EP. 9 — PROFITING FROM PUBLIC SERVICE

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Weston Wamp: We hope that all of you out there listening are healthy and maintaining sanity in a really unusual time. For good reason, the coronavirus is the main focus of our legislators. So we’re switching gears a little but to talk about the need for reform that has become apparent in recent days.

I'm Weston Wamp, and this is Swamp Stories, brought to you by Issue One.

Tucker Carlson: There is no greater moral crime than betraying your country in a time of crisis.

Weston Wamp: That was Fox News host Tucker Carlson using some strong words about fellow Republican Chairman of the Senate Intelligence Committee Richard Burr.

As you've probably heard, Burr sold most of his stock portfolio just after a classified briefing about the coronavirus.

Tucker Carlson: But, he didn't warn the public, he didn't give a prime time address, he didn't go on television to sound the alarm. He didn't even disavow an op ed he'd written just 10 days before, claiming America was "better prepared than ever for Coronavirus." He didn't do any of those things.

Instead, what did he do? He dumped his shares in hotel stocks so he wouldn't lose money, and then he stayed silent. Now, maybe there's an honest explanation for what he did. If there is, he should share it with the rest of us immediately. Otherwise, he must resign from the Senate, and face prosecution for insider trading.

Weston Wamp: Now, a lot of people are coming to the same conclusion as Tucker. That Burr should resign, and even be prosecuted. But, as you might expect from the swamp, it's a whole lot more complicated than that. Burr is almost certainly not headed to prison. Even a slap on the wrist is in question.

This is Episode Nine, Profiting from Public Service.

Weston Wamp: In order to demonstrate two important elements of insider trading in Congress, let me introduce you to former Congressman, Chris Collins, who was just recently sentenced to 26 months in prison for insider trading. 

Commentator: Moments ago, New York Congressman Christopher Collins pled guilty to insider trading and to lying to the FBI in order to cover up his insider trading scheme.

Weston Wamp: Collins' story illustrates how serious insider trading is taken in the United States. It doesn't matter if you're a member of Congress or Martha Stewart, if you get caught, you go to prison. But, what is insider trading?

Well, technically speaking, the Securities and Exchange Commission says it is "the buying or selling of a security in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, non-public information about the security." So, what did Representative Collins do? Well, believe this or not, Representative Collins was on the board, as a member of Congress, he was on the board of an Australian pharmaceuticals' company. He had an enormous stake in the company, and was bound by regulations preventing insiders in companies from trading, except for specific windows of time, that's common in publicly traded companies.

So, when he got a call from the CEO of the company saying that a major drug trial had failed, as an insider, his stock was locked up. Congressman Collins ended up losing $17 million as a result of the stock bombing. But, minutes after he got the phone call from the CEO, Collins called to share the bad news with his 27 year old son, who happened to own a chunk of the stock himself. The son's shares were only worth 3% of the Congressman's, but because he wasn't a board member he was able to sell. The son avoided losses of about $500,000.

But, opportunistic sales of that size, just before a stock drop dramatically, are closely scrutinized by the SEC. That one phone call to his son, despite losses of $17 million of his own, led to this.

Commentator: By virtue of his position, Collins helped write the laws of this country, and acted as if the law didn't apply to him. No one is above the law, and it is because of our office's commitment to, and pursuit of that ideal that Collins is now a convicted felon, and no longer a member of Congress.

Weston Wamp: That's how serious insider trading is, the Feds don't mess around with this.

But, notice a few things here. Collins' position as a member of Congress was mostly irrelevant to his prison sentence. His insider information was unrelated to Congress, and for that reason, it neatly fit within the lines of what can be prosecuted. You see, in order to prosecute someone for insider trading, you've got to have proof that they had non-public information about a security.

Even though Senator Burr's stock sales were likely directly related to his classified briefing, it's near impossible to prove that he had non-public information about, say, Wyndham Hotels and Resorts, one of the stocks he sold before it tanked. In fact, as he's going to argue, it's hard to prove that the same information he acted on wasn't already publicly available, because there was plenty of financial commentary given in early February that coronavirus could lead to a major economic meltdown. Now, it obviously didn't come with the authority of a classified Senate briefing, but it makes it hard to prove in a court of law that the basis for Burr's decisions was "non-public."

