Spencer Bachus Defends His Trades

WASHINGTON (AP) — The top Republican on the House Financial Services Committee struck paydirt on a stock option last year after betting that a Chinese advertising company would jump in value.

In a single transaction on Dec. 10, Rep. Spencer Bachus of Alabama made up to $15,000 off an investment he had held for just two weeks, according to his congressional financial disclosure statement. He sold on the same day that the company, Focus Media Holding Ltd., got a market bounce off its announcement that it would acquire a competitor.

The trade was among dozens made in 2007 by the powerful congressman, whose public statements alone can influence markets. Most of his trades were short-term options in which Bachus bet that a stock price would rise or fall and made a quick profit or loss accordingly. Sometimes, he made several trades in the same week, supplementing his $165,200 annual congressional salary with up to $160,000 for the year.

Most members of Congress hold some stocks or mutual funds. Bachus' rapid-fire trades, however, are unusual for a leading member of Congress, particularly one with such a key market role.

As Congress prepares for a massive Wall Street bailout, legal experts say Bachus' activities raise questions about where his allegiances lie and how he spends his time.

"Is he working for the American people or working on his securities accounts?" asked Mercer Bullard, a securities law professor at the University of Mississippi and a former attorney with the Securities and Exchange Commission. "I think it's totally inappropriate ... you cannot as a member of the House Financial Services Committee provide a truly unconflicted point of view if you are actively trading in the markets."

Bachus declined to answer questions for this story, including whether he has actively traded during the recent market turmoil. His office issued a statement that said: "All of my financial transactions comply with the law and House ethics rules and are fully disclosed as required."

His spokesman also said the eight-term congressman from outside Birmingham doesn't invest in banking or other financial sector companies over which his committee has oversight.

The committee has its hand in just about every policy issue involving the financial sector, delving recently into credit card regulation, hedge fund reform and efforts to shore up mortgage giants Fannie Mae and Freddie Mac.

As the top Republican on the committee, Bachus has been heavily involved in government negotiations over the ongoing mortgage crisis and its fallout on Wall Street. Last week, for example, Bachus was among the congressional leaders briefed before the Bush administration announced it would bail out the massive insurer American International Group Inc., whose failure could have sent markets into free fall.

"The problem is that the temptations are just too great," said James Cox, a corporate law expert at Duke University who has testified on insider trading before Congress. "We get very upset about baseball players and other sports players who gamble ... because we're worried about the temptation that they might bet on their own games. I think this is the same problem."

It's impossible to pinpoint just how much Bachus earned from his trading because lawmakers are required to report only broad ranges of outside income on their annual financial disclosure statements.

Bachus' 2007 report shows he sometimes held an investment for just a day or two before selling it. Most of his trades were short-term "puts" or "calls" — transactions similar to short selling that involve speculating that a stock's value will rise or fall.

While short selling has been temporarily banned, stock options have not.

Although he reported no stock deals last year involving banks or insurers, he traded frequently in index funds, some with financial-sector components.

In March, Bachus made between $15,000 and $50,000 off an option he had held for a month that predicted that an S&P 500 stock index would drop. In January, he made up to $1,000 off a two-week investment involving Research In Motion Ltd., the Canadian maker of the BlackBerry e-mail device that has heavily lobbied Congress on issues relating to a patent lawsuit.

Other trades involved Exxon Mobil Corp., ConocoPhillips, Sony Corp., Carmax Inc., Apple Inc., Palm Inc., PetroChina Co. and Burlington Northern Santa Fe Corp.

While some executive agencies restrict their leaders' investments to prevent conflicts of interest, lawmakers have given themselves broad freedom to invest in the markets. Some say Congress is involved in so many issues that it would be impossible to establish meaningful rules without banning investing altogether.

Cox and Bullard said it's one thing for a member of Congress to own long-term investments and quite another for a lawmaker to actively trade. They noted that most financial advisers caution against short-term investing and said only people who spend most of their time watching the markets could do so with success.

"If he were my representative in Congress, I would be irritated that he has the time to do this," Cox said. "I don't have that kind of time in my life and I don't have those kinds of responsibilities."