K Street Files: The Inside Story

Posted January 23, 2009 at 6:02pm

Rep. Brian Baird (D-Wash.) is at it again. For the third year in a row, he’s planning on dropping his insider trading bill aimed at preventing Members and House employees — or anyone else —from profiting in stock market transactions by using advance knowledge of not-yet-public information.

[IMGCAP(1)]“If I told you that I believe it is possible in this town to use inside information to get fabulously wealthy or help a supporter get fabulously wealthy in a way that is untraceable — and not illegal even if it were traceable — it’s pretty hard to imagine that somebody is not taking advantage of that,” Baird said.

Baird has joined forces with House Rules Chairwoman Louise Slaughter (D-N.Y.) to reintroduce the Stop Trading on Congressional Knowledge Act. The STOCK Act will be unveiled today, although it does not yet have a Senate sponsor.

Even Baird, a six-term Member from southwestern Washington, admits the financial lure is strong, noting that he could have recently acted on information received during a closed-door briefing (which he declined to identify).

“I walked home that night and I said to myself, ‘I’m going to make a decision to not take action that would

probably cost my kids $30,000 to $40,000 inheritance,’” he said.

A 2004 study by the University of Washington School of Business Administration strongly hints that others on Capitol Hill might not be acting in the same manner.

The study, led by Alan Zibrowski, tracked the stock trades of Senators and concluded that a “Senator earn[s] statistically significant positive abnormal returns outperforming the market by 85 basis points per month on trade-weighted basis as a further indication that Senators use their informational advantage.”

The paper adds: “For Senate stock purchase transactions the abnormal returns are both economically large and statistically significant.”

Slaughter believes insider trading on Capitol Hill has only increased since the study was conducted, citing the proliferation of “political intelligence firms,” which specialize in ferreting out tough-to-find information, sometimes nonpublic, on pending legislation that will affect a particular company or industry.

The STOCK Act would also require political intelligence firms to register — much as lobbyists now do — and would prohibit them from basing investments on inside information.

The Exodus Continues. A demand for left-leaning bona fides on K Street has led to a full-bore rush of Democrats downtown.

John Michael Gonzalez, chief of staff to Rep. Melissa Bean (D-Ill.), is the latest to join in the rush. Gonzalez, rumored to be a potential Obama administration hire, opted to try his hand at lobbying, joining Johnson, Madigan, Peck, Boland & Stewart.

An aide to former Texas Gov. Ann Richards (D) and ex-Rep. Chris Bell (D-Texas), Gonzalez most recently worked on Congressional affairs for the Obama transition. He started with Bean in 2004, when she defeated longtime Chicagoland Rep. Phil Crane (R-Ill.).

Gonzalez is following in the footsteps of Libby Greer and Izzy Klein, who both announced their moves last week. Greer, chief of staff to Rep. Allen Boyd (D-Fla.), is joining the firm Cauthen, Forbes & Williams.

Klein, deputy staff director for communications at the Joint Economic Committee, is joining the Podesta Group.

The trio are just the latest in a string of House Democrats to make the move to the private sector.

Jaime Harrison, former floor director and counsel to House Majority Whip James Clyburn (S.C.), left for Podesta Group in September, and Gregg Rothschild, former deputy chief of staff and counsel to former House Energy and Commerce Chairman John Dingell (Mich.), joined Glover Park Group earlier this year.

K Street Moves. The Brunswick Group has picked up David Sutphen and Lane Hudson in its Washington office.

Sutphen, former senior vice president for government relations at Viacom, joins the firm as a partner. Hudson, a new media specialist and former political adviser, has joined the firm as director of integrated media.

Anna Palmer and Matthew Murray contributed to this report.

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