In my opinion, Collins and Burr's stories, while categorically different, bring us to a couple of conclusions that my own father drew during his eight terms in Congress. As it pertains to Collins, members of Congress have no business serving on corporate boards while serving the people in Congress. You're probably shocked to find out that it's even possible. And, as it pertains to Burr, and the many other members of Congress who've been called out for the appearance of insider trading over the years, the truth is members of Congress have no business trading stock while in office. In recent days, this simple and obvious solution has been echoed by leaders from Congress to Wall Street.

Now, to walk through the profound conflicts of interest members of Congress face, and the potential solutions, I set up a conference call with two of the most knowledgeable people on the subject. You've already heard from both of them, in episode one. The first is Meredith McGehee, one of the most consistent voices for ethics and accountability in our nation's capital, and she’s the Executive Director for Issue One. The second is my dad, former Congressman Zach Wamp. A lot of things made him an unusual member of Congress over his 16 years, but one of them was his adamant stance that members of Congress shouldn't directly hold stocks at all.

We’ll be right back.

Weston Wamp: Alright, we’re back.

Let’s get right into the conversation with Merdith McGehee and my father, Zach Wamp. Meredith, how about you get us started with some history and context about insider trading in Congress.

Meredith McGehee: Well, the Ethics in Government Act of 1978 was the first time that there was a comprehensive effort to try and deal with conflicts of interest that included stock holdings, and financial relationships that many government officials had with the private sector. The irony there is the part that dealt with conflicts of interest in terms of things like divestment, or a qualified blind trust, did not apply to members of Congress, they do apply to Executive Branch officials.

We're now in a world where too many members of Congress actually have stock holdings, and get information about the marketplace that either is not well known to the public, or as I often describe it, they are able to see the signal through the noise because they are much more focused on the information that they're receiving about news that will affect their portfolio.

Weston Wamp: It seems like one of the big problems here is that our insider trading laws, which are very strict in many regards, they don't really apply to members of Congress, and the unique conflict of interesting that they have?

Meredith McGehee: Well, we've seen cases where sometimes the members of Congress do get a private briefing, so they'd have information that may not be widely available to the public. We've had this situation with Senator Burr, where it looks like he may have gotten information, that classified intelligence briefing, and then taken action on his private stock portfolio. But, it happens, actually, remarkably frequently, and there really is no excuse for this state of affairs to continue.

The conflict between what you do as a member of Congress and your private stock portfolio is a solvable problem, and something that would not only increase public confidence in the motivations behind the public officials' decisions, but actually would protect the public officials themselves from these accusations. That's the part that sometimes gets lost. They feel like if they're an elected official, they're being punished. A lot of time, these rules can actually help you just take away those questions, and not hand your opponent the hammer to hit you with.

Weston Wamp: Now, here’s my dad former Congressman Zach Wamp talking about how he got to the conclusion that members were best to just avoid the conflict all together, and not mess with stocks.

Zach Wamp: Well as you know, I ran for Congress once and lost, in 1992. Then, ran again in 1994, and won. So, through that four year process, I had a lot of deep thinking about, what if you got elected, how would it go? Frankly, Tennessee had some well known public figures that had gone into politics with relatively no net worth, and through politics, become very wealthy. A lot of people looked at them, puzzled. How can this be? That doesn't look right, and certainly shouldn't be. That just wasn't tasteful to me. Then, like my father-in-law, he told me the thing that made him the maddest about politicians, were those that would benefit financially from serving in office, and we've seen that in Tennessee.

So, I went in thinking that if my family can't get by on the Congressional salary, we need to cut back and get by, because I'm not going to make investments, or buy stocks, or trade stocks. I contributed to what's called the Thrift Savings account, but that's like anyone's IRA. You contribute from your paycheck, and then maybe your employer matches part of it. But, those investments, you have no idea what's there, or whose doing any of that. I'm not like the picture of virtue, but in this case, I made a cognizant decision, I was not going to financially benefit from my public service. For 16 years, I didn't buy or sell, or even think about investments. Others around me would.

