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<h1>Members of Congress trade in companies while making laws that affect those same firms</h1>
<h3>
By Dan Keating, David S. Fallis, <a href="http://www.washingtonpost.com/kimberly-kindy/2011/03/02/ABPCV8M_page.html" rel="author">Kimberly Kindy</a> and <a href="http://www.washingtonpost.com/scott-higham/2011/03/02/ABt0vmP_page.html" rel="author">Scott Higham</a>, <span class="timestamp updated processed">Published: June 23</span>
</h3>
<p>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.</p>
<p>The lawmakers bought and sold a total of 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.</p><p>Almost one in every
eight trades — 5,531 — intersected with legislation. The 130 lawmakers
traded stocks or bonds 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. </p><p>Sen. <a href="http://www.washingtonpost.com/blogs/ezra-klein/post/sen-tom-coburn-part-one-defusing-the-debt-bomb/2012/05/19/gIQAIUteRU_blog.html">Tom Coburn </a>(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. <a href="http://www.washingtonpost.com/politics/ed-whitfield-r-ky/gIQAhbJcKP_topic.html">Ed Whitfield</a>
(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. <a href="http://projects.washingtonpost.com/congress/members/M001157">Michael McCaul </a>(R-Tex.) bought between $286,000 and $690,000 in a high-tech company interested in a bill under his committee’s jurisdiction.</p>
<p>The
trades were uncovered as part of an ongoing examination by The Post of
the intersection between the personal finances of lawmakers and their
professional duties. Earlier this year, Congress responded to criticism
of potential conflicts of interest by passing the <a href="http://www.washingtonpost.com/politics/senate-passes-scaled-down-version-of-bill-to-ban-insider-trading-by-officials/2012/03/22/gIQAHAJ6TS_story.html">Stock Act</a>,
which bars lawmakers, their staffs and top executive branch officials
from trading on inside information acquired on Capitol Hill.</p><p>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.</p><p>“If you have major responsibility
for drafting legislation that directly affects particular companies,
then you shouldn’t be trading in their stock,” said Dennis Thompson, a
professor of public policy at Harvard University’s John F. Kennedy
School of Government and author of <a href="http://www.amazon.com/gp/product/0815784236/ref=as_li_tf_tl?ie=UTF8&tag=washingtonpost-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0815784236">“Ethics in Congress: From Individual to Institutional Corruption.”</a>
“Committee chairs especially shouldn’t be in the position of
potentially benefiting from trades in companies that stand to gain or
lose from actions the committee takes.”</p><p>The Post analysis does not provide evidence of <a href="http://www.washingtonpost.com/politics/hill-insider-trading-bill-signed/2012/04/04/gIQA5dQ6vS_story.html">insider trading</a>,
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.</p><p>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.</p><p>
<a href="http://voices.washingtonpost.com/plum-line/2010/05/bush_ethics_chief_to_gop_time.html">Richard W. Painter</a>, who was chief ethics lawyer for President George W. Bush, said those explanations do not provide ethical cover.</p>
<p>“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 their
investments.”</p><p>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.</p><p>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.</p><p>Georgia State University professor Alan J. Ziobrowski
said lawmakers who own stocks in companies lobbying on legislation
before them have built-in conflicts.</p><p>“You can’t get into their
heads to know what is motivating them,” said Ziobrowski, whose research
helped prompt the initial push for the Stock Act by showing that members
of Congress outperformed the market as a whole — senators by 10 percent
and representatives by 6 percent. “Are they thinking about their
investment, or about what is best for their constituents?”</p><p>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 <a href="http://www.opensecrets.org/index.php">Center for Responsive Politics</a> and <a href="http://www.govtrack.us/">Govtrack.us</a> to convert paper documents to databases. The analysis does not include 2011 data because they have not yet been computerized.</p>
<p>Under
Congress’s interpretation of its own conflict rules, lawmakers can take
official actions that benefit themselves as long as they are not the
sole beneficiaries.</p><p>Former representative<a href="http://www.washingtonpost.com/politics/brian-baird/gIQAT06OAP_topic.html"> Brian Baird</a>
(D-Wash.), who co-authored the original, unsuccessful version of the
Stock Act in 2006, said members of Congress and their staffs do not
understand that public trust is eroded when people see lawmakers take
actions that have the potential to benefit themselves.</p><p>“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.”</p><p>
<strong>Hold on bill lifted, bonds bought</strong>
</p><p>In 2007, Sen. Coburn placed a legislative hold on the <a href="http://www.washingtonpost.com/wp-dyn/content/article/2009/02/25/AR2009022503796.html">Genetic Information Nondiscrimination Act</a>,
saying he wanted changes to address fears about exposing employers and
insurance companies to lawsuits. The bill prohibited employers and
health insurers from using genetic information to discriminate.</p><p>After negotiating a compromise on April 22, 2008, Coburn released his hold.</p><p>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.</p><p>Affymetrix lobbied on only a handful of bills that
session. Coburn is one of five lawmakers who reported buying and selling
