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House banking scandal
The House banking scandal broke in early 1992, when it was revealed that the US House of Representatives allowed its members to overdraw their House checking accounts without the risk of being penalized by the House bank, which was actually a clearinghouse.
The scandal is sometimes called Rubbergate, a Watergate portmanteau with rubber, as in bounced, check. This is a misnomer, as House checks were honored through institutional overdraft protection, with its Sergeant at Arms ensuring payment without penalty.
It is also sometimes called the "check-kiting scandal."
The House banking scandal ultimately involved more than 450 representatives, most of whom did not break any laws. However, 22 members of Congress were singled out by the House Ethics Committee for leaving their checking accounts overdrawn for at least eight months out of a sample of 39 months:
Four ex-representatives, one delegate, and the former House Sergeant at Arms were convicted of wrongdoing as a result of the investigation that followed.
Among them, former Representative Buz Lukens (R-OH) was convicted on bribery and conspiracy charges. Former Representative Carl C. Perkins (D-KY) pleaded guilty to various charges including a check kiting scheme involving several financial institutions including the House Bank. Former Representative Carroll Hubbard (D-KY) pleaded guilty to three felonies. The former Sergeant at Arms, Jack Russ, pleaded guilty to three felonies.
The House Bank functioned according to rules that were different from the laws governing deposit institutions. The facility was then operated under very loose rules by using a pencil-and-ledger system, rather than a computerized accounting system. Also, the bank manager did not provide regular account statements to House members, and notifications were not sent to House members who had overdrawn their accounts. Further contributing to the problem was that House Bank did not post deposits in a timely manner, often as much as seven weeks after the fact. Those factors meant that although some knowingly took advantage of the system and were ultimately convicted of wrongdoing, many members of the House who wrote overdrafts were not actually at fault since it was the House Bank's responsibility to post deposits in a timely manner.[citation needed]
Another practice that contributed to the scandal was that House members were allowed to overdraw their accounts if the overdraft did not exceed the member's next paycheck. Many House members used that practice to take unauthorized advances on their paychecks that they would repay later.[citation needed] In a corporate context the practice of drawing money out of the corporation's accounts for personal use is a violation of fiduciary duty to the corporation's shareholders.[improper synthesis?]
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House banking scandal
The House banking scandal broke in early 1992, when it was revealed that the US House of Representatives allowed its members to overdraw their House checking accounts without the risk of being penalized by the House bank, which was actually a clearinghouse.
The scandal is sometimes called Rubbergate, a Watergate portmanteau with rubber, as in bounced, check. This is a misnomer, as House checks were honored through institutional overdraft protection, with its Sergeant at Arms ensuring payment without penalty.
It is also sometimes called the "check-kiting scandal."
The House banking scandal ultimately involved more than 450 representatives, most of whom did not break any laws. However, 22 members of Congress were singled out by the House Ethics Committee for leaving their checking accounts overdrawn for at least eight months out of a sample of 39 months:
Four ex-representatives, one delegate, and the former House Sergeant at Arms were convicted of wrongdoing as a result of the investigation that followed.
Among them, former Representative Buz Lukens (R-OH) was convicted on bribery and conspiracy charges. Former Representative Carl C. Perkins (D-KY) pleaded guilty to various charges including a check kiting scheme involving several financial institutions including the House Bank. Former Representative Carroll Hubbard (D-KY) pleaded guilty to three felonies. The former Sergeant at Arms, Jack Russ, pleaded guilty to three felonies.
The House Bank functioned according to rules that were different from the laws governing deposit institutions. The facility was then operated under very loose rules by using a pencil-and-ledger system, rather than a computerized accounting system. Also, the bank manager did not provide regular account statements to House members, and notifications were not sent to House members who had overdrawn their accounts. Further contributing to the problem was that House Bank did not post deposits in a timely manner, often as much as seven weeks after the fact. Those factors meant that although some knowingly took advantage of the system and were ultimately convicted of wrongdoing, many members of the House who wrote overdrafts were not actually at fault since it was the House Bank's responsibility to post deposits in a timely manner.[citation needed]
Another practice that contributed to the scandal was that House members were allowed to overdraw their accounts if the overdraft did not exceed the member's next paycheck. Many House members used that practice to take unauthorized advances on their paychecks that they would repay later.[citation needed] In a corporate context the practice of drawing money out of the corporation's accounts for personal use is a violation of fiduciary duty to the corporation's shareholders.[improper synthesis?]