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Congressional Staffers Gain From Trading in Stocks - WSJ.com
By BRODY MULLINS, TOM MCGINTY and JASON ZWEIG
WASHINGTONChris 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.
Five congressional aides who bought or sold shares in companies overseen by the staffers' bosses.
Jim Manley, a spokesman for Mr. Reid's office, initially defended Mr. Miller's purchase of shares in the company, Energy Conversion Devices Inc. He said the aide had no influence over tax incentives for renewable-energy firms, and that other factors boosted the stock.
But on Sunday, Mr. Manley added: "Mr. Miller showed poor judgment and Senator Reid has made it very clear to Chris and all his staff that their actions must not only follow the law, but must meet the higher standards the public has a right to expect from elected officials and their staffs."
Mr. Miller isn't the only Congressional staffer making such stock bets. At least 72 aides on both sides of the aisle traded shares of companies that their bosses help oversee, according to a Wall Street Journal analysis of more than 3,000 disclosure forms covering trading activity by Capitol Hill staffers for 2008 and 2009.
The New Age of Insider Information on Wall Street:
The Journal analysis showed that an aide to a Republican member of the Senate Banking Committee bought Bank of America Corp. stock before results of last year's government stress tests eased investor concerns about the health of the banking industry. A top aide to the House Speaker profited by trading shares of Freddie Mac and Fannie Mae in a brokerage account with her husband two days before the government authorized emergency funding for the companies. Another aide to Republican lawmakers interested in energy issues, among other things, profited by trading in several renewable-energy firms.
Congressional Trading:
The aides identified by the Journal say they didn't profit by making trades based on any information gathered in the halls of Congress. Even if they had done so, it would be legal, because insider-trading laws don't apply to Congress.
A few lawmakers proposed a bill that would prevent members and employees of Congress from trading securities based on nonpublic information they obtain. The legislation has languished since 2006.
"Congressional staff are often privy to inside information, and an unscrupulous person could profit off that knowledge," says Vincent Morris, a spokesman for Rep. Louise Slaughter (D., N.Y.), a leading backer of the "Stop Trading on Congressional Knowledge Act," or STOCK Act. "The public should be outraged there is no law specifically banning this."
When the bill was introduced nearly five years ago, just 14 other lawmakers endorsed it. The current version of the bill has fared worse: Only nine lawmakers support it. There is no companion legislation in the Senate.
Congressional aides have ringside seats on the making of laws that affect American business. Receiving salaries up to roughly $170,000 a year, they can glean information about policies and government action before the public. They have access to information about hearings or legislation that can move stocks and markets.
The current Congressional disclosure rules on stock trading stem from a scandal involving Robert Baker, a senior Senate aide, in the early 1960s. Mr. Baker was accused of using his Senate office for personal gain, partly involving the operation of a network of vending machines. He was eventually convicted of income-tax evasion and spent 16 months in prison.
The aides identified by the Journal say they didn' profit by making trades based on any information gathered in the halls of Congress.
The scandal led to a Senate rule in 1968 that required lawmakers and aides to disclose information about their finances. The House of Representatives imposed similar requirements about the same time.
The rules require all members of Congress and about 2,900 of the highest-paid congressional aides to disclose information once a year on their finances, such as their assets, debts, spouse's employment and other sources of income they earn, including capital gains from trading securities. Some 15,000 lower-paid Congressional staffers aren't covered by the disclosure rule.
Unlike many Executive Branch employees, lawmakers and aides don't have restrictions on their stock holdings and ownership interests in companies they oversee. Congressional rules say that requiring employees to do so could "insulate a legislator from the personal and economic interests that his or her constituency, or society in general, has in governmental decisions and policy."
An analysis of financial-disclosure forms for 2008 and 2009 compiled by the website LegiStorm shows that several hundred congressional aides bought or sold stocks. At least 72 traded the stocks of companies their bosses write laws for.
The disclosure only requires dollar ranges for stock holdings and capital gains, so it is impossible to calculate from them precisely how much aides make trading stock in dollar terms. (Some aides opted to give precise numbers to the Journal.) Still, because the disclosure forms specify the days when shares were bought and sold, the Journal was able to calculate the minimum profits that aides made in percentage terms.
