The Washington Post | June 23, 2012
By Dan Keating, David S. Fallis, Kimberly Kindy and Scott Higham

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.

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.

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. 

Sen. Tom Coburn (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. Ed Whitfield (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. Michael McCaul (R-Tex.) bought between $286,000 and $690,000 in a high-tech company interested in a bill under his committee’s jurisdiction.

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 Stock Act, which bars lawmakers, their staffs and top executive branch officials from trading on inside information acquired on Capitol Hill.

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.

“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 “Ethics in Congress: From Individual to Institutional Corruption.” “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.”

The Post analysis does not provide evidence of insider trading, 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.

Hold on bill lifted, bonds bought

In 2007, Sen. Coburn placed a legislative hold on the Genetic Information Nondiscrimination Act, 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.
After negotiating a compromise on April 22, 2008, Coburn released his hold.

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.

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.

In an interview, Coburn said that he and Sen. Richard Burr (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.”

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.

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.

“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.”

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.

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.

“In some of our discussions, he’ll indicate sectors he likes,” Poarch said, noting that the senator rarely directs Pinnacle to make specific trades.

Coburn said he gives Poarch only general advice.

“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.

Affymetrix officials did not return calls seeking comment. After the genetic bill became law in May 2008, Affymetrix praised its passage in a news release. “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.

Shining light on GE trades

Rep. Whitfield trades infrequently, but several of his transactions have coincided with major legislation before him.

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.

General Electric, which had created a subsidiary to help businesses manage carbon emissions, lobbied heavily in favor of the bill.

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.

Although the cap had appeared to be gaining momentum, Whitfield’s Republican colleagues in the Senate scuttled the bill in early June with parliamentary actions and a threatened filibuster.

After the bill died, the stock dropped to $26 — $6 less than the price when Whitfield sold.

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.

The trade was one of the two largest stock sales by Whitfield since 2004.

The other came when Whitfield sold between $50,000 and $100,000 in the defense conglomerate United Technologies 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.

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.

Schiermeyer said Whitfield adhered to the relevant ethics rules.

“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.”

Lawmakers can affect bills in other ways.

Members of the Rules Committee, for example, have the power to quash amendments and set the terms for floor debate on all bills.

In July 2005, the Rules Committee, chaired by Rep. David Dreier (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.

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.

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.

The bill passed the House but stalled in the Senate.

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.

“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.”

Dreier’s office did not provide access to his investment adviser.

A matter of trusts

Some of Congress’s wealthiest members avoid potential conflicts by putting their assets in blind trusts approved by congressional ethics committees. Sen. Herb Kohl (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.

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.

Sen. John F. Kerry (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.

Rep. McCaul, 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.

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.

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.”

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.