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<h1>Rep. Bachus faces insider-trading investigation</h1>
<h3>
By <a href="http://www.washingtonpost.com/scott-higham/2011/03/02/ABt0vmP_page.html" rel="author">Scott Higham</a> and Dan Keating, <span class="timestamp updated processed">Thursday, February 9, <span class="time special">6:30 PM</span></span>
</h3>
<p>The Office of Congressional Ethics is investigating the<font style="color:rgb(255,0,0)" size="6"><b> chairman of
the House Financial Services Committee</b></font> over possible violations of
insider-trading laws, according to sources familiar with the case.</p>
<p>Rep. Spencer Bachus (R-Ala.), who holds one of the most influential
positions in the House, has been a frequent trader on Capitol Hill,
buying stock options while overseeing the nation’s banking and financial
services industries. </p><p>The Office of Congressional Ethics, an
independent investigative agency, opened its probe late last year after
focusing on numerous suspicious trades on Bachus’s annual financial
disclosure forms, the sources said. OCE investigators have notified
Bachus that he is under investigation and that they have found probable
cause to believe that insider-trading violations have occurred.</p><p>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, <a href="http://www.amazon.com/gp/product/0547573146?ie=UTF8&tag=washpost-books-20&linkCode=xm2&camp=1789&creativeASIN=0547573146">“Throw Them All Out,”</a> by Peter Schweizer.</p>
<p>“The
Office of Congressional Ethics has requested information and I welcome
this opportunity to present the facts and set the record straight,”
Bachus said in a statement issued Thursday by his spokesman, Tim
Johnson.</p><p>Omar Ashmawy, OCE staff director and chief counsel,
declined to comment. “The office does not confirm or deny whether an
investigation is taking place.” Chief counsel for the House Ethics
Committee, Dan Schwager, also declined to discuss the case. “The
committee doesn’t comment on specific matters or allegations,” he said.</p><p>OCE
investigators are examining whether Bachus violated Securities and
Exchange Commission laws that prohibit individuals from trading stocks
and options based on “material, non-public” inside information, said the
sources, who spoke on the condition of anonymity because of the
sensitivity of the matter. The office also is investigating whether
Bachus violated congressional rules that prohibit members of Congress
from using their public positions for private gain. </p><p>In recent
years, Bachus has made numerous trades, some of them coinciding with
major policy announcements by the federal government and industries
under his congressional oversight, according to a review of his
financial disclosure forms by The Washington Post. </p><p>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. </p><p>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. </p><p>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. </p><p>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.</p><p>The next day, Sept. 19, Bachus bought “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.</p><p>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.”</p><p>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.</p><p>In a letter to the
publisher, Bachus attacked the book for the mistake about GE. “The book
is absolutely false and factually inaccurate when it states that I
‘shorted General Electric options’ and did so ‘four times in a single
day.’ ”</p><p>He also said there was no inside information provided in the briefing by Paulson and Bernanke. </p><p>“The
idea that I or anyone else needed this meeting to know our financial
markets were in trouble is just laughable,” he wrote in the letter. “You
would have to be living under a rock not to know by September 18, 2008
that the economy was in bad shape.”</p><p>He said a press conference held immediately after the briefing revealed what was discussed.</p><p>“This
meeting was so ‘secretive’ that members of the press knew about it
beforehand, were waiting outside the door, and a press conference was
held immediately after the meeting to inform the public about what we
discussed,” he wrote.</p><p>In October, Bachus bet on the market going up, but this time he lost $21,558.</p><p>Bachus
said he gave up his “hobby” of trading when he became chairman of the
Financial Services Committee after the Republican takeover of the House
in November 2010. Although he has sometimes made money on trades, his
financial disclosures indicate that his net worth has been cut in half
during his time in Congress, declining from up to $2.3 million in 1995
to up to $1.1 million at the start of this year. </p><p>Bachus was
elected in 1992. Before coming to Congress, he served in the Alabama
Senate and worked as a lawyer. He is originally from Birmingham and
lives south of the city in Vestavia Hills.</p><p>The Senate passed its
version of the STOCK Act last week. The legislation will make it easier
for SEC officials to prosecute insider-trading cases against members of
Congress, their staff and top officials in the executive branch. It will
also require them to disclose all stock trades every 30 days.</p><p>Earlier
stories in The Post and the Wall Street Journal described the lack of
stringent rules governing Congress and the conflicts presented by
assets owned and traded by lawmakers and their public roles. Post
stories detailed the reporting weaknesses in the disclosure system,
which cannot be electronically searched. The STOCK Act requires
electronic filing of disclosure forms.</p><p>Differences between the measures will be taken up in a conference committee. </p><p>The
Office of Congressional Ethics was created in March 2009 in response to
public criticism that the House Ethics Committee was failing to
properly police its members. </p><p>The OCE conducts independent
investigations into allegations of misconduct against members, officers
and staff. However, its powers are limited. It cannot compel a member to
cooperate with an investigation, and it does not have subpoena powers. </p><p>Once
the office completes its investigations, the results are forwarded to
the ethics committee. That committee has the final say on whether a
violation has taken place and what sanctions, if any, should be imposed.</p><p>
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</strong>
</p><p>Staff writers David S. Fallis, Paul Kane and Kimberly Kindy and staff researcher Lucy Shackelford contributed to this report.</p></div>
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