Legislation cracking down on insider trading by members of Congress hasn’t landed on the floor of the U.S. House yet, but it’s already become a political football in Congressional District 10.
That’s because the Democrat who wants that seat, international affairs consultant Dan Grant, is alleging that incumbent Rep. Michael McCaul, R-Austin, is benefiting from lax ethics rules for U.S. representatives and senators — rules the pending U.S. STOCK Act would help strengthen.
McCaul says his opponent is flat wrong.
At the heart of the dispute is the McCaul family’s private interest in the company pushing the Keystone XL Pipeline — and the congressman’s public advocacy for the project as a member of Congress. McCaul, believed to be the second-wealthiest member of Congress, reported that his family owned $115,000 to $300,000 in TransCanada Corporation stock as of 2010, the latest year available, according to ethics filings compiled online by the Center for Responsive Politics.
McCaul’s personal financial statement shows TransCanada stock purchases of up to $65,000 were made on Dec. 21, 2010, online disclosures show. A day later, on Dec. 22, McCaul joined 38 fellow House members in writing a letter to Secretary of State Hillary Rodham Clinton, urging her to grant “expeditious approval” of the pipeline.
Grant alleges that McCaul stood to personally benefit from his knowledge of the advocacy letter, and says he should be investigated by the House Ethics Committee, on which McCaul serves.
“That is the definition of insider trading, and even if it’s not illegal for congressmen, it is flatly wrong to do something like this,” Grant said. “It’s no wonder that people are so upset with Congress right now because of behavior just like this.”
McCaul spokesman Mike Rosen said the complaint is off-base. He said McCaul has no involvement in the trading of the family's stock portfolio, which belongs to his wife, Linda, and their children. Linda McCaul is the daughter of Clear Channel Communications founder Lowry Mays.
“Congressman McCaul does not, and has not during his tenure in Congress, personally traded or instructed anyone to trade any security on his behalf, and he is legally precluded from having any involvement or knowledge of specific investment decisions made with regard to securities listed as his wife's separate property which are disclosed in his annual personal financial disclosure," Rosen said.
Rosen could not immediately provide any legal agreements that bar McCaul's participation in stock trading. Ethics disclosures require that holdings of spouses and dependent children be treated the same as those of the officeholder, experts say. Rosen said McCaul’s wife and their children sold all of their TransCanada stock in early 2011.
He said the family made money off the sale of the holdings, but he could not say how much.
Shares of TransCanada were trading at $37.46 on Dec. 21, 2010, and rose to as high as $44.83 on May 31, 2011, according to Yahoo Finance. The shares are hovering around $42 now. Grant acknowledged the shares did not spike considerably after the Dec. 22 letter but said it was wrong to get any profit off TransCanada stock after the letter was sent to Clinton.
The State Department rejected the pipeline last month, pleasing environmentalists but sparking vehement protests from Republicans, who want to fast-track it through Congress.
McCaul said his advocacy of TransCanada's $7 billion Keystone XL Pipeline project is based on what it would do for his constituents and Texas, not any assets owned by his family.
“The Keystone Pipeline would create thousands of jobs in several states — many of them in Texas,” McCaul said in a written statement. “When operational, it would represent nearly 10 percent of U.S. petroleum imports and decrease our reliance on oil from the Middle East and countries such as Venezuela that don't like us. I have consistently supported projects and policies that strengthen America's economic and national security, and I will continue to do so."
Insider trading by members of Congress has become a big flashpoint in the 2012 elections. Last week the U.S. Senate passed, on a lopsided 96-3 vote, the U.S. STOCK Act, which is pending in the U.S. House. McCaul signed up as a co-sponsor of the measure on Jan. 31, online records show.
The bill would make it clear that members of Congress are not exempt from rules that ban insider trading, or using nonpublic knowledge to profit off stock trades. It would also require more prompt disclosure of stock transactions, giving the public better information about whether any conflicts of interest exist between a lawmaker's official duties and the family stock portfolio.
The lack of specific laws against insider trading by members of Congress became a hot topic late last year after CBS's 60 Minutes aired a report outlining well-timed (and legal) stock market trades by powerful lawmakers who are privy to sensitive information on industries they regulate.
Gov. Rick Perry also made a ban on congressional insider trading a prominent feature of his presidential campaign stump speeches, and President Obama called for passage of the U.S. STOCK Act in his recent State of the Union speech.
Researcher and author Peter Schweizer, who helped 60 Minutes compile its report on insider trading, said the legislation is a “good first step” toward curbing the kind of conflicts of interest and abuses he laid out in his most recent book, Throw Them All Out.
Schweizer said he remembered looking at McCaul’s vast portfolio while researching his book and at the time saw "no discernible pattern” connecting his congressional service with any profitable stock deals.
He said disclosure requirements, as far as Congress is concerned, make no distinction between a spouse’s holdings and those of the member. The McCauls' assets make the family worth between $259 million and $502 million, according to the Center for Responsive Politics.
Schweizer said McCaul’s advocacy of the Keystone XL Pipeline, in light of the profitable stock trades in TransCanada, might be closer to what he calls “priming the pump,” a practice whereby politicians’ personal holdings “overlap with their legislative activities.”
“It just creates an inherent problem of a conflict of interest,” Schweizer said.
Apart from passage of the U.S. STOCK Act, Grant said McCaul should put his holdings in a blind trust to shield against any conflicts of interest and release his recent tax returns. Grant vowed to cough up his own tax records and said he would get rid of any stocks, or put them in a blind trust, if they posed a conflict of interest to him as a member of Congress.