馃攳
Insider Trading And Congress: How Lawmakers Get Rich From The Stock Market - YouTube
Channel: CNBC
[1]
Sometimes it takes a ground shaking
event to get the public's
[4]
attention. Now several lawmakers are
under fire for selling major
[8]
holdings at the beginning of
this stock market sell off.
[10]
In March Twenty twenty, senators
Richard Burr, Kelly Loeffler, Dianne
[14]
Feinstein and James Inhofe were
all accused of using insider
[17]
information to profit in
the stock market.
[20]
And the news had a ripple effect.
[22]
Resignation. He must resign from
the Senate and face prosecution.
[26]
Ultimately, this all comes
down to greed.
[29]
It'll it'll shock a lot of folks,
but senators and members of the
[32]
House are allowed to
trade in individual stocks.
[36]
Richard Burr, the chairman of
the Intelligence Committee, stepping
[39]
down. Department of Justice is
going to be closing the
[41]
investigations.
[43]
Up until the 2008 financial
crisis, lawmakers were under few
[46]
restrictions and the public
wasn't privy to much.
[49]
In 2012, the Stock Act was
passed to clean up Washington.
[56]
But recent events have yet again
thrust the issue of insider trading
[60]
to the forefront. The Stock Act
is enforced by the Department of
[63]
Justice and the Securities
and Exchange Commission.
[66]
And where do they
get their funding?
[68]
They get their funding from Congress,
which is the very body that
[72]
they are supposed to be regulating.
[73]
So the Stock Act is good, but I
think we need to do a whole lot
[77]
better. How big of an issue
is insider trading in Congress?
[80]
How does it work and what's
being done to stop it?
[87]
The SEC defines insider trading as
buying or selling a security in
[91]
breach of a fiduciary duty or
other relationship of trust and
[95]
confidence, while in possession
of material, nonpublic information
[99]
about the security. Insider trading has
long been the bane of Wall
[103]
Street, its regulators
and law enforcement.
[105]
And some Wall Street heavy hitters
have paid a heavy price.
[109]
But insider trading isn't just
done by wealthy financiers or
[113]
celebrities. Politicians have unique insight
into what most outsiders
[117]
don't. The size and scope of
what Congress is involved in has
[121]
broadened dramatically.
[122]
I mean, whether it's health care,
whether it's defense, whether it's
[125]
financial markets and they
have market moving information.
[128]
And then they're going to
act on that information.
[130]
I mean, information is king.
[131]
A groundbreaking 2004 study by a
group of professors and researchers
[135]
examined the records of U.S.
[136]
senators between 1993 and 1998.
[140]
The group found that a portfolio
tracking the stocks that the U.S.
[143]
senators bought during that same
time period outperformed the market
[147]
by 85 percent each month.
[149]
And a portfolio that tracked the
stocks that senators sold during
[152]
that time period lagged behind
the market by 12 percent.
[155]
The study concluded that the senators
knew appropriate times to both
[159]
buy and sell their common stocks.
[161]
Either they're geniuses trading on the
stock market or they had some
[165]
inside information that we
did not have.
[167]
Insider trading by corporate insiders is
a criminal offense, but those
[171]
rules are ambiguous
for congressional lawmakers.
[175]
If you sit on the Senate Armed
Services Committee and you know that a
[179]
bill is going to pass, that's
going to benefit certain defense
[181]
contractors and you buy stock based
on that information, many legal
[186]
scholars would say no, insider trading
laws don't apply because it
[190]
doesn't involve material
corporate knowledge.
[194]
In 2006, the Stop Trading
on Congressional Knowledge Act was
[197]
introduced. It would prohibit members
and employees of Congress from
[201]
profiting on nonpublic information they
obtained in their official
[204]
roles. Its co-sponsors Congressman
Brian Baird of Washington,
[209]
Congresswoman Louise Slaughter of New
York urged the Department of
[212]
Justice to investigate how widespread
insider trading was on the
[216]
Hill. It received 13 co-sponsors
and died shortly thereafter.
[221]
The 2008 financial crisis turned out to
be a free for all for insider
[225]
trading on Capitol Hill.
[226]
According to a Washington Post expose,
a 35 members, including then
[230]
Minority Leader John Boehner, cashed
out on information they received
[234]
for meetings with Treasury Secretary
Hank Paulson and others.
[237]
So I think there have always been
sort of an understanding that this
[241]
behavior was going on and there
was evidence that it was.
[244]
But when you had the, you know,
virtual collapse of the markets in
[248]
2008, it really brought into
relief in a dramatic way.
[253]
That was really sort of a
seminal event because it offered this
[257]
laboratory, this test case
that you could examine.