Weston Wamp: So if members of Congress aren’t going to do the right thing on their own, what do we do?

Zach Wamp: Two things. One, I don't think you should be able to serve on any public board and serve in the United States Congress. And two, I don't think you should be able to day trade any stocks. Meaning, you're on the floor, you hear something, you're in a committee hearing, you hear something, and then you can go and buy or sell stocks, based on what you heard, that should not be allowed. I don't know exactly what we can do, but these things should be done.

Weston Wamp: Alright, so specifically, what laws or rules need to change?

Meredith McGehee: Well, that's actually fairly straight forward, in terms of a solution to this problem that's been highlighted by Senator Burr, and by the conviction of Representative Collins.

The first option is that someone going into public office can simply divest themselves of their publicly traded stocks and commodities. There are times, in the Executive Branch, where that in fact happens, in terms of agreements with the Office of Government Ethics. If you're going to be a high ranking official in the Energy Department, they come up with a plan for you to divest your energy stocks.

Another way to do this is something that's already outlined in Senate rules, and in House rules, and that's to set up a qualified blind trust. In that case, unless you have your assets in a diversified mutual fund, which is one possibility, you can then turn your assets, your stock assets, into a qualified blind trust. There are rules there are already spelled out, about what makes it a qualified blind trust. It doesn't mean you hand it to your husband, to your campaign manager, to your family friend, you actually hand those assets over to an independent person and they manage them. That is a very tried and true method, of trying to deal with conflicts of interest. Congressional rules could be put in place that require those two options.

Now, the last thing is something that Zach brought up, that I think, at a minimum, every member of Congress should do, and that is simply to make a personal and public commitment not to engage in any kind of trading while they're in office. It's really a fairly easy thing to employ. I've heard someone say they can't believe that Congress doesn't already abide by these rules, this could be done at any moment when the Congress could come back, and decide to enact these rules for themselves.

Weston Wamp: Meredith went on to point out that this is not about a member of Congress who might own a peanut farm back home, we're talking about avoiding major conflicts of interest by trading stocks, while you're in Congress and have access to information that other people don't. We're not talking about injuring a member's personal financial holdings. So, what's even the controversy, and what's the hold up for making this happen?

Zach Wamp: Well, I'm not sure that there is ... The old saying you've heard me say, that neither party has an exclusive on integrity, I think that applies here because I don't think either party has some kind of a worse record on this than the other. To me, it's almost like rank and file members might think one way, and very wealthy members might think another way. The irony there is I never saw Richard Burr, for instance, as a wealthy member. I mean, he was a rank and file kind of a guy when I went into Congress with him, in 1995, so that's a little ironic. This is not one of the super wealthy members of Congress that was involved in this. Some of them have actually had their hands slapped, for day trading on the floor of the House or the Senate in the past.

But I think regular people, they just don't even get this. They think, as Meredith said, "You're kidding me. You mean members of Congress can actually actively trade stocks, legally, while they're serving?" There's no question members of Congress have access to information that the public does not have, therefore if you want transparency, if you want open hands and a clean heart, members of Congress, while they're serving, should not be able to actively trade stock.

Meredith McGehee: Well, I think it's incredibly important to note that ethics does not have a party. This is more about the integrity of the individual that is elected than any partisan label that you can put on any member of Congress, or a Senator.

But why this is particularly relevant for Congress is that many members of Congress, and particularly of the Senate, are actually quite wealthy, so they actually have more conflicts. The problem here is that when you have this kind of wealth in your public officials, you need to have some belts and suspenders to ensure that the public interest is coming first. It doesn't matter if you're Republican, or Democrat, it doesn't matter if you're rich or poor, on ethics issues it's about how you view public service. We know that it's going to take a bipartisan effort to get these kinds of fixes put in.

