U.S. Rep. Phil Gingrey may have received stock benefits in violation of congressional ethics rules from his role as an insider of two Georgia banks, one of which failed, according to a report Wednesday by Thomson Reuters.
Gingrey, R-Marietta, serves on the board of Hiram-based WestSide Bank. He formerly served as a director of Bank of Ellijay, which he left several months before its failure in September 2010.
The news agency reports Gingrey received warrants to buy stock in the banks in exchange for his board service. Two former House ethics attorneys told Reuters that would amount to outside compensation in violation of U.S. House rules.
Gingrey’s spokeswoman, in a statement, denied any wrongdoing, and said Gingrey lost his full investment in Bank of Ellijay when it failed.
Gingrey helped start both institutions, and his investments in both were once worth as much as $500,000 each, according to federal financial disclosures. It's a rarity for a sitting member of Congress to serve on multiple bank boards, ethics watchdogs say.
Members of Congress are not allowed to accept compensation for service on a corporate board, Reuters reported, and Gingrey said in financial disclosures he was as unpaid director.
Warrants are similar to stock options, and allow the holder to buy stock at a later date for a set price
The stock and stock warrants for Bank of Ellijay became worthless after the institution failed, and any value in warrants for WestSide stock also would have diminished as the bank has struggled amid a raft of bad real estate loans.
Former counselors with the House Ethics Committee told Reuters the warrants would be considered compensation, even if they were ultimately deemed worthless.
Gingrey spokeswoman Jen Talaber, in an e-mail statement, disputed that.
Talaber said Gingrey “never accepted one single penny of compensation — in any form — as a result of his role" as an "unpaid" bank director.
The warrants were issued to all directors. Talaber said the warrants “were never considered to have sufficient value to report."
“The prohibition on outside earned income or paid board service pertains to acceptance of fees,” the statement said. “Here, the congressman never did, and never intended to, exercise these warrants as compensation for board service or in excess of outside earned income limits.”
Georgia's real estate boom was coupled with a banking start-up boom. Many were started with current and former political figures and developers on their boards looking to cash in on the real estate gold rush.
Mary Boyle, a spokeswoman with government watchdog Common Cause in Washington, D.C., said the compensation arrangement "doesn't sit well."
Gingrey also is an investor in another Georgia bank, Community Bank of the South.
Neither Gingrey nor other directors received directors' fees or dividends for their service on the boards, Reuters reported, however neither bank met the threshold of profitability under banking regulations to pay dividends.
The news service also questioned a loan made by WestSide to a partnership Gingrey controlled. WestSide was under regulatory orders to reduce loans to bank insiders and it had.
WestSide issued Gingrey’s firm a $86,000 loan in 2010. Reuters reported Gingrey said WestSide gave him a better rate on the loan than other banks, but he denied getting an improper discount on the loan.
According to House ethics rules, it is improper for a member of Congress to receive loans at below-market interest rates.
Talaber said the loan was within market rate of other banks and no different than rates available to other customers. She said "the information (about the loan) in the Reuters story was misrepresentative of the facts."
Support real journalism. Support local journalism. Subscribe to The Atlanta Journal-Constitution today. See offers.
Your subscription to the Atlanta Journal-Constitution funds in-depth reporting and investigations that keep you informed. Thank you for supporting real journalism.