Congress' Disgraceful Disclosure Practices
After zooming way in on my computer, as far as I could make out, the line on the blurry, scanned document read "Gerrrin Lld (Kayman IS)."
The task? Seemingly simple: Review congressional personal financial disclosure documents to get a sense for if, when, or how Congress members might be using nonpublic information to boost their personal bottom lines.
As it turns out, the task was nowhere near as easy as I had expected. And it had nothing to do with the challenge of connecting trading activity to the possession of nonpublic knowledge.
As I twisted my head, squinted my eyes, and moved my face to within inches of the computer screen, the "rrr" started to look slightly more like just one "r" and an "m." What first looked like an "e" was really more of just an inkblot and so perhaps it was an "o," or... A-ha! Of course, it was Garmin, the navigation-device maker that moved its incorporation from the Cayman Islands to Switzerland in 2010.
So in March 2008, Rep. Vernon Buchanan, R-Fla., bought shares of Garmin. How much? Well, we don't know exactly. The disclosure form only requires him to say that it was somewhere between $1,001 and $15,000 worth of shares. Perhaps not an important distinction for millionaire lawmakers, but a relatively important issue for some poor schlub like me trying to analyze data.
Now, on to "Franklin El Co PV 10CT."
Each year, by no later than May 15, members of Congress are required to submit disclosure paperwork divulging certain aspects of their personal financial dealings, including assets owned, transactions made, and gifts received. It's possible to find scanned versions of the individual filings from the congressional websites, but for anyone wanting to avoid a .gov treasure hunt, the Center for Responsive Politics' website OpenSecrets.org has done a great job of making them all available in one easy-to-search location.
The idea behind these disclosures, as highlighted by the Senate Committee on Ethics, is:
The Public Financial Disclosure Report is used as a tool for the public to monitor possible conflicts of interest. This report also provides information that allows constituents to judge official conduct in light of possible financial conflicts with private holdings.
Unfortunately, when you start digging into the disclosures, it becomes painfully obvious that they provide more of a nod to disclosure than actual transparency. The system is loosey-goosey: Many aspects of the forms are ill-conceived, and the whole production lacks any real oversight.
Back to Buchanan (and I don't mean to pick on him in particular). In 2008, he filled out the personal financial disclosure paperwork, just as required by the House of Representatives. But the personal financial disclosure regimen is badly in need of overhaul.
Clear as mud
To be sure, some disclosure is better than no disclosure at all. However, there is a laundry list of problems with the current disclosure process that, in some cases, makes these disclosure forms just north of useless.
Let's take a look at a few of the most pressing issues.
Auditing? What auditing?Whether we're worried about legislators making honest mistakes or intentionally omitting transactions, there should be some audit associated with these disclosures. Currently, there's no such audit, so although lawmakers must sign off on the completeness of the form, nobody will ever be going back to make sure that these disclosures are complete and accurate.
Out of date from day one
As previously noted, Congress members file these disclosures once per year, on May 15. By the time the information is available to voters and the media, it is dated, and (in most cases) of limited practical use. Consider that corporate rules require transaction disclosures to be filed within days of the trade.
Was that $6 million or $19 million?
The current disclosure forms allow filers to record the value of their transactions only as ranges, such as $1,001 to $15,000, $100,001 to $250,000, or even $5,000,001 to $25,000,000. With ranges so wide that a Mack truck could easily glide through, the meaningfulness of the disclosure is seriously limited.
Let's be consistent
While there is a standard overall form for these disclosures, there are nevertheless significant inconsistencies:
- Asset names and tickers. When trying to make heads or tails of a Congress member's financial dealings, it's not always easy to properly identify the asset being referred to -- as in the case of "Gerrrin Lld." General Electric -- a widely held company in Congress -- and related assets were variously listed in filings as "Genl Elec Cap Corp Disc Comml Paper due 10/27/06," "CALL (GEW) GENERAL ELECTRIC CO / 3696049JA," "General Electric Co (stock)," "Put/GE @ 10 exp 1/21/12," "General Electric," "GENL ELECTRIC CO," "GENL ELEC CAP CORP NTS," and simply "GE," among many other permutations. For common stocks, ticker symbols are not required in the filings and are almost never included.
- Presentation. Some filers stick with the standardized form, while others fit the required information into their own format, whether creating a spreadsheet of their own or submitting copies of brokerage records.
- Dates. Some filers include every date that they bought or sold each asset, while some choose to stack multiple transaction dates into a single line. Others enter frequencies such as "bi-weekly" or "monthly" while still others simply enter opaque descriptors like "multiple," providing readers with no idea whatsoever about the timing of the transactions.
- Mode of completion. Surprisingly, some lawmakers appear to have unearthed typewriters to use in filling out these personal financial disclosures. More commonly, they have been done on a computer and then printed, but there is also a notable number that have been scrawled in often-illegible handwriting.
Welcome to the 21st century
These disclosures are submitted as paper filings, which only make it into the digital world as (often poorly) scanned documents. We are well into the 21st century, folks, and the digital realm is a well-established venue for submitting, housing, and displaying important documents like these. Accessing, reading, and searching these filings would be made considerably easier if they were originally submitted in digital form.
Wanted: better disclosure
We urge Congress to level the playing field. Make it illegal to trade on nonpublic information. But just as importantly, make significant changes to these disclosure forms so that the SEC, voters, and the media have the information necessary to be fully informed about our lawmakers' financial dealings.
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