As Congress examines members’ trading, an echo from a bygone era


General Ulysses S. Grant, the 18th President of the U.S., reads on the porch of Drexel Cottage near Saratoga Springs, N.Y. on July 20, 1885. One of the most notorious investment scandals in congressional history burst into the headlines 140 years ago, when Grant was in the White House. (ASSOCIATED PRESS)
February 13, 2012

A construction company working on a huge federally funded project sold stock to members of Congress at discounted prices.

The company, Credit Mobilier, hoped to enrich lawmakers and protect itself from damaging legislation, documents show.

The story was first reported by the Sun, a New York newspaper.

In 1872.

Last week’s news that a House committee chairman was under investigation for possible insider trading sent shock waves through the Capitol, but it was not the first time that politicians and financial trades became a volatile combination.

One of the most notorious investment scandals in congressional history burst into the headlines 140 years ago, when Ulysses S. Grant was in the White House.

In that episode, lawmakers were trading on more than inside information; they were trading on an inside track that almost assured them windfall profits.

When the Union Pacific Railroad set out to lay track across the West, it awarded the construction contract to a company of its own creation: Credit Mobilier. According to histories of the saga, Credit Mobilier milked the federally financed railroad by charging grossly inflated sums. The arrangement assured that Union Pacific insiders could profit from the undertaking whether or not the railroad became a success, accounts of the scandal say.

To protect this golden goose, insiders let several members of Congress buy shares of Credit Mobilier for much less than the stock was worth.

Think of it as a 19th-century precursor to the “friends and family” shares doled out to a favored few during the dot-com craze.

Or think of it as bribery, which is how many viewed it at the time.

“How the Credit Mobilier Bought Its Way Through Congress,” one headline of the day said, according to a book by Senate historian Donald A. Ritchie.

The man handing out the stock was Oakes Ames, who was both a railroad insider and a member of Congress from Massachusetts.

Ames “feared that the interests of the railroad might suffer by adverse legislation,” an investigative committee later reported, and Ames spelled out his objective in a letter entered into evidence: “We want more friends in this Congress.” (The investigation’s findings are cited extensively in an 1873 history posted online by the Central Pacific Railroad Photographic History Museum.)

At least one member of Congress, James Brooks of New York, “profited from a large block of shares,” according to an account posted by the clerk of the House.

Brooks and Ames were ultimately censured by the House.

But, according to the historical write-up on the House Web site, other lawmakers fumbled their golden opportunity.

“Most of the Members sold their stock quickly, nullifying the large returns they could have received.”

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