In stock market, US senators beat averages

A report showing outsize portfolio gains for US senators is raising new questions about ethics and conflicts of interest for Capitol Hill power brokers.

The study found that during the boom years of 1993-98, a majority of US Senators were trading stocks - and beating the market by 12 percentage points a year on average. By comparison, corporate insiders beat the market by 5 percent, and typical households underperformed by 1.4 percent.

Financial experts interviewed for this story say the senators' collective achievement is a statistical stunner, too big to be a mere coincidence.

That doesn't mean lawmakers were consciously capitalizing on inside information, or that Martha Stewart-style prosecutions are around the corner. But the study is putting lawmaker finances in focus during an election year. And it is revealing a broader concern: Barricades against financial self-dealing in Congress are surprisingly thin.

Warding off conflicts of interest has long been a focus in the executiv branch.

But in America's premier lawmaking body, few members divest themselves of assets upon assuming public office or hold their investments in "blind trusts." Unlike other federal employees, members of Congress are not required to recuse themselves when they have a financial interest in an issue they are legislating. And their required financial disclosure statements - which were used as the basis of the new study - are hardly as transparent as the public might expect.

"The public perception is that when a member has a stock in an industry he or she is regulating, there is a potential conflict of interest," says Larry Noble, executive director of the Center for Responsive Politics in Washington, which was not involved in the research. "When you add to it the higher rate of return [in the new study], it raises the question of whether new rules are required to avoid the appearance that they have an advantage that the average investor does not have."

To at least one individual with close knowledge of both investing and lawmaking, the notion of the Senate as a hotbed of day-trading is implausible.

"I don't get a lot of senators tapping me on the shoulder and saying 'What's hot?' " says Sen. Jon Corzine (D) of New Jersey, former chairman of Goldman Sachs. "If they were so interested in personal economics, you would think I would. I don't find this group of senators even a tenth as interested in personal economics as in other walks of life I've been in."

The study, done by researchers from four universities, paints a few senators as heavy traders - but not the institution as a whole. During the 1990s years in question, 62 senators disclosed some 6,000 stock trades. Nearly half of those were reported by just four lawmakers: Claiborne Pell (D) of Rhode Island, John Warner (R) of Virginia, John Danforth (R) of Missouri, and Barbara Boxer (D) of California. The vast majority of purchase transactions are less than $15,000.

Both the big traders and the small ones, in the statistical analysis, shared similar patterns of success.

But it's unclear whether the senators made trading decisions themselves. "If I'm on that list, all the credit goes to my wife. She does all the stock transactions," says Sen. Bob Graham (D) of Florida.

Of the four biggest traders, only Mr. Warner and Ms. Boxer remain in the Senate, and they did not return calls for this story. But neither Mr. Graham nor other senators who commented take even the hint of using public office for private gain lightly.

Even in a town where a billion dollars changing hands in an election year barely raises a yawn from the public, the charge that lawmakers are profiting from a job in the public trust can sink a career.

In 1992, 77 House members were defeated or retired after being named for writing bad checks in a House banking scandal.

The political fallout, including new ethics charges and countercharges, was so intense that members on both sides of the aisle agreed to disable the House ethics process - a seven-year "truce" that persists to this day.

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