The Glade 4.0

Congress Members Took Part in Insider Trading: Abramoff
Published: Friday, 11 Nov 2011 | 10:16 AM ET By: Eamon Javers
CNBC Washington, DC Correspondent

As many as a dozen members of Congress and their aides took part in insider trading based on foreknowledge of market moving information on Capitol Hill, disgraced Washington lobbyist Jack Abramoff told CNBC in an interview.

Abramoff, who was once one of the wealthiest and most powerful lobbyists in Washington before a corruption scandal sent him to federal prison for more than three years, said that many of those members of Congress bragged to him about their stock trading prowess while dining at the exclusive restaurant he owned on Pennsylvania Avenue.

But Abramoff, whose black trench coat and fedora became one of the most notorious images in recent Washington history after his fall from grace, said he didn't play the stock market himself — he considered it an inherently unfair "casino" in which the house had far more information than the players. Abramoff made most of his fortune representing — and, as it turned out, duping — Native American tribes rich with cash from casino operations.

The former lobbyist said the amounts members of Congress earned trading off their inside knowledge ranged from as little as $2,000 to, as much as "several hundred thousand dollars," that was claimed by one member of Congress.

Abramoff declined to name the members of Congress.

"It was more, 'Look at me, I'm a real great stock trader,'" Abramoff told CNBC of the congressional bragging. "All of a sudden somebody from a background maybe in law, maybe in some other unrelated business area, all of a sudden is picking winners and losers in the market."

"I was making far more money than they were," Abramoff recalled. "So I wasn't as impressed as perhaps they thought I'd be."

At the time, Abramoff, who was involved in an extensive corruption ring, didn't think much of it. But after years in prison to reflect on the culture of corruption in Washington, Abramoff says he thinks trading based on inside Congressional knowledge is wrong.

"These people should not be using whatever information they gain as public servants to benefit themselves, any more than they should be taking bribes," he said.

Generally, however, legal analysts say that Wall Street insider trading laws do not apply to Congress. As an open and public institution, the legal assumption has long been that any member of the public can have access to information about how Congress works. In practice, though, that's simply not true, as powerful members of Congress come into contact daily with market-moving tidbits. That gap between the law and the reality has made Capitol Hill a virtual free-fire zone for insider trading. Over the years, academic studies have found that members of the House of Representatives beat the market by as much as six percent per year and members of the Senate do even better than that.

And Abramoff says everybody on the inside knew it. "I think it was pretty widely known and it is pretty widely known that it is going on," he said.

Abramoff has been making the rounds, speaking with the media this week, to promote his new book, "Capitol Punishment: The Hard Truth About Washington Corruption From America's Most Notorious Lobbyist," which went on sale Monday.

Abramoff said that the most valuable type of information for Congressional insider trading is held by congressional investigators who pry deeply into corporate goings on. A particularly easy target is advance knowledge of the announcement of an investigative hearing into a company.

"Hearings under almost every circumstance are going to have a bad impact on a company," Abramoff said. "And so some staffers I've seen in the past talking about the fact that, 'Oh, I'm gonna go out and short that company.'"

But the man who spread millions around the nation's capital said he didn't like to invest his own money in the stock market. "I'd never really played the stock market," he said. "I viewed it as a big gamble because of the fact you don't have all the information you need. The casino has all the information, and you don't."

19 Yet she became more and more promiscuous as she recalled the days of her youth, when she was a prostitute in Egypt. 20 There she lusted after her lovers, whose genitals were like those of donkeys and whose emission was like that of horses.

Abramoff is claiming that because members of Congress bragged to him about doing well at stock trading, they must have been trading on "insider knowledge"?

The basic premise of the article, that Congressmen might have an inherently unfair advantage in trading is certainly true. However, the fact is that we're talking about an absolute scumbag making the claim. This strikes me as a large helping of Ambramoff trying to rebuild himself and using claims of knowing who was trading under the table to do himself some favors, as well.

19 Yet she became more and more promiscuous as she recalled the days of her youth, when she was a prostitute in Egypt. 20 There she lusted after her lovers, whose genitals were like those of donkeys and whose emission was like that of horses.

Abramoff can make all the allegations he wants, but as far as I'm concerned he's a convicted scumbag. Everything he says is going to ahve to be proven beyond a reasonable doubt without a word of his testimony being used to get to that point for me to be satisfied. (Not that I don't think this can be done.)

19 Yet she became more and more promiscuous as she recalled the days of her youth, when she was a prostitute in Egypt. 20 There she lusted after her lovers, whose genitals were like those of donkeys and whose emission was like that of horses.

Facism is not a school of thought, it is a racial slur.

Schweizer: There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it's not illegal, but I think it's highly unethical, I think it's highly offensive, and wrong.

Steve Kroft: What do you mean honest graft?

Schweizer: For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply.

Kroft: So congressman get a pass on insider trading?

Schweizer: They do. The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is-- is considering not reimbursing for a certain drug that's market moving information. And if you can trade stock on-- off of that information and do so legally, that's a great profit making opportunity. And that sort of behavior goes on.

Kroft: Why does Congress get a pass on this?

Schweizer: It's really the way the rules have been defined. And the people who make the rules are the political class in Washington. And they've conveniently written them in such a way that they don't apply to themselves.

The buying and selling of stock by corporate insiders who have access to non-public information that could affect the stock price can be a criminal offense, just ask hedge fund manager Raj Rajaratnam who recently got 11 years in prison for doing it. But, congressional lawmakers have no corporate responsibilities and have long been considered exempt from insider trading laws, even though they have daily access to non-public information and plenty of opportunities to trade on it.

Imagine buying stock in a company and then being in position to help change the law to enhance its value. Welcome to the U.S. Congress. A fuel subsidy proposal, if passed, would enrich Representative Nancy Pelosi because of her stake in a “green” firm that stands to benefit. It’s the latest sign that congressional trading rules are in desperate need of an overhaul.