genetic-technology company around the time that he released a hold on legislation the firm supported. Rep. Ed Whitfield, R-Ky., sold between $50,000 and $100,000 in General Electric stock shortly before a Republican filibuster killed legislation sought by the company. The family of Rep. Michael McCaul, R-Texas, bought between $286,000 and $690,000 in a high-tech company interested in a bill under his committee’s jurisdiction.
Earlier this year, Congressresponded to criticism of potential financial conflicts of interest by passing the Stock Act, which bars lawmakers, their staffs and top executive branch officials from trading on inside information acquired on Capitol Hill.
But the act failed to address the most elemental difference between Congress and the other branches of government: Congress forbids top administration officials, for instance, from trading stocks in industries they oversee and can influence. The lawmakers, by contrast, can still invest in firms even as they create laws that can affect the bottom line of the companies.
The Post analysis does not provide evidence of insider trading, which requires showing that lawmakers knowingly used confidential information to make trades benefiting themselves. Instead, the review shows that lawmakers routinely make trades that raise questions about potential conflicts and illustrate the weaker standard that Congress applies to itself.
More than a dozen lawmakers contacted by The Post defended the timing of their trades and the legislation before their committees as coincidental and said they did not know that the companies they traded were registered to lobby on bills they were considering.In interviews and through spokesmen, they said brokers made the trades and they had little or no input. Some said their spouses handled their investments. With diverse portfolios, they said, overlap is inevitable.
Richard Painter, who was chief ethics lawyer for President George W. Bush, said those explanations do not provide ethical cover.
“Your wife isn’t a blind trust. Your financial adviser isn’t either,” Painter said. “If you truly want to create some distance, you should set up a blind trust. The rules that Congress has set for itself with blind trusts are a lot more liberal than the rules they created for the executive branch. This should be the route they take if they want the public to believe they don’t know what’s going on with theirinvestments.”
Only six members of the Senate have set up blind trusts that have been approved by the ethics committee. The House does not keep a tally of the number of members who set up such trusts.
Under ethics rules, lawmakers may establish a blind trust by shifting all of their assets into an account managed by a financial adviser. The lawmaker may set general parameters for the blind trust investment decisions, but they surrender control and cannot know the details of the decisions.
The Post analysis is based on a comparison of federal financial disclosure forms from all members of Congress to a wide array of public records, drawing on work by the Center for Responsive Politics and Govtrack.us to convert paper documents to databases. The analysis does not include 2011 data because they have not yet been computerized.
Under Congress’ interpretation of its own conflict rules, lawmakers can take official actions that benefit themselves as long as theyare not the sole beneficiaries.
Former Rep. Brian Baird, D-Wash., who co-authored the original, unsuccessful version of the Stock Actin 2006, said members of Congress and their staffs do not understand that public trust is eroded when people see lawmakers take actionsthat have the potential to benefit themselves.
“They don’t get it, but they need to,” Baird said. “Why? Because people who are taking actions for venal and nefarious purposes might make the same argument you’re making about your innocence. That’s why if there is an appearance of an impropriety, there just might be an impropriety. Members need to bend over backwards to show people they are there for the good of the country.”
In 2007, Coburn placed a legislative hold on the Genetic Information Nondiscrimination Act, saying he wanted changes to address fears about exposing employers and insurance companies tolawsuits. The bill prohibited employers and health insurers from using genetic information to discriminate.
After negotiating a compromise on April 22, 2008, Coburn released his hold.
On that day and the day after, Coburn’s financial disclosure form shows a total of three bond purchases in Affymetrix, a pioneering genetic technology firm that was one of 33 companies registered to lobby on the legislation.
In an interview, Coburn said that he and Sen. Richard Burr, R-N.C., both held up the bill. “We actually negotiated some better things into the bill,” Coburn said. “I don’t think it had anything to do with Affymetrix.”
Coburn said his Affymetrix bond purchases, worth $25,000, were made withouthis knowledge by Pinnacle Investment Advisors in Tulsa, Okla. The timing, he said, was coincidental.
John Hart, Coburn’s communications director, said that Affymetrix did not lobby Coburn and that his hold had no bearing on the company’s value. Hart said Coburn has placed hundreds of holds since 2005.
Pinnacle managing partner David Poarch said he didn’t discuss the Affymetrix purchase with the senator. He said Pinnacle bought about $1.7 million worth of convertible bonds in the company on April 22, 2008, for 104 of the firm’s 350 clients. Poarch said the firm sold those bonds for all their clients last year, including for Coburn, who earned a 35 percent profit on his investment.
Poarch said he meets face to face with the senator once a year, and they might speak over the phone two or three times during that period to map out investment strategies. The senator rarely directs him to make trades, he said.
Affymetrix officials did not return calls seeking comment.
Rep. Whitfield trades infrequently, but several of his transactions have coincided with major legislation before him.
Whitfield is a member of an energy subcommittee that handled the 2008 carbon-cap proposal intended to address rising public concern about global warming. It had the support of major companies and the Democrats who were in charge of both chambers at the time.
General Electric, which had created a subsidiary to help businesses manage carbon emissions, lobbied heavily in favor of the bill.
Whitfield sold his holdings in GE, worth between $50,000 and $100,000, on May 5, 2008, for $32 per share. (Exact amounts are unavailable because members of Congress are allowed to report ranges for the values of their transactions.) He had held the stock for 12 years.
Although the cap had appeared to be gaining momentum, Whitfield’s Republican colleagues in the Senate scuttled the bill in early June with parliamentary actions and a threatened filibuster.
After the bill died, the stock dropped to $26 - $6 less than the price when Whitfield sold.
Whitfield’s spokesman, Corry Schiermeyer, said his trade had nothing to do with the legislation, which she said was never going to get past Republican opposition.
Some of Congress’ wealthiest members avoid potential conflicts by putting their assets in blind trusts approved by congressional ethics committees. Sen. Herb Kohl, D-Wis., for example, reports holding more than $50 million in such a trust.Under ethics rules, Kohl cannot not know the nature of his investments and must remain unaware of how they are managed.
Other wealthy members do not have financial portfolios in blind trusts. Their portfolios are so vast that their financial disclosure reports exceed a hundred pages and their holdings overlap with almost every bill they handle.
Sen. John Kerry, D-Mass., who married Teresa Heinz of the ketchup fortune, had the highest value of overlapped trades - between $42 million and $86 million - in companies registered to lobby before him. Kerry said he does not have any conflicts, because he has no control over the assets in his and his wife’s family trusts.
Rep. McCaul, married to Linda Mays, whose fortune traces back to Clear Channel Communications, had the highest number of overlapping trades, totaling between $5 million and $23 million, according to analysis of financial disclosure forms listing his family’s holdings.
McCaul said there is no conflict between his legislative duties and his wife’s holdings, because he has no access to her portfolio and he never talks to her about her investment decisions.
Information for this article was contributed by Karen Yourish and Bobbye Pratt of The Washington Post.
Front Section, Pages 1 on 06/25/2012