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It’s sad enough that Republican New York Congressman Chris Collins was charged on Wednesday with trading stock on inside information. The sadder part is that up to just a few years ago this sort of self-serving behavior was allowed.
Public office paid off very nicely when elected officials were able to learn, or just glean, information that would make a stock go up or down and then pad their bank accounts by trading on that information.
One study found that lawmakers were regularly able to get up to a 25 percent annual rate of return on their investments, which either means they were better than the greatest Wall Street stock picker who ever lived — or they were cheating.
The too-good-to-be-true rate of return was uncovered by an investigation of congressional stock trading in 2004 by Professor Alan J. Ziobrowski of Georgia State University and others.
The investigation, presented in the Journal of Financial and Quantitative Analysis of the University of Washington, found that stocks purchased by senators acted normally in the year before the lawmakers bought them — but then gained an average of 25 percent in the year after they were acquired.
“These results suggest that Senators knew appropriate times to both buy and sell their common stocks,” the Ziobrowski report concluded.
That finding came eight years before such actions were made illegal.
Insider trading by members of Congress was supposed to have stopped in 2012. Imagine how much money was made in that time.
Collins was indicted by federal prosecutors Wednesday on fraud charges in connection with an alleged insider-trading scheme involving investments he made in an Australian biotech firm.
In this case, prosecutors say that Collins in 2017 passed information on Innate Immunotherapeutics drugs to his son and another co-conspirator. The three avoided $768,000 in losses when a drug test didn’t live up to expectations and the company’s stock plummeted.
Everything Collins did, according to a good-government group, would have been OK until 2012, when President Obama signed the Stop Trading on Congressional Knowledge (STOCK) Act.
Congress soon undid part of that law, but there was enough of the new regulations in place to bag Collins, who is 68 years old and represents parts of upstate New York.
Ironically, 2012 was the year that Collins was first elected to Congress. He was re-elected in 2016, but his indictment puts his solidly Republican seat in some jeopardy if he is convicted and kicked out of office.
Collins was undone by sleuthing by the good-government group known as Public Citizen, which was tracking the stock buying of many members of Congress. In a letter to regulators on Jan. 5, 2017, Public Citizen wrote, “we request an investigation into the stock market trading activities of Reps. Tom Price (R.Ga.) and Chris Collins (R. N.Y.) for possible violations of insider trading and conflicts of interest laws and regulations.”
The action against Collins and the others was brought by the Justice Department, not the Securities and Exchange Commission.
I spoke on Wednesday with Craig Holman, a lobbyist for Public Citizen and one of two people who signed the letter to the SEC that detailed Price’s and Collins’ alleged actions.
Holman said he doesn’t know what is happening to the complaint against Price, who left Congress to join the Trump administration. Price has since quit, under pressure, as President Trump’s secretary of Health and Human Services.
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