In the Spring of 2010, a bespectacled, middle-aged policy wonk named Peter Schweizer fired up his laptop and began a months-long odyssey into a forbidding maze of public databases, hunting for the financial secrets of Washington’s most powerful politicians. Schweizer had been struck by the fact that members of Congress are free to buy and sell stocks in companies whose fate can be profoundly influenced, or even determined, by Washington policy, and he wondered, do these ultimate insiders act on what they know? Yes, Schweizer found, they certainly seem to. Schweizer’s research revealed that some of Congress’s most prominent members are in a position to routinely engage in what amounts to a legal form of insider trading, profiting from investment activity that, he says, “would send the rest of us to prison.”
Schweizer, who is 47, lives in Tallahassee with his wife and children (“New York or D.C. would be too distracting—I’d never get any writing done”) and commutes regularly to Stanford, where he is the William J. Casey research fellow at the Hoover Institution. His circle of friends includes some bare-knuckle combatants in the partisan frays (such as conservative media impresario Andrew Breitbart), but Schweizer himself comes across more as a bookish researcher than the right-wing hit man liberal critics see. Indeed, he sounds somewhat surprised, if gratified, to have attracted attention with his findings. “To me, it’s troubling that a fellow at Stanford who lives in Florida had to dig this up.”
It was in his Tallahassee office that Schweizer began what he thought was a promising research project: combing through congressional financial-disclosure records dating back to 2000 to see what kinds of investments legislators were making. He quickly learned that Capitol Hill has quite a few market players. He narrowed his search to a dozen or so members—the leaders of both houses, as well as members of key committees—and focused on trades that coincided with big policy initiatives of the sort that could move markets.
Photos: The Get-Rich Congress
Peter Schweizer., Illustration by Matt Dorfman for Newsweek
While examining trades made around the time of the 2003 Medicare overhaul, Schweizer experienced what he calls his “Holy crap!” moment. The legislation, which created a new prescription-drug entitlement, promised to be a huge boon to the pharmaceutical industry—and to savvy investors in the Capitol. Among those with special insight on the issue was Massachusetts Sen. John Kerry, chairman of the health subcommittee of the Senate’s powerful Finance Committee. Kerry is one of the wealthiest members of the Senate and heavily invested in the stock market. As the final version of the drug program neared approval—one that didn’t include limits on the price of drugs—brokers for Kerry and his wife were busy trading in Big Pharma. Schweizer found that they completed 111 stock transactions of pharmaceutical companies in 2003, 103 of which were buys.
“They were all great picks,” Schweizer notes. The Kerrys’ capital gains on the transactions were at least $500,000, and as high as $2 million (such information is necessarily imprecise, as the disclosure rules allow members to report their gains in wide ranges). It was instructive to Schweizer that Kerry didn’t try to shape legislation to benefit his portfolio; the apparent key to success was the shaping of trades that anticipated the effect of government policy.
“Senator Kerry does not buy, sell, or trade stocks,” says Jodi Seth, Kerry’s spokeswoman. She notes that Kerry’s holdings are in family trusts and managed by independent trustees with whom he does not communicate. Further, Seth says, Kerry is not a beneficiary of Teresa Heinz Kerry’s trusts, which were established before they were married. In any case, Seth adds, Kerry was running for president when the Medicare bill was passed, and he missed much of the debate.
“It’s not that I think John Kerry is calling up his broker, on health care, and saying, ‘Buy this company, sell that company,’?” Schweizer says. “The issue is one of a double standard.” He notes that if the executive of a health-care company were in discussions with the White House over pending legislation that would affect his industry, and then made a series of unusual stock transactions related to the industry, the SEC might well open an insider-trading investigation. “The only group in America that we exempt is politicians, who are probably the last people about whom we should be saying, ‘Oh, we’ll take their word for it,’?” he says. “That’s what’s so amazing to me.”
The Kerry trustees’ impeccable timing in drug company trades was evident again in 2007, when the federal government was weighing whether to discontinue Medicare reimbursement for certain anemia drugs used by cancer patients. When the government announced that it would limit reimbursements, shares in Amgen, one of the drugmakers at issue, dropped 15 percent. Kerry’s wife happened to be an Amgen stockholder but avoided losses; her shares, valued at between $500,000 and $1 million, were unloaded more than a week before the government’s announcement.
Schweizer, an unabashed conservative and a foreign-policy adviser to Sarah Palin, has written books about Reagan and the Bushes as well as polemics about the ruinous ways of liberalism. But this latest book is not an overtly partisan work; as the title, Throw Them All Out, suggests, it should discomfit conservatives and liberals, Democrats and Republicans, alike.
Indeed, Schweizer reports that, during the debate over Obama’s health-care reform package, John Boehner, then the House minority leader, was investing ‘tens of thousands of dollars’ in health-insurance-company stocks, which made sizable gains when the proposed public option in the reform deal was killed. (‘There are laws and there are rules of the House, and they should be followed,’ a Boehner spokesperson tells Newsweek. ‘The speaker does not make those trades himself. He has a financial adviser in Ohio.’)
One of the more dramatic episodes in the book recounts the trading activity of Republican Rep. Spencer Bachus, of Alabama, who, as the ranking member of the House Financial Services Committee, was privy to sensitive high-level meetings during the 2008 financial crisis and proceeded to make a series of profitable stock-option trades.
Bachus was known in the House as a guy who liked to play the market, and in fact he was pretty good at it; one year, he reported a capital gain in excess of $150,000 from his trading activities. More striking is that Bachus boldly carried forth his trading in the teeth of the impending financial collapse, the nightmarish dimensions of which he had learned about first-hand in confidential briefings from Treasury Secretary Henry Paulson and Fed chairman Ben Bernanke. On Sept. 19, 2008, after attending two such briefings, Bachus bought options in an index fund (ProShares UltraShort QQQ) that effectively amounted to a bet that the market would fall. That is indeed what happened, and, on Sept. 23, Bachus sold his ‘short’ options, purchased for $7,846, for more than $13,000—nearly doubling his investment in four days.
re: #1 SidewaysQuark
And he will again. World Nut Daily has run out of steam on the birther issue. This is a godsend to them.
Taking the issue seriously, I do have some reservations regarding Kerry, but he has done yeoman's work shuttling back and forth to Pakistan to smooth things out after a series of drone strikes or anti terrorist raids.
Frank says: