Profits on Sales Go Unreported

Ethics Panel OK’d Filings

Posted April 7, 2008 at 6:39pm

Clarification Appended

Dozens of financial disclosure forms filed by Members of Congress last year were apparently inaccurate, failing to report hundreds of thousands of dollars in income from stock sales and other transactions, but the Members believed their forms were correct because the House ethics committee approved them.

Roll Call has identified about a dozen Members of Congress who have acknowledged that they incorrectly reported their proceeds from sales of stock and at least two dozen other filings that appear to be incorrect, but the forms do not provide enough data to prove they are wrong. In many cases, the errors appear to have been repeated over several years.

In most cases, the Congressional offices contacted by Roll Call offered the same response: We didn’t know it was an error because the ethics committee approved it. In every case Roll Call identified, the Member of Congress provided enough information to indicate that a sale of stock or other property occurred, so there is no reason to believe that Members intentionally were trying to hide income.

The ethics committee staff members, on behalf of Chairwoman Stephanie Tubbs Jones (D-Ohio) and ranking member Doc Hastings (R-Wash.), declined to comment for this story.

Under House rules, each Member of Congress files a personal financial disclosure form every year listing income, assets, liabilities and transactions. The Committee on Standards of Official Conduct provides instructions for filling out these forms that stipulate that capital gains from stock sales must be listed as income and that the sale must also be listed on the “transactions” section of the form.

For example, Rep. Pete Hoekstra (R-Mich.) reported on his 2006 financial disclosure form that he had purchased stock in Interoil Company in a transaction valued from $1,001 to $15,000. He also reported that seven months later, he sold Interoil stock in a transaction valued in the same range. Historical stock tables indicate that the value of Interoil stock jumped almost $10 per share during that time period, and Hoekstra’s purchase and sale appear to have netted a profit somewhere from $675 to $9,875. That profit should be, but is not, listed on Hoekstra’s income tables. Hoekstra’s office did not return calls seeking an explanation for the omission.

Like all Members of Congress, Hoekstra’s disclosure form was reviewed by the ethics committee, but the committee doesn’t really fact-check financial disclosure forms, according to sources familiar with the process.

The committee’s rulebook explains that “the Committee shall designate staff counsel who shall review Financial Disclosure Statements, and, based upon the information contained therein, indicate … whether the Statement appears substantially accurate and complete and the filer appears to be in compliance with applicable laws and rules.”

A guidance document for reviewers of financial disclosure forms produced by the Office of Government Ethics explains that disclosure rules “require that reviewers accept reports at face value.” If an asset is listed in the “transaction” section but not listed on the “income” section, “reviewers may assume that it produced no reportable income during the period prior to its sale or capital gains upon its sale,” the guidance advises.

Those guidelines do not require a reviewer to double-check a disclosure form to make sure that the information as reported is correct. But it does suggest that if “a large number of assets is sold without any income being reported, the reviewer should inquire further to ensure understanding of the instructions.”

Under these guidelines, a reviewer could have contacted Rep. John Tanner (D-Tenn.), who reported on his 2006 financial disclosure form that he had sold more than two dozen stocks on March 20, 2006, with each transaction ranging from $1,000 to $15,000. Tanner’s income table has no entry for any of these stocks, implying that he made no more than $200 on any of the sales. Tanner’s prior year disclosure reports offer no indication that he held many of these stocks, so it is impossible to know when he bought them or how much money he earned in sales that day.

Tanner spokesman Randy Ford, in an e-mail reply to Roll Call’s inquiry, said “We have checked and still have no indication that anything was filed inaccurately. If the committee thinks something is improper, Congressman Tanner will be happy to amend his paperwork as needed.”

Among the Members who were prompted to file amendments after having been contacted by Roll Call were Reps. Charlie Wilson (D-Ohio), Nita Lowey (D-N.Y), Jim Saxton (R-N.J.), David Dreier (R-Calif) and Jay Inslee (D-Wash.).

Other forms appear to be inaccurate, but the Members’ offices were unable to confirm the details of the transactions. Among the Members whose filings appear to be incomplete: Reps. Raúl Grijalva (D-Ariz.) and Jeff Flake (R-Ariz.).

Several offices expressed frustration that they had not been told by the ethics committee that something on their form was lacking — though none of the staff members in these offices were willing to speak on the record for fear of incurring the wrath of the ethics committee.

“It would have been helpful if ethics had brought this to our attention earlier,” one staff member said. Another said that when the office called the committee to ask about Roll Call’s inquiry, the response was “this was no big deal, there was no intent to deceive the public and this is what the amendment process was for, these little things like this.”

Some Members appear to have amended their disclosure forms at the request of the ethics committee, only to have the committee overlook possible errors on the amended forms.

Rep. Lynn Westmoreland (R-Ga.) was contacted by the ethics committee about an error in his original filing for 2006 regarding the reporting of three properties that he sold that year. The amended form that Westmoreland filed in response still did not make it clear how much income he had netted from these sales, but the ethics committee did not request another amendment. A source in Westmoreland’s office said, “this is exactly the frustration that Members and staff have with this process.”

Several offices said they are requesting that ethics issue a clarification of the rules for reporting income from transactions but have received no commitment that the committee will do so.

One staffer familiar with the ethics process said ethics committee staff members and detailees sent over from the Government Accountability Office to assist with the process review every one of the thousands of financial disclosure forms filed by Members of Congress and Congressional staff each May. The staffers “go through them with varying degrees of care” and do find numerous errors, which they then bring to the attention of the Members and staff who filed the forms. But “they are missing lots of stuff,” this source said.

The fact that dozens of forms are missing this information is symptomatic of a larger problem with House ethics rules, this source said — that enforcement is ad hoc and that the committee lacks the kind of internal management controls needed to ensure uniform application of the rules.

One staff member fumed that by refusing to make a public statement about the committee’s role in the review of the documents, the committee “is hanging Members out to dry. … We shouldn’t be relying on Roll Call articles to provide us with ethics guidance.”

Jock Friedly, president of LegiStorm, a Web site that posts financial disclosure forms, said, “There is quite a lot of imprecise and inaccurate reporting across the entire spectrum of financial disclosures. It looks like the ethics committee looks for certain kinds of things that tend to get their attention.”

Ted Van Der Meid, who was chief counsel for the ethics committee from 1995 to 1998, said, “I’ve thought for awhile that it would be a good idea for the committee to do a random audit of a few disclosures each year.”

Van Der Meid said a random review of disclosure forms should be conducted not with an eye toward investigation, but simply trying to determine whether Members and staff are filling out the forms correctly, because there can be confusion about what the disclosure rules require. The goal of the audits would be to “find out whether the rulebook is clear, whether people are correctly filling out the forms, or if you need to go back and rewrite the instruction book,” he said.

GAO does have responsibility under the Ethics in Government Act for reviewing the disclosure process “regularly” to make sure it is working properly, but the agency has not conducted a review since 1994.

GAO spokesman Charles Young said, “We are not supposed to look at the financial disclosure forms themselves, we are supposed to look at whether the process is working.” The 1994 audit “did not find any sign of major problems,” and since then, GAO “has been downsized [and] we have a lot of other mandates and requests” so conducting another review of the financial disclosure system has not been a high priority.

Clarification: April 8, 2008

The article indicated that Rep. Todd Tiahrt (R-Kan.) may have filed an erroneous 2006 disclosure form, because he had not reported profits for his stock sales. Tiahrt’s office has since clarified that his profits from those stock sales netted less than $200 and therefore were not required to be reported. Tiahrt reported his transactions correctly.