Affymetrix stocks or bonds since 2004.</p><p>In an interview, Coburn said that he and Sen. <a href="http://projects.washingtonpost.com/congress/members/B001135">Richard Burr </a>(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.”</p><p>Coburn said his Affymetrix bond purchases, worth
$25,000, were made without his knowledge by Pinnacle Investment Advisors
in Tulsa. The timing, he said, was coincidental.</p><p>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. </p><p>“There is no
evidence Dr. Coburn had even heard of Affymetrix before his broker made
a purchase, and there is no evidence his actions affected the value of
the company,” Hart said. “If there was a connection, you could argue it
hurt the company — the stock lost half its value. Plus, it would be a
stretch to suggest he engaged in procedural gymnastics in order to
affect a trade.”</p><p>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.</p><p>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.</p><p>“In some of our discussions, he’ll indicate sectors he
likes,” Poarch said, noting that the senator rarely directs Pinnacle to
make specific trades.</p><p>Coburn said he gives Poarch only general advice.</p><p>“I’ve
never had a conversation with him other than, ‘Here’s what I think is
going to happen to the economy, so you guys ought to listen,’ ” he said.</p><p>Affymetrix officials did not return calls seeking comment. After the genetic bill became law in May 2008, Affymetrix <a href="http://investor.affymetrix.com/phoenix.zhtml?c=116408&p=irol-newsArticle&ID=1149458&highlight=">praised its passage in a news release</a>.
“We have actively supported this much-needed legislation for more than
seven years and we are pleased to see the U.S. government take steps
toward addressing the issues around genetic discrimination,” said
Stephen P.A. Fodor, the company’s founder.</p><p>
<strong>Shining light on GE trades</strong>
</p><p>
<a href="http://www.washingtonpost.com/wp-dyn/content/article/2007/02/27/AR2007022700282.html">Rep. Whitfield</a> trades infrequently, but several of his transactions have coincided with major legislation before him.</p>
<p>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.</p><p>General Electric, which had
created a subsidiary to help businesses manage carbon emissions, lobbied
heavily in favor of the bill.</p><p>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.</p><p>Although the cap had appeared to be gaining momentum, Whitfield’s Republican colleagues in the Senate <a href="http://www.washingtonpost.com/wp-dyn/content/article/2008/06/05/AR2008060503603.html">scuttled the bill in early June</a> with parliamentary actions and a threatened filibuster.</p>
<p>After the bill died, the stock dropped to $26 — $6 less than the price when Whitfield sold.</p><p>Whitfield’s
spokeswoman, Corry Schiermeyer, said his trade had nothing to do with
the legislation, which she said was never going to get past Republican
opposition.</p><p>The trade was one of the two largest stock sales by Whitfield since 2004.</p><p>The other came when Whitfield sold between $50,000 and $100,000 in the defense conglomerate <a href="http://www.washingtonpost.com/business/economy/united-technologies-is-a-rare-corporate-do-gooder/2012/05/03/gIQAVevzzT_story.html">United Technologies </a>in
October 2009 — the same day that his subcommittee approved a Democratic
bill to strengthen rules requiring companies to secure chemical
facilities. United Technologies had registered to lobby on that bill,
but Whitfield’s staff members said their records do not show that the
company lobbied him.</p><p>Altogether, Whitfield made 23 trades worth
between $275,000 and $900,000 in companies registered to lobby before
his committee, encompassing 38 percent of his stock trades between 2007
and 2010.</p><p>Schiermeyer said Whitfield adhered to the relevant ethics rules.</p><p>“It’s
clear that his role on the Energy and Commerce Committee has no
relation to his stock trades,” Schiermeyer said. “The congressman
believes the best approach to avoid a semblance of conflict of interest
is to follow the rules and be transparent, and that is what he does.”</p><p>Lawmakers can affect bills in other ways.</p><p>Members of the Rules Committee, for example, have the power to quash amendments and set the terms for floor debate on all bills.</p>
<p>In July 2005, the Rules Committee, chaired by <a href="http://www.washingtonpost.com/blogs/the-fix/post/california-republican-rep-david-dreier-chairman-of-house-rules-announces-retirement/2012/02/29/gIQAlkJFiR_blog.html">Rep. David Dreier </a>(R-Calif.),
blocked an amendment to a medical malpractice bill that ran against the
interests of Merck & Co., the giant pharmaceutical company. Five
months earlier, the day the bill was introduced, Dreier had purchased
between $15,000 and $50,000 worth of stock in Merck.</p><p>The bill,
which Dreier had co-sponsored, contained medical malpractice limits
sought by Republican lawmakers. The legislation included a provision
that would shield drug companies from liability. Merck, which was being
sued over claims its Vioxx arthritis medication caused heart attacks,
had lobbied heavily in favor of the bill.</p><p>Democrats unsuccessfully
attempted to strip the liability protection from the bill, arguing that
it unfairly protected Merck. As the bill moved through the House, the
value of Merck’s stock grew by 15 percent.</p><p>The bill passed the House but stalled in the Senate.</p><p>A
newer version of the bill made it through the House this year, but has
failed to gain traction in the Senate. Dreier declined requests for
comment. His spokeswoman said he could not recall the trade, which was
made by an investment adviser.</p><p>“In managing his finances, Mr.