The calculation involved taking the high price on the day the stock was purchased and the low price on the day it was sold. If an aide bought the stock below that daily high or sold it above that daily low, the actual profit would have been bigger than the Journal calculation.
The Journal's analysis comes at a time of close government involvement in U.S. business. Much of the trading was in industries dependent on government help, such as the financial-services and renewable-energy industries.
A number of aides invested in financial stocks. Karen Brown, an aide to Sen. Mike Crapo (R., Idaho), a Senate Banking Committee member, traded Bank of America stock on seven occasions in 2009, according to filings. She bought a total of between $3,003 and $45,000 of the bank's shares in three trades on April 17 and April 27 and sold between $51,002 and $115,000 in September. Her minimum gain during that period would have been 43%.
At the time of the purchases, Bank of America was discussing with the government the findings of "stress tests" used to gauge the safety of U.S. banks. On May 7, 2009, BofA shares surged when the stress-test results were made public, easing investor fears.
After it was contacted by the Journal, Mr. Crapo's office said the trades were made by Mrs. Brown's husband, "independent of any direction from Mrs. Brown." The office said Mrs. Brown has since filed an amended financial-disclosure form.
Susan Wheeler, a spokeswoman for Mr. Crapo, said: "There is no relation between Senator Crapo's service on the Banking Committee and any decisions made by Mr. Brown regarding the trades in question."
A spokeswoman for Mr. Crapo's office declined to specify the precise purchase and sale prices of the stock.
On Oct. 23, 2009, Mrs. Brown's form indicates two additional purchases of BoA for a total of between $65,002 and $150,000.
Joel Brubaker, the 41-year-old chief of staff to Rep. Shelley Moore Capito (R, W.Va), a member of the House Financial Services Committee, made money trading in financial-services firms in 2009.
Mr. Brubaker says he invested $1,570 in Citigroup Inc. on Feb. 27, 2009, the day Citi and the Treasury announced the bank would issue common stock in exchange for preferred shares. The move helped bolster investor confidence.
"I bought 1,000 shares at 12:50 p.m. on that date well after it was widely reported in the media that morning," Mr. Brubaker says.
He sold the Citi shares on Sept. 18 for at least $4,260, assuming he sold at Citi's lowest price for that day. That was a minimum profit of $2,690, or 171%, during the nearly seven months he owned the stock.
Terri McCullough, a 41-year-old aide to House Speaker Nancy Pelosi, had several successful trades in 2008 in a Charles Schwab brokerage account with her husband, Howard Wolfson, a former spokesman for Hillary Clinton's 2008 presidential campaign.
Mr. Wolfson says he bought about $2,000 worth of Freddie Mac and $2,700 worth of Fannie Mae on July 11, 2008, just two days before the Fed authorized emergency funding to Freddie and Fannie. Mr. Wolfson says he bought the stock after reading a news story on the possibility of the U.S. taking over one or both mortgage-finance companies.
As the Speaker of the House, Ms. Pelosi was briefed by the administration and Treasury Department officials about the steps they were taking in the financial crisis. Ms. McCullough served as Ms. Pelosi's chief of staff, though she focuses on social issues and matters concerning Ms. Pelosi's San Francisco-area district.
In one day Mr. Wolfson bought and sold Freddie Mac and Fannie Mae shares as the stocks jumped about 40%, for a profit of about $2,000, he said. The couple made a total of $20,000 on trading in 2008, he said. Mr. Wolfson says that he made the trades on his own, without telling his wife or getting any information from her.
Ms. McCullough said: "I was not involved in discussions regarding Fannie Mae or Freddie Mac, and I was unaware of the Bush Administration's or Congress's plans regarding them. I do not make trades and had no knowledge of the trades my husband made in 2008 until after they were made."
Another aide who trades actively is Cody Stewart, the executive director of the Western Caucus. This is a group of Republican lawmakers from Western states interested in energy legislation and other issues that affect Western states. It doesn't have a formal role in enacting legislation.