But, after this has happened, at a time where public confidence in government is absolutely critical, it's really important for the public to feel like their public officials have a notion of public service. When you get the news like this, that a Chris Collins seemed to be more interested in protecting his wealth, or his family's wealth than the public interest, and used insider information, or even a Duncan Hunter, who was using campaign money to fly his pet rabbit across the country, these matter just because at times like these, this is when we have to have faith in our democratic republic. That the people that are representing us, in Washington and in our government around the country, really have our best interests in mind, and are not, first and foremost, worried about their own bottom line.

Zach Wamp: Let me just add to that, that at time like with the coronavirus, if the Congress is going to be called on to take dramatic action, and they expect the people to trust them, we've got to have a cleaner system so that, as you said Meredith, confidence can be restored to where they actually believe that members of Congress are acting in good faith on their behalf, and not in their own behalf. Which this really makes it look like people in Washington are only interested in their best interest, and not the people, and that confidence factor during these critical times is really important to civil government.

Weston Wamp: Now, you may remember hearing just soon after the allegations landed, that Richard Burr might have sold stocks specifically because he'd been a part of classified intelligence briefings in the Senate about the coronavirus, giving him insights that the rest of the country wouldn't have had. Well, soon after that, he came forward and demanded a full investigation, from the Senate Ethics Committee. My hunch at the moment was there was probably a lot of people sitting at home thinking, "Well that's the right thing for him to do. He may very well be innocent, if he's asking for a full investigation by the Senate Ethics Committee, that sounds like an upstanding committee." But in reality, that doesn’t mean a whole lot because in the last decade the Senate Ethics Committee has rarely, if ever, taken meaningful action beyond a slap on the wrist.

As we were wrapping up, I asked Meredith to explain what the STOCK Act is. It's a bill that was signed into law in 2012, that's been referenced quite a bit in recent days.

Meredith McGehee: It really does just simply focus in on making sure that members of Congress are covered by the same insider information trading laws that cover everyone else. And, it has a provision that requires senators, like Senator Burr, to report their trades. There is a form that they have to fill out, and is publicly filed.

Weston Wamp: Now, this takes us back to why I started the episode with the example of Chris Collins, and not Richard Burr. He was a member of Congress, and he committed insider trading. Now, he's headed to prison. But, that's very different than how things will work for Richard Burr, and that's because the definition of insider trading is just hard to stick to a member of Congress based on briefings they get, so the solution has to be simpler. It has to be to keep stocks and members of Congress separate.

Meredith McGehee: Well, we've actually drafted that rule, that the Congress could apply. It doesn't even need to be signed by the President, because each body has the ability to set these kinds of ethics rules. That bill is very short, and we're hoping here, that when the House and Senate come back, and we get through this crisis, that there'll be a new understanding or recognition of why building public confidence should be a priority, and that this is something that we could get members of both the House and Senate to take a close look at.

Weston Wamp: As we're learning together, bit by bit, the swamp is real, but it doesn't have to be this way. In this case, much like the hamster wheel of constant fundraising, the incentives are ultimately aligned between citizen and legislator. Members of Congress don't want to deal with allegations like the ones that Richard Burr may never escape. And, we don't want them thinking about how they can profit from their work on our behalf.

As you've heard, the solutions are simple. Blind trusts, and divestitures like are used in different departments across the federal government, would allow members of Congress to take advantage of growth in the markets, just like the rest of us, but without breaching trust. It needs to happen, and it needs to happen now.

On our next episode, we're going to talk to a former Republican National Committee chairman, and a Democratic Secretary of State, about the biggest challenge looming for the 2020 elections. Coronavirus has brought many aspects of American life to a halt, but we can’t let the same thing happen to our elections in November. We’ve got to act now so that the show can go on.

Thanks for listening to Swamp Stories, presented by Issue One, the country's leading political reform organization that unites Republicans, Democrats, and independents to fix our broken political system. Please subscribe to the podcast and share it with your friends. Even better? Rate and review it on iTunes to help us reach more listeners. You can find out more at swampstories.org. I'm your host, Weston Wamp. A special thank you to executive producer, Ethan Rome, producers Evan Ottenfeld and Sydney Richards, and editor Parker Tant from ParkerPodcasting.com. Swamp Stories was recorded in Tennessee, edited in Texas, and can be found wherever you listen to podcasts.

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