At the height of the financial crisis, Congressman Spencer Bachus (R-AL), then the ranking member of the House Financial Services Committee, netted tens of thousands of dollars while he was privy to private briefings about the global economic meltdown, according to a new book on congressional insider trading.Business Insider obtained an early copy of the book, Throw Them All Out, by Hoover Institute fellow Peter Schweizer. The evidence against Bachus is pretty damning.
According to Schweizer, Bachus engineered “no less than 40 options trades” between July 2008 and November 2008 — a period when markets were at their most volatile — netting as much as $50,000 by betting that the market would go up or down at crucial points in the crisis. And he made tens of thousands more when the financial reforms went into place in 2009.
At the same time, Bachus was getting private briefings from top Treasury and Fed officials — including Hank Paulson and Ben Bernanke — as bailout and financial legislation made its way through the House Financial Services Committee.
Here’s a timeline, via Schweizer:
- In July and August 2008, as the Financial Services Committee considered how to rescue Fannie and Freddie and avoid the collapse of the housing market (and by extension the entire financial system), Bachus was aggressively betting that that the S&P financial sector fund would fall.
- On Sept. 8, 2008, GE CEO Jeff Immelt called Paulson and told him GE was having trouble selling bonds. Two days later Bachus shorted GE options four times in one day, more than doubling his money. He shorted GE 12 times between Sept. 10 and 15, and nine of the trades were profitable.
- On Sept. 18, Bachus and other congressional leaders had a private meeting with Treasury Secretary Hank Paulson and Fed Chair Ben Bernanke. The meeting were so secretive, cell phones and Blackberrys weren’t allowed in the room.
- The very next day Bachus bought contract options on Proshares Ultra-Short QQQ, an index fund that seeks results 200% the inverse of the Nasdaq 100 index — in other words shorting the market. On Sept. 23, he sold the options and nearly doubled his money.
- At the same time, the Treasury and Bachus’s committee were working on the TARP rescue plan. On Sept. 22, the day TARP was announced, Bachus made another options buy on Proshares Ultra, nearly doubling his money again.
- As the TARP bill was reworked in Congress in October 2008, Bachus was involved in more private meetings. Apparently Bachus thought the bailout would work — that month, he switched to buying shares in Powershares QQQ, betting that the market would rise.
- On Oct. 14, the federal government tapped into the $700 billion bailout fund. The next day, Bachus made a quick $3,400 betting the financial sector would fall.
- On Oct. 21, the Federal Reserve announced it would spent $540 billion to purchase short-term debt from money market mutual funds. The next day, Bachus bought more than $5,000 of options in Market Vectors TRN, and doubled his money.
According to Schweizer, this is only the most blatant example of Bachus using his position in Congress to benefit financially. In 1997, for example, Bachus shorted Microsoft stock just two days before the Justice Department filed a complaint demanding a $1 million-a-day fine from the company, and made as much as $20,000.
Bachus is now the Chairman of the House Financial Services Committee, a powerful position with jurisdiction over all legislation concerning the financial sector. And while there is no absolute proof that Bachus was trading on private information he learned in Congress, the pattern raises big questions about where the Congressman’s primary interests lie.
Neither the House Financial Services Committee nor Bachus’s office has responded to our calls for comment.
Update, 3:25 p.m.:
A spokesman for Bachus emails that the Congressman “does not trade on non-public information.” Here’s his statement:
Congressman Bachus makes sure to comply with the law and House Ethics rules, and his financial transactions are publicly disclosed. Chairman Bachus does not trade in financial sector companies over which the Financial Services Committee has jurisdiction.
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