WASHINGTON — A renewed focus on the financial activities of congressional leaders, including House Financial Services Committee Chairman Spencer Bachus, has ignited a debate over whether ethics rules governing a member's personal trades should be tightened.
A 60 Minutes report Sunday, based on a book by a conservative former speechwriter, alleges lawmakers from both parties are unethically using their position to benefit their portfolios. The charges against Bachus are perhaps most explosive, suggesting that with privileged insight about the 2008 crisis, he invested in funds designed to profit when the markets fell.
While similar accusations were raised against Bachus at least as early as 2008, and no rules bar lawmakers from making such bets, some experts say ethics rules should be more specific about what securities an official can hold to prevent doubts about their motives.
"The fault lies in the law. It is loosey-goosey. The standards as to when you have a conflict, or when you have sufficient knowledge, or when legislation that you're working on could influence a specific stock, are not clear and favor a very liberal interpretation," said Kenneth Gross, who leads the political law office at Skadden, Arps, Slate, Meagher & Flom.
But others said brighter line rules would be impractical, since regulating conflicts among members who vote on so many issues would slow down congressional business.
"If every single action that's taken by the Congress that could affect a publicly traded company were to be the source of a conflict, they wouldn't be able to have committee hearings, they wouldn't be able to vote, they wouldn't be able to do anything," said Stanley Brand, a former House general counsel and founder of the Brand Law Group. "I don't like appearance standards. They're too vague. They're too indistinct. And in the case of the legislature, again, they would drive most of these people in a position where they couldn't do their jobs."
The television segment stemmed from the book "Throw Them All Out" by Peter Schweizer, now a fellow at the conservative Hoover Institution. His research found Bachus' trades were frequent, and cited other senior lawmakers — including House Speaker John Boehner and Democratic leader Nancy Pelosi — for their gains in business sectors debated in Congress.
The 60 Minutes report, in which Schweizer was interviewed, suggested Bachus invested in short funds with knowledge about market problems gleaned in private meetings with top officials like Federal Reserve Board Chairman Ben Bernanke and former Treasury Secretary Henry Paulson.
"When Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down," CBS correspondent Steve Kroft said in the report.
Lawmakers have sharply denied any wrongdoing. In the segment, Bachus' office issued a statement saying he complied with legal and congressional ethics rules, he disclosed his financial transactions and he does not trade in financial companies that come under his committee's purview. (The 60 Minutes report pointed out, however, that General Electric — which Bachus has invested in — offers financial services.)
In an e-mail to American Banker, a spokesman for the Alabama congressman said Bachus had received similar inquiries about his trades years ago. "Congressman Bachus has stated that he does not trade on non-public information," the spokesman said.
Still, reaction to the report — particularly the accusations against Bachus — has been strong. Some blog writers have even called for his resignation. "I am calling for Spencer Bachus to step down, not [just] from being head of the [Financial Services] Committee," conservative commentator Andrew Breitbart said in a radio interview Sunday.
Meanwhile, in a Web video released Monday, GOP presidential candidate Rick Perry said lawmakers using inside knowledge to profit "ought to be sent to jail, period," and House Majority Leader Eric Cantor expressed support for stronger disclosure rules.
But others have knocked down the 60 Minutes report, saying some of its assertions were questionable. For example, the segment noted Pelosi and her husband had an investment in Visa, which, the piece said, gained value in 2008 as legislation to restrict the credit card industry faltered. (She was then House speaker.)
But a chief supporter of the bill countered that the subsequent version of the bill ultimately became law, and Pelosi's support never wavered.
"In 2008, there was no stronger, more reliable supporter of my Credit Cardholders' Bill of Rights than Speaker Pelosi," Rep. Carolyn Maloney, D-N.Y., said in a press release Monday. "My bill passed the House Financial Services Committee in July of 2008 and the full House in September, 2008, and then died in the Senate. I reintroduced it in the next Congress, when it passed both Houses and was signed by President Obama in May, 2009."
Yet observers said the perception of legislative activity corresponding with a member's individual investment doing well may be damage enough.
"The public doesn't distinguish between the letter of the rule and the spirit of the rule," said Sarah Binder, a political science professor at George Washington University and a fellow at the Brookings Institution. "Members should have every incentive to avoid even if they are just perceptions of conflicts of interest. If it takes a stipulation by the ethics committees to give them that incentive to stay clear from potentially crossing over the line, they should do that."
Binder and Brand agreed, though, that writing rules forcing lawmakers to avoid using their positions for financial gains would prove their own difficulties.
"It's just such fine lines here about what constitutes inside knowledge versus your general political knowledge of the legislative process, which can be valuable to you," Binder said. "I don't how one would construct these rules and really know whether members are abiding by them or not.
"But that gets to the question of perception. A way to get around the perceptions of impropriety are requirements about blind trusts or index funds, or other ways of putting a barrier between the member and their investment choices."