Peter Schweizer - Throw Them All Out

The ancient Roman symbol of justice, the goddess Justitia, was often portrayed carrying scales and a sword and wearing a blindfold. These objects are meant to symbolize fairness, justice, and impartiality.

The executive branch of the federal government follows similar ethics rules and laws. If you work for a government agency like the Federal Communications Commission "you may not have a financial interest in any company engaged in the business of radio or wire communication." 3

Don't even consider actively trading stocks based on executive-branch knowledge. The Securities and Exchange Commission recently launched investigations into two of its own employees who may have traded stock based on inside information. One of the employees, an SEC attorney, sold all of her shares in a large health care company two months before an investigation of that firm was opened. She also sold all her shares in an oil company two days before a colleague began an inquiry into that firm. Another attorney allegedly "traded in the stock of a large financial services company" while the SEC had an ongoing investigation into the firm. 4

Conflict-of-interest laws are not limited to the federal government. School superintendents across the country are expected to make financial decisions that are to the benefit of their districts—not themselves. If they fail to do so, they can be charged with violating state laws. This applies even if they receive only an indirect financial benefit from their actions. Award a school contract to a relative's company and you will get in trouble. 5

Even nonprofit organizations are required by the IRS to comply with conflict-of-interest laws. Failure to do so is a punishable offense. And certainly in the private, for-profit sector every large corporation has rules on conflicts of interest. If you use corporate resources for your personal benefit it is generally considered fraud, and you may find yourself in legal trouble. If you don't believe me, just ask former Tyco CEO Dennis Kozlowski. He was convicted in 2005 of accepting millions of dollars in unauthorized bonuses, among other improprieties, and he is serving a jail sentence as a result.

If you work for a major accounting firm, you are asked not to own stock in the companies you are auditing. An accountant must swear a professional oath to "hold himself or herself free from any influence, interest, or relationship in respect to his or her client's affairs, which impairs his or her professional judgment or objectivity." 6

Corporate executives and officers are expected to reveal conflicts of interest and recuse themselves from decisionmaking that might personally benefit them. They are required by law to report to the SEC any transactions involving corporate stock within forty-eight hours of the transaction.

Many companies have codes of conduct for all employees that prohibit owning shares in a competing firm or supplier, or working for a competing firm or supplier. The conflict of interest is obvious.

If you work for a reputable news organization, chances are that conflict-of-interest rules quite clearly guide your portfolio. The New York Times has a strict policy on stock ownership. "No staff member may own stock or have any other financial interest, including a board membership, in a company, enterprise or industry about which she or he regularly furnishes, prepares or supervises coverage. This restriction extends beyond the business beat. A book editor may not invest in a publishing house, a health writer in a pharmaceutical company or a Pentagon reporter in a mutual fund specializing in defense stocks." The fear is, of course, that reporters might slant their reporting because of their personal investments. 7

These kinds of corporate policies are developed to comply with federal and state laws. The Securities and Exchange Commission has actually gone after reporters who trade on their knowledge for personal gain. In the 1980s, Wall Street Journal reporter Foster Winans was the subject of a probe for taking money in exchange for stock tips. He was passing information in not-yet-published columns to a broker who traded on the information. Winans reportedly made less than $30,000 on the scheme. Nonetheless, the SEC said the reporter "violated [the law] by reason of his failure to disclose to readers of his column his financial interest in the securities about which he wrote and his intent to profit from the rise or fall of the market in such securities following the publication of the column in the [ Wall Street ] Journal. " Winans spent eight months in jail. 8

There has been a proliferation of ethics rules in the decades since Watergate, beginning with the Ethics in Government Act of 1978. At the same time, Congress, the SEC, and the Supreme Court have strengthened insider trading laws. So it is perplexing that, despite all the ink spilled to address ethics in government and insider trading, members of Congress and their staffs have floated above the fray. Politicians understand both the specific issue of insider trading and the larger issue of conflict of interest—when it suits their purposes. When U.S. District Judge Martin Feldman ruled to overturn the Obama administration's six-month moratorium on deep-water drilling in the Gulf of Mexico, six senators asked for an investigation. Judge Feldman owned stock in Exxon at the time. 9In another instance, senators went after medical researchers who were given government grants for pharmaceutical research while also receiving research money from drug companies. The senators questioned the ability of the researchers to be impartial. Of course, these senators said nothing about their colleagues (or themselves) trading these very same stocks while writing energy or health care policy. 10

When it comes to lawmakers applying the conflict-of-interest standard to themselves, everything changes. Congress writes the laws and polices itself. Or doesn't, as the case may be.

The U.S. Constitution gives authority to the House and Senate individually to "determine the rules of its proceedings, punish its members for disorderly behavior, and, with the concurrence of two thirds, expel a member." 11Congress has taken this paragraph and run with it. A 2011 ethics report prepared for Congress begins by boldly stating that the House and Senate each have "sole authority to establish rules ... punish and expel Members." 12

They have legislated themselves as untouchable as a political class.

Members of Congress and their staffs are effectively considered exempt from many of the laws they define for the rest of us, and from executive-branch regulation. We ask our legislators to share power with the executive branch, and that means we do not let the latter rule over the former. Thus the Securities and Exchange Commission has a Division of Enforcement to go after private-sector insider trading (among other crimes), but the SEC cannot touch members of Congress. A former senior counsel with the SEC's Enforcement Division says of congressional insider trading, "It may be unethical, and it may be unseemly, but it's not illegal." 13The four- and five-hundred-page House and Senate ethics manuals are silent on the matter of insider trading. The idea of using market-moving, inside-government information and trading stocks based on that information is simply not mentioned. (The senate manual does have an entire chapter on the use of the mail and Senate stationery for personal purposes, however.) 14

The Senate pretends to take conflicts of interest seriously. When Senator Tom Coburn of Oklahoma was elected to the Senate in 2004, he asked to be able to continue to serve as a family physician, part time, on the side. The Senate Ethics Committee ruled that this would pose a conflict of interest and told him to shut his office down. God forbid we should have a senator making a little money as a doctor. 15