The Office of Congressional Ethics has found no evidence of violations of insider-trading rules involving the chairman of the House Financial Services Committee and will recommend that the case against him be closed.
Rep. Spencer Bachus (R-Ala.), one of the most powerful politicians on Capitol Hill, has been a frequent trader, purchasing stock options while supervising the nation’s banking and financial services industries.
The Office of Congressional Ethics, an independent investigative agency, opened its probe late last year after raising questions about trades on Bachus’s financial disclosure forms. OCE investigators notified Bachus that he was under investigation because they had found probable cause to believe insider-trading violations might have taken place.
But after reviewing the results of the investigation, the independent board that oversees the office voted Friday to recommend that the House Ethics Committee dismiss the case, according to people familiar with the case. The board notified Bachus of its decision Monday.
“The OCE’s unanimous dismissal of these false allegations is a welcome conclusion to a destructive and disruptive media-generated assault,” Bachus said in a statement Monday. “It has been a long, painful, and frustrating experience to have a reputation built over many years sullied by untrue accusations.”
Bachus thanked former Securities and Exchange Commission chairmen Harvey Pitt and Roderick Hills and former federal judge and SEC official Stanley Sporkin “for reviewing the allegations, determining they were false and meritless, and publicly coming to my defense.”
The congressman also said he was gratified by the continuing support of his constituents during the investigation.
“Finally, I want to thank the OCE staff for their professionalism and the OCE board for unanimously coming to the right conclusion,” Bachus said. “While their review and report should never have been necessary, I am pleased that they have helped clear my name.”
The case against Bachus was the first of its kind involving a member of Congress. It came at a time of intense public and media scrutiny of congressional ethics, with the House and Senate passing legislation this year to tighten rules against insider trading by lawmakers. President Obama has signed the measure into law.
In recent years, Bachus has made numerous trades, some of them coinciding with major policy announcements by the federal government and industries under his congressional oversight, according to a review of his financial disclosure forms by The Washington Post.
To prove insider trading, prosecutors must demonstrate that the subjects of their investigations had access to material, non-public information and that they intended to act upon that information to enrich themselves or others. Members of Congress can trade on information they learn in their legislative roles as long as it does not come from private, closed-door briefings and involve confidential facts that can affect the fortunes of companies.
On Sept. 18, 2008, at the height of the economic meltdown, Bachus participated in a closed-door briefing with then-Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke. At the time, he was the highest-ranking Republican member of the Financial Services Committee. According to a book Paulson would later write, the topic of the meeting was the high likelihood of decline across the entire economy if drastic steps were not taken.
The next day, Sept. 19, Bachus traded “short” options, betting on a broad decline in the nation’s financial markets, and collected a profit of $5,715.
The short options were reported in a book by Peter Schweizer, “Throw Them All Out,” which was the basis of a “60 Minutes” story that aired Nov. 13. Bachus criticized the reports, calling allegations that he engaged in insider trading “absolutely false.”
“The idea that I or anyone else needed this meeting to know our financial markets were in trouble is just laughable,” he wrote in the letter. “You would have to be living under a rock not to know by September 18, 2008 that the economy was in bad shape.”
Bachus said he gave up his “hobby” of trading when he became chairman of the Financial Services Committee after the Republican takeover of the House in November 2010.