NewsNotables – Issue 72

Congress Staffers Gain From Trading in Stocks

The Wall Street Journal, October 11, 2010

Chris Miller nearly doubled his stock investment in a renewable energy firm in 2008. It was a perfectly legal investment, but he’s no ordinary investor. Mr. Miller is the top energy policy adviser to Senate Majority Leader Harry Reid, who helped pass legislation that wound up benefiting the firm. Mr. Miller is not the only congressional staffer making such stock bets. At least 72 aides on both side of the aisle traded shares of companies that their bosses help oversee, according to a Wall Street Journal analysis of more than 3,000 disclosure forms covering trading activity by Capitol Hill staffers for 2008 and 2009.

The Journal analysis showed that an aide to a Republican member of the Senate Banking Committee bought Bank of America stock before results of last year’s government stress tests eased investor concerns about the health of the banking industry. A top aide to the House Speaker profited by trading shares of Freddie Mac and Fannie Mae in a brokerage account with her husband two days before the government authorized emergency funding for the companies. Another aide to Republican lawmakers interested in energy issues profited by trading in several renewable energy firms.

The aides identified by the Journal say they didn’t profit by making trades based on any information gathered in the halls of Congress. Even if they had done so, it would be legal, because insider trading laws don’t apply to Congress.

Several lawmakers have for years supported legislation that would explicitly make it illegal for members and their aides to trade stocks and other securities based on non-public information gleaned from the legislative process. When the bill-the Stop Trading on Congressional Knowledge Act, or Stock Act- was introduced nearly five years ago, just 16 lawmakers endorsed it. A current version of the bill has fared worse, with support from just nine lawmakers.

Vincent Morris, a spokesman for Rep. Louise Slaughter (D-N.Y.), a leading backer of the bill, stated, “Congressional staff are often privy to inside information, and an unscrupulous person could profit off that knowledge”. Mr. Morris goes on to state, “The public should be outraged there is no law specifically banning this.”

Comment: This seems like a no-brainer. It seems inconceivable that congressional members and aides are permitted to invest in securities based on non-public information gained from the legislative process. Even if the law provides Congress and aides to trade securities with inside information, it shows very poor judgment to do so. The public has a right to expect higher standards from elected public officials and their staff, not exemption from insider trading laws.

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Medicare Scheme Netted $35 Million, Officials Say

The Wall Street Journal, October 14, 2010

An Armenian-American crime ring defrauded Medicare of more than $35 million by using stolen doctor and patient identities and setting up dozens of phony clinics coast to coast, according to federal indictments. Members of the group, based in New York and Los Angeles, were taken into custody as part of a nationwide Medicare fraud sweep that resulted in charges in California, Ohio, New Mexico and Georgia.

The case was among the largest ever Medicare fraud enterprises based on more than $100 million of concocted bills participants submitted beginning early in 2006, amounting to $35.7 million in fraudulent payments. It was the latest in a string of health care fraud busts nationwide by the Department of Justice. Most of the 44 people charged were members of the Armenian group, but some were doctors, lawyers and patients. The organization stole the identities of doctors and patients, including more than 2,000 from the Orange Regional Medical Center in upstate New York. The names were allegedly used to file reimbursements to Medicare for procedures that weren’t performed at 118 nonexistent clinics in 25 states.

Kirk Ogrosky, former deputy chief of health care fraud enforcement at the Department of Justice, said Medicare has been “particularly vulnerable” to fraud, though recent improvements in analyzing claims data was likely to reduce potentially fraudulent claims.

In a separate scheme, the Justice Department alleged, members of the same organization created fake companies and staged auto accidents to submit false claims to private insurance companies. Some patients were allegedly recruited to undergo unneeded procedures. In one instance, ring members solicited exotic dancers whose van had crashed to take part in the scheme.

Comment: Staged auto accidents and resulting false medical claims have been common against insurance companies for many years, particularly in large metropolitan areas such as Los Angeles. Due to their massive size, government agencies and programs, whether it be Medicare or tax incentives, such as first time homeowners, have been targets of such fraudulent reporting. The Department of Justice indictments against Medicare fraud is encouraging and hopefully just the beginning of crackdowns against health care costs paid by our government. Thirty-five million dollars million as compared to the billions spent on Medicare might not sound like much, but is a start and critical to future government programs.

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics