D&G Law

Ethics committee investigates Rep. Spencer Bachus for alleged insider trading during the financial crisis

Donaldson & Guin, LLC - securities fraud litigation blogIn the wake of the uproar over allegedly rampant insider trading among members of Congress,  the Office of Congressional Ethics is investigating Rep. Spencer Bachus (R-Ala.), Chairman of the powerful House Financial Services Committee, for alleged violations of SEC laws prohibiting insider trading – that is, trading stocks and options based on material, non-public inside information. Insider trading laws stem primarily from traditional laws dealing with fraud providing that trading on a company’s proprietary information constitutes a type of theft. Studies show that insider trading increases the cost of capital for companies and therefore decreases the efficiency of markets (usually artificially increasing the costs for consumers).

According to media reports, Bachus made trades coinciding with major federal government policy announcements in the midst of the financial crisis in 2008. Allegedly, Bachus used options to bet against the health of the economy following private meetings with Fed officials. Congress, apparently, has become a financial boon for the elected, and insider trading laws are necessary to increase Congress’ accountability to its constituents.

Stay tuned as this issue heats up in Congress.

For more information, please see the following articles:

http://www.washingtonpost.com/politics/rep-bachus-faces-insider-trading-investigation/2012/02/09/gIQA21Ui2Q_story.html

http://online.wsj.com/article/SB10001424052970203711104577199113513037068.html

http://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2005/BD_The_world.pdf