Jack Abramoff: Members Of Congress Engaged In Insider Trading

Congressmen apparently regularly make investment moves based on the information they learn. Of course, for them it isn't illegal.

Disgraced former lobbyist Jack Abramoff, now out of prison and out with a book, has something interesting to say about the activities of certain Members of Congress:

As many as a dozen members of Congress and their aides took part in insider trading based on foreknowledge of market moving information on Capitol Hill, disgraced Washington lobbyist Jack Abramoff told CNBC in an interview.

Abramoff, who was once one of the wealthiest and most powerful lobbyists in Washington before a corruption scandal sent him to federal prison for more than three years, said that many of those members of Congress bragged to him about their stock trading prowess while dining at the exclusive restaurant he owned on Pennsylvania Avenue.

But Abramoff, whose black trench coat and fedora became one of the most notorious images in recent Washington history after his fall from grace, said he didn’t play the stock market himself — he considered it an inherently unfair “casino” in which the house had far more information than the players. Abramoff made most of his fortune representing — and, as it turned out, duping — Native American tribes rich with cash from casino operations.

The former lobbyist said the amounts members of Congress earned trading off their inside knowledge ranged from as little as $2,000 to, as much as “several hundred thousand dollars,” that was claimed by one member of Congress.

Abramoff declined to name the members of Congress.

“It was more, ‘Look at me, I’m a real great stock trader,'” Abramoff told CNBC of the congressional bragging. “All of a sudden somebody from a background maybe in law, maybe in some other unrelated business area, all of a sudden is picking winners and losers in the market.”

So, let’s get the United States Attorney on this! Pull these guys in, make `em do a perp walk, and give `em the Martha Stewart treatment. Right?

Well, not exactly. It turns out that the insider trading laws don’t apply to Members of Congress:

Generally, however, legal analysts say that Wall Street insider trading laws do not apply to Congress. As an open and public institution, the legal assumption has long been that any member of the public can have access to information about how Congress works. In practice, though, that’s simply not true, as powerful members of Congress come into contact daily with market-moving tidbits. That gap between the law and the reality has made Capitol Hill a virtual free-fire zone for insider trading. Over the years, academic studies have found that members of the House of Representatives beat the market by as much as six percent per year and members of the Senate do even better than that.

So, it’s not really insider trading. Even though it technically probably should be. I’m sure we can count on Congress to change that law right away, right? Right? Bueller?

This is the kind of thing that only serves to increase public cynicism about government, of course. It strikes me that if it’s illegal for a corporate officer to engage in stock trades based on information that comes to him based on his position, it should be illegal for a Member of Congress or a member of his staff to do this same. The legal position that the information they base their decisions on is “public” because its in Congress is a legal fiction. In reality, as noted above, these people have knowledge about the timing of legislation and hearings, and the likelihood that a particular bill with pass that an ordinary investor does not. It’s either all illegal, or not of it is.

There will be some who say we shouldn’t necessarily believe Abramoff given his own history, and it’s certainly advisable to keep the doubts about his credibility in mind. As noted, it’s been fairly well established in studies that Congressman and Senators have an uncanny ability to beat the market on a regular basis. There’s a reason for that and, given the state of the Federal Budget, I seriously doubt that it can be explained by our representatives financial genius.

Here’s the Abramoff interview:

FILED UNDER: Congress, Economics and Business, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Rob in CT says:

    I remember reading a story a while back about an analysis of the performance of congresscritters’ stock portfolios. They did WAAAAY better than the market.

    I figured it was therefore obvious that they had access to insider tips (and/or knew in advance whether legislation/regulation would pass/be altered in such a way as to move the market) and, therefore, they had an advantage.

    I didn’t know there really wasn’t any law against them acting on that knowledge. I figured there was, but it wasn’t enforced.

    Hah.

  2. David M says:

    I’d support some pretty strict rules requiring everyone in congress to place their assets in a blind trust, or something equivalent where they basically were unable to direct any investments based on any knowledge they had.

  3. Purring_Oaks2 says:

    As a so called average person, I have disdain for those in Congress that preach one thing and do another. I have been duped for too long! How in the world can governments from local to federal be cleaned up?

  4. Tlaloc says:

    It strikes me that if it’s illegal for a corporate officer to engage in stock trades based on information that comes to him based on his position, it should be illegal for a Member of Congress or a member of his staff to do this same.

    I really doubt you’re going to get any disagreement on this point.

  5. Neo says:

    WASHINGTON—Chris Miller nearly doubled his $3,500 stock investment in a renewable-energy firm in 2008. It was a perfectly legal bet, but he’s no ordinary investor.

    Mr. Miller is the top energy-policy adviser to Nevada Democrat and Senate Majority Leader Harry Reid, who helped pass legislation that wound up benefiting the firm.

    For thee, but not me

  6. Hey Norm says:

    Some of this is just logical…when Bush Cheney were appointed by the Supreme court I bet heavily on energy stocks and Halluburton. Duh.
    Having said that…we need term limits, and public finance, and members and staff must be prohibited from lobbying. And no more congressmen, or women, building sleeping in my building.

  7. john personna says:

    I’d consider this well-kinown, but if Abramoff can push the awareness, great.

    This might even play better in an OWS world than when things were a little more “I’ve got mine.”

  8. JKB says:

    This just in, politicians are corrupt, thieving liars. Nation shocked as they are nice boys and girls from good families.

    Also, investors surprised former Senator and Governor of New Jersey corrupt thief. Said one investor, “All the other politicians from New Jersey have been so nice.”

    As an old man I used to know, who was avid in politics said, “He’s a good man. We’d better not elect him, it’ll ruin him.”

  9. jpe says:

    Bainbridge actually wrote an article – and I think it was an academic paper – arguing that this is, in fact, illegal. FTR.

    BTW, a very simple fix would be to compel real-time reporting of Congressperson brokerage accounts. An efficient market (or even a market that isn’t grossly inefficient0 will eliminate their gains immediately.

  10. Leo says:

    jpe, I love that, I can even see at least one mutual fund being set up to mirror congressmen + staff’s investment moves…

  11. Ben Wolf says:

    @JKB: There’s a very simple way to eliminate the worst offenders: anyone who wants to run for office should be immediately disqualified. You can’t trust someone willing to toady their way into power over others.