[261]
A 2020 study published in the
Journal of Finance found evidence of
[264]
abnormal trading practices 30 days
before the government dispersed
[267]
stimulus funds during the 2007
to 2009 financial crisis.
[271]
Those trading practices were most
pronounced from corporate insiders
[275]
with recent political connections.
[277]
That is a good and necessary thing.
[279]
In 2012, the Stop Trading on
Congressional Knowledge Act, or Stock
[283]
Act, finally passed.
[286]
We were sent here to serve the
American people and look out for their
[289]
interests not to look out
for our own interests.
[292]
What the Stock Act did is it
made perfectly clear that members of
[298]
Congress stand in a position of
trust and confidence and that that
[302]
duty is owed to the US government
and to the citizens of the United
[307]
States. This time, the bill passed
overwhelmingly 417 to two in the
[312]
House and 96 to
three in the Senate.
[315]
Senator Burr, a Republican from North
Carolina, was one of three
[319]
senators who voted against it.
[320]
You also had this sort of
interesting confluence in American politics
[324]
at the time. You had Occupy
Wall Street, which was primarily a
[328]
liberal left phenomenon.
[329]
You had the Tea Party, which
was a libertarian or conservative
[333]
movement, both very distrustful of what
was going on on Wall Street
[338]
and what political figures were doing
as it related to financial
[341]
regulations, et cetera.
[343]
So those, I think, brought together a
consensus point and led to the
[346]
passage of the Stock Act.
[354]
In March 2020, news
spread that four U.S.
[357]
senators, including Burr, were
being investigated for insider
[360]
trading. Well ahead of the
drastic escalations in this pandemic,
[363]
while still reassuring citizens that
the US was prepared.
[366]
Senator Burr vehemently denies
the allegations against him.
[369]
But here's what we know. On
January 24th, the Senate's health
[373]
committee held a briefing with CDC
director Robert Redfield and White
[376]
House pandemic adviser Dr.
[378]
Anthony Fauci, according to
The Washington Post.
[380]
About two weeks later, Burr
and Tennessee Senator Lamar Alexander
[384]
wrote a Fox News
editorial that the U.S.
[387]
was better prepared than ever to
deal with a pandemic like the
[390]
coronavirus. Less than a week later, the
Dow set an all time record,
[394]
hitting just over 29,551 points.
[398]
On February 13th, Burr sold between
630,000 and one point seven
[403]
million dollars worth
of investments.
[405]
He did it in 33 separate transactions,
and he didn't buy a single
[409]
share. Perhaps worse, Burr may have
discussed the stock sales with
[413]
his brother in law and others,
according to reporting by ProPublica
[417]
and a secret recording
obtained by NPR.
[419]
There's one thing that I
can tell you about.
[421]
It is much more aggressive in
its transmission than anything that we
[424]
have seen in recent history.
[427]
It's probably more akin
to the 1918 pandemic.
[431]
Not only is that turning it
into a conspiracy, but you're creating
[435]
potential witnesses against you.
[438]
I mean, the brother in law is going
to be questioned by the FBI and
[441]
either he's going to have to
be honest and possibly incriminate Burr
[445]
or he's going to lie. And that's
a crime in and of itself.
[448]
Burr released a statement.
[449]
I relied solely on
public news reports.
[451]
I spoke this morning with the
chairman of the Senate Ethics Committee
[454]
and asked him to open a complete
review of the matter with full
[457]
transparency. Yes, Scott, Mitch
McConnell just announcing that
[460]
Senator Burr is going to step down
as the chairman of the Senate
[464]
Intelligence Committee.
[465]
That investigation into his
trades is ongoing.
[468]
He had already announced he was not
going to run for re-election in
[471]
2022. So perhaps he, you know,
was going to save his retirement.
[476]
I don't know, but it
was a very egregious case.
[479]
Georgia's junior senator, Kelly Loeffler, was
at the same January 2020
[483]
briefing as Burr. And over the
next two weeks, Loeffler and her
[486]
husband, Jeffrey Sprecher, the CEO
of Intercontinental Exchange and
[490]
chairman of the New York Stock
Exchange, sold between one point two
[493]
and three point one million
dollars worth of stocks.
[496]
And also purchases a big chunk of
stock in Citrix, which runs like
[501]
tele-meeting software, which just
seems like amazing luck.
[505]
I don't find out about these
trades until these reports are compiled
[509]
at the end of the reporting period.
[511]
So I had no knowledge of these companies
and in fact, it was a mix of
[514]
buys and sells. Oklahoma Senator Jim
Inhofe sold as much as 400,000
[519]
dollars in stocks on
January 27, 2020.
[521]
We're learning that this insider
trading investigation on Capitol Hill
[524]
by the FBI is more wide ranging
than we knew even this morning.
[528]
Senator Dianne Feinstein's
office now confirming...
