A conservative watchdog group is calling for an ethics probe into hedge funds controlled by Rep. Alan Grayson (D., Fla.) that bear his name, saying the congressman has committed an "oblivious" violation of ethics rules.
In a letter sent to former Colorado Democratic Rep. David Skaggs, who currently serves as co-chairman of the Office of Congressional Ethics, the Foundation for Accountable and Civic Trust wrote that Grayson’s actions go beyond a simple technical violation.
"This is not simply a technical violation, but rather a violation that implicates fundamental goals of the ethics rules—to ensure that members fulfill the public trust," Matthew Whitaker, Executive Director of the Foundation for Accountable and Civic Trust, said in the letter first reported by Politico.
"This is exactly the type of behavior that erodes public trust—a Member engaging in behavior that appears to be a clear violation of the ethics rules along with an implausible excuse that those rules don’t apply to him. In order for the ethics rules to be effective, they must be enforced," it later reads.
A spokesman for Grayson retaliated to the complaint by calling it "completely unwarranted."
Whitaker was referring to the three hedge funds managed by Grayson that have his name attached to them. Sitting members of Congress are prohibited from using their names in titles of entities for personal financial gain.
One of Grayson’s funds, Grayson Fund L.P, is based out of Delaware and consists of three investors. According to November regulatory filings, the fund shows sales totaling $13.2 million.
Another fund with the lawmaker’s name attached, Grayson Master Fund (Cayman) LP, is based out of the Cayman Islands, an area known as a tax haven by entities based in the United States to reduce their tax bills. This fund shows two investors and an additional $13.2 million in sales.
Grayson started the hedge funds in 2011 after being defeated for re-election.
An earlier report on Grayson’s hedge funds found he never reached out to the ethics committee for consultation. Instead, he had conversations "with attorneys who specialize in this area and he acted upon their advice."
Ken Scudder, a spokesman for Grayson, defended the hedge funds at the time by saying they are exempt from ethics rules that prohibit lawmakers from running financial institutions with their names attached.
"The reason why the funds’ offerings are ‘exempt’ is that all of the fund’s investors are qualified investors," Scudder said in an email to Politico. "‘Qualified investors,’ by definition, are sophisticated investors to which no fiduciary duty is owed."
One law professor called this defense "complete nonsense."
"You can’t avoid fiduciary duty by saying ‘my investors are smart,’" Bernie Black, a professor at Northwestern University school of Law and Management, said last week. "The core of fiduciary duty is the duty of loyalty, which is basically, ‘I won’t not steal.’ A hedge fund manager can’t justify stealing from his investors by claiming they are smart."