Mr. Stewart made short-term profits by trading in firms such as NCI Building Systems Inc. that had a stake in energy legislation. He made a $1,500 gain on two short-term trades in NCI in the summer and fall of 2009, according to Mr. Stewart and filings. He bought $3,782 in Sunpower on Nov. 19 and sold it Dec. 15 for $4,331, for a $549 profit, or 15% gain, in less than a month, according to Mr. Stewart and the filings.
Mr. Stewart held each of his investments, which were all in the $1,000 to $15,000 range, for just a few months. He says he made a total 2009 profit of $15,000 on 47 trades, including about $9,000 on trades in financial services companies.
As the Western Caucus' top full-time employee, Mr. Stewart kept tabs on many issues that cleared the House last year, as well as tax incentives for the renewable industry.
Mr. Stewart says he serves as a "clearinghouse for general information" to the Western Republicans, but says that he had "virtually no input on policy in the House."
In a statement, Mr. Stewart said: "Yes, I had information about the renewable tax credits, but nothing I knew or had access to wasn't unknown by the investment community...As a Republican staffer, I was not privy to any special or unique information in this area."
Mr. Stewart said he engaged in "a little bottom-of-the-barrel investing when the markets were at historic lows."
Mr. Miller, the 47-year-old energy aide to Mr. Reid, bought shares in Energy Conversion Devices stock in two chunks on Jan. 14 and Jan. 16, 2008, according to filings. The filing only indicated two purchases were each between $1,001 and $15,000, but a spokesman for Mr. Reid's office said that Mr. Miller bought a total of $3,500.
Mr. Reid has supported using the federal government to help the renewable energy industry. Mr. Miller works as Mr. Reid's senior policy adviser on energy and environment issues.
In a 2009 profile entitled "Energy: 10 Staffers to Know," Mr. Miller told the Capitol Hill newspaper Roll Call that he "meets frequently with a broad array of energy stakeholder groups and daily with Reid himself."
One of the government incentives Mr. Reid supported for the renewable-energy industry was a 30% investment tax credit for companies in the solar-energy business. A spokesman for Mr. Reid says Mr. Miller doesn't work on that issue, and that on Capitol Hill, the tax credit was widely expected to pass.
"You have cherry-picked information and woven a misleading narrative," says Mr. Miller of the Journal analysis. "It's pretty straightforward: I bought on a dip and sold on spikes, none of which had anything to do with my job."
On Sunday after Mr. Reid criticized his trading, Mr. Miller declined to respond further, according to Mr. Manley, the senator's spokesman.
A beneficiary of the tax credit was Energy Conversion Devices, a Michigan company whose solar-energy division is the "world's largest producer of flexible solar panels," according to the company's website.
When Mr. Miller bought the Energy Conversion Devices shares, the renewable-energy industry was vulnerable because this investment-tax break was due to expire at the end of 2008.
"We were worried as we are always worried because it meant uncertainty," said Martha Duggan, the vice president of regulatory and government affairs for the solar unit of Energy Conversion Devices.
Within a few months, the prospects for the legislation brightened and it became more likely that some form of the investment credit would be approved.
On May 8, the company issued an earnings report that beat analysts' expectations and sent the stock up 43% that day.
Mr. Miller sold most of his stake on May 12 and May 14, according to filings. On May 14, the House introduced its version of legislation to extend the tax credit and voted to approve it a week later. Mr. Miller continued to hold the remainder of his ECD stake.
On Sept. 22, Mr. Miller sold his final ECD shares when the stock was declining; in all, he gained about $3,200 on an investment of about $3,500 in his ECD holdings during 2008, Mr. Manley said. That's a 91% gain.
The following day, the Senate approved extension of the tax credits.
Write to Brody Mullins at brody.mullins@wsj.com, Tom McGinty at tom.mcginty@wsj.com and Jason Zweig at intelligentinvestor@wsj.com
Corrections & Amplifications
About 2,900 of the highest-paid congressional aides must disclose information annually about their finances, and each of the forms submitted in 2008 and 2009 was reviewed by The Journal. A previous version of this article incorrectly said that about 1,700 staffers are required to submit the disclosures.
