Alabama Congressman Spencer Bachus (R), who represents north Jefferson County, is under fire after he was featured in a story on the CBS News program “60 Minutes.”
The program highlighted stock option trades made by Bachus in 2008, which the report alleges took place after Bachus was briefed by officials from the Federal Reserve and the Treasury Department, who told him about the coming downturn in the economy. Specifically, Bachus was briefed by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson
Bachus is alleged to have profited by trades in call options on a leveraged exchange-traded fund which inversely tracks the Nasdaq 100 index. Specifically, the ProShares Ultra-Short QQQ Fund attempts to increase in value twice as much the Nasdaq 100 decreases. In other words, if the index goes down 2 percent in one day, the fund would go up 4 percent.
Call options on that fund — contracts in which an investor would sell shares in a company or fund at a set “strike price” on or before a certain date to another investor — are derivatives which are even more volatile, and may go up or down in proportion several times more than the stock or index to which they are linked.
Schweizer’s book states that Bachus bought options on the fund right after his meeting with Bernanke and Paulson, then closed his position and doubled his investment a few days later. He made other options trades between July and November of 2008, most on index-based funds, and made profits on most. He did lose $6,000 on one trade.
Bachus was one of three House members singled out by reporter Steve Kroft, who based much of his work on the book “Throw Them All Out” by Peter Schweizer. House Speaker John Boehner (R-Ohio) and Minority Leader Nancy Pelosi (R-Calif.), who was speaker before the Democrats lost their majority in the 2010 elections, were both alleged to have profited from inside information they received through their positions. The meeting with Bernanke and Paulson on Sept. 18, 2008 was held in then-Speaker Pelosi’s office; Boehner was minority leader at the time, and Bachus was the ranking minority member of the Financial Services Committee.
Schweizer’s book states that Bachus had a net profit of more than $28,000 from all his option trades.
Bachus, who is the chairman of the House Financial Services Committee, is facing criticism from both sides of the political spectrum. Predictably, he has been taking to task by the liberal elements of the Internet blogosphere such as Slate.com, with many calling for Bachus to resign his committee chairmanship.
But similar calls are also coming from the right wing, specifically Internet impressario Andrew Breitbart, who called for Bachus to step down from Congress. Breitbart is best known for backing the undercover video which focused on suspect voter-registration efforts by the liberal group ACORN which led to that group’s downfall. He said that Bachus should “go to Joe Paterno-ville,” referring to the recently-fired head coach of the Penn State football team, forced out after revelations he had done little about sexual-assault allegations involving his defensive coordinator, Jerry Sandusky, and teenage boys who were involved with a Sandusky-founded charity.
Through his spokesman, Bachus claimed to have done nothing wrong because his trades were based on broad-based market indices, not on specific companies in the financial services sector over which his committee has oversight. Moreover, House ethics rules do not bar members from trading on inside information.
Bachus was not immediately available for comment.