Congress:
Trading stock on inside information?

The following is a script of
"Insiders" which aired on Nov. 13, 2011. Steve Kroft is correspondent, Ira Rosen
and Gabrielle Schonder, producers.

The next national election is now less
than a year away and congressmen and senators are expending much of their time
and their energy raising the millions of dollars in campaign funds they'll need
just to hold onto a job that pays $174,000 a year.

Few of them are doing
it for the salary and all of them will say they are doing it to serve the
public. But there are other benefits: Power, prestige, and the opportunity to
become a Washington insider with access to information and connections that no
one else has, in an environment of privilege where rules that govern the rest of
the country, don't always apply to them.

Questioning Pelosi: Steve Kroft
heads to D.C.
When Nancy Pelosi, John Boehner, and other lawmakers wouldn't
answer Steve Kroft's questions, he headed to Washington to get some answers
about their stock trades.

Most former congressmen and senators manage to
leave Washington – if they ever leave Washington – with more money in their
pockets than they had when they arrived, and as you are about to see, the
biggest challenge is often avoiding temptation.

Peter Schweizer: This is
a venture opportunity. This is an opportunity to leverage your position in
public service and use that position to enrich yourself, your friends, and your
family.

Peter Schweizer is a fellow at the Hoover Institution, a
conservative think tank at Stanford University. A year ago he began working on a
book about soft corruption in Washington with a team of eight student
researchers, who reviewed financial disclosure records. It became a jumping off
point for our own story, and we have independently verified the material we've
used.

Schweizer says he wanted to know why some congressmen and senators
managed to accumulate significant wealth beyond their salaries, and proved
particularly adept at buying and selling stocks.

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.

Schweizer: We know that during the healthcare debate people were
trading healthcare stocks. We know that during the financial crisis of 2008 they
were getting out of the market before the rest of America really knew what was
going on.

In mid September 2008 with the Dow Jones Industrial average
still above ten thousand, Treasury Secretary Hank Paulson and Federal Reserve
Chairman Ben Bernanke were holding closed door briefings with congressional
leaders, and privately warning them that a global financial meltdown could occur
within a few days. One of those attending was Alabama Representative Spencer
Bachus, then the ranking Republican member on the House Financial Services
Committee and now its chairman.

Schweizer: These meetings were so
sensitive– that they would actually confiscate cell phones and Blackberries
going into those meetings. What we know is that those meetings were held one day
and literally the next day Congressman Bachus would engage in buying stock
options based on apocalyptic briefings he had the day before from the Fed
chairman and treasury secretary. I mean, talk about a stock tip.

While
Congressman Bachus was publicly trying to keep the economy from cratering, he
was privately betting that it would, buying option funds that would go up in
value if the market went down. He would make a variety of trades and profited at
a time when most Americans were losing their shirts.

Congressman Bachus
declined to talk to us, so we went to his office and ran into his Press
Secretary Tim Johnson.

(this is just page 1 of 5, folks)