The chairman of the U.S. House Financial Services Committee said he expects “full exoneration” from an ethics investigation following reports he made securities trades after being briefed by Federal Reserve Chairman Ben Bernanke during the 2008 fiscal crisis.
The Washington Post reported today that Representative Spencer Bachus, an Alabama Republican and the panel’s chairman, is being investigated by the independent Office of Congressional Ethics. The office opened its probe late last year and has notified Bachus that it found cause to believe insider-trading violations have occurred, the newspaper said.
“I welcome the opportunity to set the record straight,” Bachus said in a statement today. “I respect the congressional ethics process. I have fully abided by the rules governing members of Congress and look forward to the full exoneration this process will provide.”
CBS’s “60 Minutes” reported in November that Bachus and other members of Congress bought stock in companies while legislation that might affect those businesses was being debated.
The House and Senate this month passed competing versions of a proposal to strengthen the ban on insider trading by members of Congress and other government officials.
House Speaker John Boehner’s spokesman Michael Steel said in a statement today that the congressional ethics office hadn’t “communicated anything to the speaker’s office on the matter” and that Boehner had no comment.
Representative Barney Frank of Massachusetts, the top Democrat on the Financial Services Committee, said in a statement that though he disagrees with Bachus on a number of policy issues, “I have found him to be honorable and straightforward” in their work on the committee.
CBS reported in November that during the 2008 financial crisis, Bachus made trades based on the idea that stock prices would fall while at the time he was being briefed that a global financial meltdown might be imminent. Bachus was then the top Republican on the Financial Services Committee.
Bachus was among the lawmakers briefed privately by Bernanke and then-Treasury Secretary Hank Paulson during the financial crisis.
Insider Trading Laws
Although members of Congress aren’t exempt from federal insider-trading laws, the Constitution’s protection of their “speech or debate” may make it tough to investigate potential violations under current law. The Senate bill’s language says it would give members and employees a “duty of trust and confidence” to the government for purposes of securities and insider-trading law.
A Gallup poll this week showed that a record-low 10 percent of Americans approve of the job Congress is doing, down from the previous low of 11 percent in December. The nationwide poll was conducted Feb. 2-5 among 1,029 adults.
When the financial crisis deepened in 2008 and Bachus was the ranking Republican on the Financial Services Committee, most of his trades were made through a Fidelity Investments account.
Those transactions were valued at between $500,001 and $1 million, according to his financial disclosure statement for 2008. One of his investments through Fidelity was a short-term trade in Kansas City Southern, a rail-freight transportation company, from which he reported a realized gain of $14,196 according to the disclosure.
Bachus’s 2010 disclosure, the most recent available, doesn’t mention a Fidelity account. All of his trades, most of which were short-term deals, were valued at between $1,001 and $15,000 that year.
Less than a month after the “60 Minutes” report, Bachus introduced a bill, H.R. 3549, that would require members of Congress to place their securities holdings in a blind trust. That measure hasn’t advanced.
Larry Powell, a professor of communication studies at the University of Alabama at Birmingham, said in an interview the investigation makes Bachus more vulnerable in the November election, though it is by no means a campaign killer.
“The voters who like Bachus are going to be very skeptical about the seriousness of the charge,” he said. Regarding voters who don’t, “There haven’t been enough of them to matter,” Powell said. “He’s well-liked.”
The Office of Congressional Ethics is an independent body that conducts preliminary investigations and recommends to the U.S. House Ethics Committee whether it should probe further.
The House Ethics Committee is investigating another member of the financial services panel after receiving a recommendation from the independent ethics office. California Democrat Maxine Waters is accused of trying to improperly help a bank in which her husband owned stock. She has said she didn’t violate any House rules.
Bachus has been a critic of the Dodd-Frank overhaul of Wall Street regulation, enacted in 2010 in an effort to avoid a repeat of the 2008 credit crisis. The congressman supported legislation to delay implementation of new rules applying to derivatives.
Jefferson County, Alabama, in Bachus’s district, was the biggest municipal victim of the Wall Street collapse. In November, the county filed the biggest municipal bankruptcy in U.S. history because of derivative-laden bond deals that unraveled in 2008, hitting the county with bills it couldn’t afford.
The deals were also marred by municipal corruption. Larry Langford, a county commissioner who arranged the deals, is in jail for accepting bribes. JPMorgan Chase & Co. in 2009 agreed to a $722 million settlement with the Securities and Exchange Commission over more than $8 million of undisclosed fees paid to local bankers with ties to county officials to secure its role in the deal.
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