By BRODY MULLINS, TOM MCGINTY and JASON ZWEIG
WASHINGTONChris 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.
Five congressional aides who bought or sold shares in companies overseen by the staffers' bosses.
Jim Manley, a spokesman for Mr. Reid's office, initially defended Mr. Miller's purchase of shares in the company, Energy Conversion Devices Inc. He said the aide had no influence over tax incentives for renewable-energy firms, and that other factors boosted the stock.
But on Sunday, Mr. Manley added: "Mr. Miller showed poor judgment and Senator Reid has made it very clear to Chris and all his staff that their actions must not only follow the law, but must meet the higher standards the public has a right to expect from elected officials and their staffs."
Mr. Miller isn't the only Congressional staffer making such stock bets. At least 72 aides on both sides of the aisle traded shares of companies that their bosses help oversee, according to a Wall Street Journal analysis of more than 3,000 disclosure forms covering trading activity by Capitol Hill staffers for 2008 and 2009.
The New Age of Insider Information on Wall Street:
The Journal analysis showed that an aide to a Republican member of the Senate Banking Committee bought Bank of America Corp. stock before results of last year's government stress tests eased investor concerns about the health of the banking industry. A top aide to the House Speaker profited by trading shares of Freddie Mac and Fannie Mae in a brokerage account with her husband two days before the government authorized emergency funding for the companies. Another aide to Republican lawmakers interested in energy issues, among other things, profited by trading in several renewable-energy firms.
Congressional Trading:
The aides identified by the Journal say they didn't profit by making trades based on any information gathered in the halls of Congress. Even if they had done so, it would be legal, because insider-trading laws don't apply to Congress.
A few lawmakers proposed a bill that would prevent members and employees of Congress from trading securities based on nonpublic information they obtain. The legislation has languished since 2006.
"Congressional staff are often privy to inside information, and an unscrupulous person could profit off that knowledge," says Vincent Morris, a spokesman for Rep. Louise Slaughter (D., N.Y.), a leading backer of the "Stop Trading on Congressional Knowledge Act," or STOCK Act. "The public should be outraged there is no law specifically banning this."
When the bill was introduced nearly five years ago, just 14 other lawmakers endorsed it. The current version of the bill has fared worse: Only nine lawmakers support it. There is no companion legislation in the Senate.
Congressional aides have ringside seats on the making of laws that affect American business. Receiving salaries up to roughly $170,000 a year, they can glean information about policies and government action before the public. They have access to information about hearings or legislation that can move stocks and markets.
The current Congressional disclosure rules on stock trading stem from a scandal involving Robert Baker, a senior Senate aide, in the early 1960s. Mr. Baker was accused of using his Senate office for personal gain, partly involving the operation of a network of vending machines. He was eventually convicted of income-tax evasion and spent 16 months in prison.
The aides identified by the Journal say they didn' profit by making trades based on any information gathered in the halls of Congress.
The scandal led to a Senate rule in 1968 that required lawmakers and aides to disclose information about their finances. The House of Representatives imposed similar requirements about the same time.
The rules require all members of Congress and about 2,900 of the highest-paid congressional aides to disclose information once a year on their finances, such as their assets, debts, spouse's employment and other sources of income they earn, including capital gains from trading securities. Some 15,000 lower-paid Congressional staffers aren't covered by the disclosure rule.
Unlike many Executive Branch employees, lawmakers and aides don't have restrictions on their stock holdings and ownership interests in companies they oversee. Congressional rules say that requiring employees to do so could "insulate a legislator from the personal and economic interests that his or her constituency, or society in general, has in governmental decisions and policy."
An analysis of financial-disclosure forms for 2008 and 2009 compiled by the website LegiStorm shows that several hundred congressional aides bought or sold stocks. At least 72 traded the stocks of companies their bosses write laws for.
The disclosure only requires dollar ranges for stock holdings and capital gains, so it is impossible to calculate from them precisely how much aides make trading stock in dollar terms. (Some aides opted to give precise numbers to the Journal.) Still, because the disclosure forms specify the days when shares were bought and sold, the Journal was able to calculate the minimum profits that aides made in percentage terms.