Dreier abides by the letter and the spirit of the rules,” spokeswoman Jo
Maney said. “Day-to-day investment decisions for his account are made
by an independent investment professional. His co-sponsorship of the
legislation in question was based on long-standing support for
pro-market health-care reforms. Furthermore, his actions as Rules
Committee chairman have always been guided by his principles and those
of the leadership he serves.”</p><p>Dreier’s office did not provide access to his investment adviser.</p><p>
<strong>A matter of trusts</strong>
</p><p>Some of Congress’s wealthiest members avoid potential conflicts
by putting their assets in blind trusts approved by congressional ethics
committees. <a href="http://projects.washingtonpost.com/congress/members/K000305">Sen. Herb Kohl </a>(D-Wis.),
for example, reports holding more than $50 million in such a trust.
Under ethics rules, Kohl cannot know the nature of his investments and
must remain unaware of how they are managed.</p><p>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.</p><p>
<a href="http://projects.washingtonpost.com/congress/members/K000148">Sen. John F. Kerry </a>(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.</p><p>
<a href="http://projects.washingtonpost.com/congress/members/M001157">Rep. McCaul</a>,
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.</p><p>Some of those
investments were in Thermo Fisher Scientific, which in 2009 had
registered to lobby on a food safety bill under the jurisdiction of the
Homeland Security Committee. McCaul was a member of that committee.
Among other things, the company makes equipment to detect contaminated
food. </p><p>While the bill was pending, McCaul toured the company’s
Austin plant and extolled the technology as “great for food safety and
protecting the American people.”</p><p>As the bill moved forward, his
family bought stock in Thermo Fisher. Trusts for his wife and children
bought between $286,000 and $690,000 in nine transactions, the largest
being for between $250,000 and $500,000 in November 2010 during final
negotiations before the bill passed. The family bought the stock at
prices from $33.50 to $44. McCaul’s 2011 financial disclosure showed the
family still owned it. The current stock price is a little more than
$50.</p><p>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.</p><p>“Congressman McCaul <span>. . .</span>
is legally precluded from having any involvement or knowledge of
specific investment decisions made with regard to securities listed as
his wife’s separate property,” said his spokesman, Mike Rosen.</p><p>
<strong>Railroad rules</strong>
</p><p>In 2009, the House Judiciary subcommittee on courts, the Internet
and intellectual property discussed the Railroad Antitrust Enforcement
Act, aimed at ending rail carriers’ exemptions from federal antitrust
laws. </p><p>A family trust overseen by<a href="http://projects.washingtonpost.com/congress/members/S000244"> Rep. F. James Sensenbrenner Jr. </a>(R-Wis.),
a subcommittee member, sold 2,000 shares of CSX after a subcommittee
hearing and before the final changes were made to the bill.</p><p>The shares generated a $40,000 net profit, records show. The same day, the trust bought $7,700 in Norfolk Southern stock.</p><p>The two rail carriers were among 62 companies lobbying on the bill.</p>
<p>Sensenbrenner’s
spokeswoman said the trades were initiated by a fund manager who
handles the investments for the trust that benefits the lawmaker’s
sister.</p><p>“Congressman Sensenbrenner’s interaction with the trust is
almost nothing,” spokeswoman Amanda Infield said. “He doesn’t benefit
from the trust, except for an administrative fee as trustee. He is not a
beneficiary, and he doesn’t exercise influence over or give input into
the investment decisions. He has to sign off on the decisions, but he
hasn’t overridden an investment decision, which is made by JPMorgan
Chase.”</p><p>
<a href="http://projects.washingtonpost.com/congress/members/C000071">Rep. Dave Camp</a>
(R-Mich.), a member of the House Ways and Means Committee since 1993,
reported making trades in John Deere when the Illinois-based company was
registered to lobby on tax and trade legislation before his committee
between 2007 and 2010. The biggest single transaction was between
$50,000 and $100,000. When the purchase was made in March 2009, Deere
stock was $32 a share. The stock now trades at $75 per share.</p><p>Camp
declined through his spokesman to be interviewed or provide additional
information about his trades and how his portfolio is managed.</p><p>“All
of the Congressman’s financial information are fully disclosed in
accordance with the law,” Sage Eastman, a senior adviser to Camp, said
in an e-mail. “His stock portfolio is managed by a firm. He does not
make decisions about when to buy or sell a stock.”</p><p>
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</p><p>Deputy graphics director Karen Yourish and researcher Bobbye Pratt contributed to this article.</p></div>
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