[530]
The lone Democrat to be
implicated California Senator Dianne Feinstein
[534]
and her husband are reported to
have traded somewhere between one
[537]
point five million and six million
dollars worth of stocks in a
[540]
nearly three week period between
January 31st in February 18th.
[544]
It's a very troubling
sort of thing.
[547]
And my point would be
that ought to be investigated.
[550]
How you prove in the legal context
insider trading is one issue, but
[554]
we'd be better off with a system
that simply said you can't own
[558]
private equities in this manner.
[561]
Or your assets are in a blind trust
and you don't even know what the
[564]
mix is. Sara, The Wall Street
Journal is reporting, according to its
[567]
sources, that the Department of Justice
is going to be closing the
[570]
investigations of...
[572]
On May 26 2020, the investigation
into Loeffler, Feinstein and Inhofe
[576]
was closed. If you're very sophisticated
about this, you're going to
[580]
be able to get away with it
and have enough plausible deniability so
[585]
that you're not going to
be held into account.
[587]
Meanwhile, the presidential campaign of
Joe Biden announced in July
[590]
2020 it was banning stock
trading by staff members.
[593]
The decision came a few months after
a pointed March warning from the
[596]
S.E.C. against illegal trading
during the coronavirus disruption.
[601]
The Trump campaign did not respond
to CNBC's request for comment on
[604]
its stock trading policy.
[606]
Members of Congress had long believed
the best check on conflicts of
[609]
interest or insider trading was the
fact that they stood for election
[612]
every two years. And they felt
that disclosure, as well as the
[616]
accountability that comes with holding
elective office, was a
[618]
sufficient check to prevent them
from financially taking advantage of
[621]
their positions. It wasn't.
[624]
So the Stock Act was supposed to
put an end to congressional insider
[627]
trading and to a
large extent it has.
[630]
Greg Holman, a government affairs
lobbyist with Public Citizen, has
[633]
worked closely on the Stock Act.
[635]
He conducted a study on trading in
the Senate in the three years
[638]
prior and the three years
after the act was passed.
[641]
It reduced stock trading activity
by members of the U.S.
[644]
Senate by two thirds.
[645]
However, the other finding was, of the
one third of the senators who
[649]
are still actively trading, they are
trading in stocks and businesses
[654]
that they directly oversee from their
official duties in the U.S.
[658]
Senate. It's often said the best
solution would be just to prohibit
[664]
members of Congress from
owning stock altogether.
[666]
The markets are so key to
my retirement future, your retirement
[670]
future. If we had an entire
class of decision makers in Washington,
[674]
D.C. that had zero interest or stake
in how markets were doing, I
[679]
think that would create
a dangerous disconnect.
[681]
In 2018, Senator Elizabeth Warren
proposed a sweeping new legislative
[686]
package, the Anti-Corruption and
Public Integrity Act.
[690]
The main intent is to eliminate the
influence of money in the federal
[693]
government. It's time to ban
elected officials and senior agency
[698]
officials from owning or trading any
company stocks while in office.
[704]
They can put their savings in
conflict free investments like mutual
[708]
funds, or they can pick
a different line of work.
[712]
That bill does strike a balance,
which I think is very important.
[716]
We want them to embrace it and
be concerned about how the market is
[720]
performing, but we don't want them
to be able to manipulate it.
[723]
But Warren's proposal goes even further
and includes a lifetime ban on
[727]
lobbying for presidents and federal
lawmakers among other things.
[731]
The bill most likely to get traction,
at least at the moment, is The
[735]
Ban Conflicted Trading Act proposed
by Democratic Senator Sherrod
[738]
Brown and Jeff Merkley.
[740]
We asked Senator Sherrod Brown about the
bill and his office sent us
[743]
the following statement. It's simple
Members of Congress should not
[746]
be allowed to own individual
stocks in individual companies, then
[750]
vote on those same issues because
of its conflict of interest.
[753]
And owning stock by itself is a
conflict of interest because we vote
[758]
on all kinds of things that
affect families and affect this economy.
[761]
I've been able to round up a
lot of endorsements within the academic
[766]
community and civic groups, and so we
are hoping that we can get it
[771]
moving. Getting either bill through
a divided Congress could be
[774]
challenging, particularly in an
election year, and particularly
[778]
during a pandemic. But if the Democrats
do manage to take the Senate
[781]
and presidency, the chances of
passage go up exponentially.
[785]
People, I think, are becoming in a
way skeptical that the process is
[790]
clean in Washington, D.C.
[792]
And I think that skepticism actually is
a very good thing for an
[796]
informed electorate.
[797]
Reformers ride on scandal to try
to get some of this legislation
[802]
through, and I'm hoping to
see that happen again.
Most Recent Videos:
You can go back to the homepage right here: Homepage