The calculation involved taking the high price on the day the stock was purchased and the low price on the day it was sold. If an aide bought the stock below that daily high or sold it above that daily low, the actual profit would have been bigger than the Journal calculation.
The Journal's analysis comes at a time of close government involvement in U.S. business. Much of the trading was in industries dependent on government help, such as the financial-services and renewable-energy industries.
A number of aides invested in financial stocks. Karen Brown, an aide to Sen. Mike Crapo (R., Idaho), a Senate Banking Committee member, traded Bank of America stock on seven occasions in 2009, according to filings. She bought a total of between $3,003 and $45,000 of the bank's shares in three trades on April 17 and April 27 and sold between $51,002 and $115,000 in September. Her minimum gain during that period would have been 43%.
At the time of the purchases, Bank of America was discussing with the government the findings of "stress tests" used to gauge the safety of U.S. banks. On May 7, 2009, BofA shares surged when the stress-test results were made public, easing investor fears.
After it was contacted by the Journal, Mr. Crapo's office said the trades were made by Mrs. Brown's husband, "independent of any direction from Mrs. Brown." The office said Mrs. Brown has since filed an amended financial-disclosure form.
Susan Wheeler, a spokeswoman for Mr. Crapo, said: "There is no relation between Senator Crapo's service on the Banking Committee and any decisions made by Mr. Brown regarding the trades in question."
A spokeswoman for Mr. Crapo's office declined to specify the precise purchase and sale prices of the stock.
On Oct. 23, 2009, Mrs. Brown's form indicates two additional purchases of BoA for a total of between $65,002 and $150,000.
Joel Brubaker, the 41-year-old chief of staff to Rep. Shelley Moore Capito (R, W.Va), a member of the House Financial Services Committee, made money trading in financial-services firms in 2009.
Mr. Brubaker says he invested $1,570 in Citigroup Inc. on Feb. 27, 2009, the day Citi and the Treasury announced the bank would issue common stock in exchange for preferred shares. The move helped bolster investor confidence.
"I bought 1,000 shares at 12:50 p.m. on that date well after it was widely reported in the media that morning," Mr. Brubaker says.
He sold the Citi shares on Sept. 18 for at least $4,260, assuming he sold at Citi's lowest price for that day. That was a minimum profit of $2,690, or 171%, during the nearly seven months he owned the stock.
Terri McCullough, a 41-year-old aide to House Speaker Nancy Pelosi, had several successful trades in 2008 in a Charles Schwab brokerage account with her husband, Howard Wolfson, a former spokesman for Hillary Clinton's 2008 presidential campaign.
Mr. Wolfson says he bought about $2,000 worth of Freddie Mac and $2,700 worth of Fannie Mae on July 11, 2008, just two days before the Fed authorized emergency funding to Freddie and Fannie. Mr. Wolfson says he bought the stock after reading a news story on the possibility of the U.S. taking over one or both mortgage-finance companies.
As the Speaker of the House, Ms. Pelosi was briefed by the administration and Treasury Department officials about the steps they were taking in the financial crisis. Ms. McCullough served as Ms. Pelosi's chief of staff, though she focuses on social issues and matters concerning Ms. Pelosi's San Francisco-area district.
In one day Mr. Wolfson bought and sold Freddie Mac and Fannie Mae shares as the stocks jumped about 40%, for a profit of about $2,000, he said. The couple made a total of $20,000 on trading in 2008, he said. Mr. Wolfson says that he made the trades on his own, without telling his wife or getting any information from her.
Ms. McCullough said: "I was not involved in discussions regarding Fannie Mae or Freddie Mac, and I was unaware of the Bush Administration's or Congress's plans regarding them. I do not make trades and had no knowledge of the trades my husband made in 2008 until after they were made."
Another aide who trades actively is Cody Stewart, the executive director of the Western Caucus. This is a group of Republican lawmakers from Western states interested in energy legislation and other issues that affect Western states. It doesn't have a formal role in enacting legislation.
Mr. Stewart made short-term profits by trading in firms such as NCI Building Systems Inc. that had a stake in energy legislation. He made a $1,500 gain on two short-term trades in NCI in the summer and fall of 2009, according to Mr. Stewart and filings. He bought $3,782 in Sunpower on Nov. 19 and sold it Dec. 15 for $4,331, for a $549 profit, or 15% gain, in less than a month, according to Mr. Stewart and the filings.
Mr. Stewart held each of his investments, which were all in the $1,000 to $15,000 range, for just a few months. He says he made a total 2009 profit of $15,000 on 47 trades, including about $9,000 on trades in financial services companies.
As the Western Caucus' top full-time employee, Mr. Stewart kept tabs on many issues that cleared the House last year, as well as tax incentives for the renewable industry.
Mr. Stewart says he serves as a "clearinghouse for general information" to the Western Republicans, but says that he had "virtually no input on policy in the House."
In a statement, Mr. Stewart said: "Yes, I had information about the renewable tax credits, but nothing I knew or had access to wasn't unknown by the investment community...As a Republican staffer, I was not privy to any special or unique information in this area."
Mr. Stewart said he engaged in "a little bottom-of-the-barrel investing when the markets were at historic lows."
Mr. Miller, the 47-year-old energy aide to Mr. Reid, bought shares in Energy Conversion Devices stock in two chunks on Jan. 14 and Jan. 16, 2008, according to filings. The filing only indicated two purchases were each between $1,001 and $15,000, but a spokesman for Mr. Reid's office said that Mr. Miller bought a total of $3,500.
Mr. Reid has supported using the federal government to help the renewable energy industry. Mr. Miller works as Mr. Reid's senior policy adviser on energy and environment issues.
In a 2009 profile entitled "Energy: 10 Staffers to Know," Mr. Miller told the Capitol Hill newspaper Roll Call that he "meets frequently with a broad array of energy stakeholder groups and daily with Reid himself."
One of the government incentives Mr. Reid supported for the renewable-energy industry was a 30% investment tax credit for companies in the solar-energy business. A spokesman for Mr. Reid says Mr. Miller doesn't work on that issue, and that on Capitol Hill, the tax credit was widely expected to pass.
"You have cherry-picked information and woven a misleading narrative," says Mr. Miller of the Journal analysis. "It's pretty straightforward: I bought on a dip and sold on spikes, none of which had anything to do with my job."
On Sunday after Mr. Reid criticized his trading, Mr. Miller declined to respond further, according to Mr. Manley, the senator's spokesman.
A beneficiary of the tax credit was Energy Conversion Devices, a Michigan company whose solar-energy division is the "world's largest producer of flexible solar panels," according to the company's website.
When Mr. Miller bought the Energy Conversion Devices shares, the renewable-energy industry was vulnerable because this investment-tax break was due to expire at the end of 2008.
"We were worried as we are always worried because it meant uncertainty," said Martha Duggan, the vice president of regulatory and government affairs for the solar unit of Energy Conversion Devices.
Within a few months, the prospects for the legislation brightened and it became more likely that some form of the investment credit would be approved.
On May 8, the company issued an earnings report that beat analysts' expectations and sent the stock up 43% that day.
Mr. Miller sold most of his stake on May 12 and May 14, according to filings. On May 14, the House introduced its version of legislation to extend the tax credit and voted to approve it a week later. Mr. Miller continued to hold the remainder of his ECD stake.
On Sept. 22, Mr. Miller sold his final ECD shares when the stock was declining; in all, he gained about $3,200 on an investment of about $3,500 in his ECD holdings during 2008, Mr. Manley said. That's a 91% gain.
The following day, the Senate approved extension of the tax credits.
Write to Brody Mullins at brody.mullins@wsj.com, Tom McGinty at tom.mcginty@wsj.com and Jason Zweig at intelligentinvestor@wsj.com
Corrections & Amplifications
About 2,900 of the highest-paid congressional aides must disclose information annually about their finances, and each of the forms submitted in 2008 and 2009 was reviewed by The Journal. A previous version of this article incorrectly said that about 1,700 staffers are required to submit the disclosures.
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