CALIFORNIA POLITICIANS RIG NEARLY A TRILLION DOLLARS OF INSIDER STOCK MARKET TRADING FOR THEMSELVES. IT IS A CRIME!
- Pelosi, Brown, Harris, Feinstein, and the rest, have a special team of Goldman Sachs, JP Morgan and insider bankers who arrange stock bribes with them from Tesla, Google, Facebook and others!
- The core of the Solyndra, Fisker and Cleantech Crash scams is stock market pump-and-dumps and other manipulations.
In 2011, a CBS investigation blew the lid off of one of Washington’s most poorly-kept secrets: members of Congress were routinely exploiting legal loopholes to engage in insider trading and line their own pockets — a criminal offense for regular citizens. In the ensuing public outrage, Congress passed a law called the STOCK Act, and took a loud victory lap for supposedly putting an end to their own unscrupulous behavior.
Now that they think nobody’s watching, Congress has gutted a key disclosure provision of the STOCK Act. Worse still, the House Counsel’s Office, led by Speaker John Boehner’s handpicked lawyer, is actively stonewalling the first ever investigation into Congressional insider trading by claiming “immunity” from the very law they bragged about passing just a few years earlier.
The only reason the STOCK Act passed in the first place was due to a massive public outcry. Unless there’s another wave of public outrage, Congress will continue to flout the rules and make it near-impossible to enforce the laws that are already in place.
This isn’t a scandal yet, but we can make it one — will you add your name to demand that John Boehner’s handpicked lawyer stops stonewalling investigators?
Insider Trading and the Stock Market Crash
Just 12 days before the 2008 economic meltdown, several members of Congress pulled their money out of the stock market. Congress had been forewarned about the impending economic bombshell in secret meetings with the Treasury Department and the Fed, and they used that information to move their personal funds out of the market at lightning speed. Meanwhile, millions of Americans lost their homes and their life savings.
The day after the meeting with the Treasury, at least 10 senators made trades to protect their financial interests, while Americans remained in the dark. Senator Shelley Capito (R-WV) and her husband dumped between $100,000 and $250,000 of Citigroup stock on the 18th of November 2008 at $83 per share. The next day Citi stock fell to $64 per share. Congressman Jim Moran jumped ship too, frantically trading stock in 90 different companies — his biggest trading day of the year.
Representative Spencer Bachus publicly tried to prevent the American economy from crashing — while privately betting it would. He cleverly arranged his portfolio so that if the American people lost, he would make a profit.
It’s appalling. Insider trading is a criminal offense for most Americans, but these trades were 100% legal for the members of Congress who used positions as “public servants” to turn a handsome profit for themselves.
IPOs as Legal Bribery
Trading stock based on classified government information isn’t the only way our elected officials have made it big in the stock market. Companies give members of Congress special access to IPO stock before it’s available to the public.
Just ask Nancy Pelosi. In 2008, Visa offered congresswoman Pelosi IPO stock access just as legislation, which Visa strongly opposed, arrived at the House.
Apparently fearless of a conflict of interest, Pelosi and her husband bought 5,000 shares of the stock at the rock-bottom price of $44 per share. Two days later, the value skyrocketed to $64 per share, and Pelosi made $100,000 virtually overnight thanks to her Visa IPOs.
The tough new credit card legislation that Visa didn’t want? Pelosi, who was Speaker of the House at the time, never allowed it to the floor for a vote.
Fake reform and stonewalled investigations
After an embarrassing 2011 “60 Minutes” investigation revealed our lawmakers’ affinity for insider trading, Congress passed the STOCK (“Stop Trading on Congressional Knowledge”) Act to stem the outpouring of public outrage. In theory, the STOCK Act made it clear that members of Congress and their staff have to play by the same insider trading rules as everyone else. Unfortunately, Congress has quietly returned to its old ways now that it thinks nobody is looking.
First, Congress quietly gutted a key disclosure provision of the STOCK Act — a change that President Obama signed into law despite trumpeting the original Act as a victory for transparency. The change was made as quietly as possible: according to an NPR investigation, “The whole process took only 30 seconds. There was no debate.” The White House’s official statement was just one sentence long, as issued on April 15, 2013 — the same day as the Boston Marathon bombing.
Now, Congress is taking things a step further by actively stonewalling the first ever investigation into Congressional insider trading under the STOCK Act. Brian Sutter, a former staffer for the House Ways and Means Committee, is at the center of it all — it’s alleged that in April 2013, he told a lobbyist about an imminent change to Medicare. That lobbyist then shared the information with other firms who were able to use it to trade on health insurance stocks that would be impacted.
In other words, the exact kind of behavior the STOCK Act was designed to prevent.
Yet, Kerry W. Kircher, Speaker John Boehner’s handpicked House General Counsel, has repeatedly refused to turn over documents related to the investigation and refused to comply with subpoenas issued by the Securities and Exchange Commission, claiming members of Congress and their staff are “immune.”
It’s not a scandal yet, but we can make it one — Help us spread the word by:
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Political Insider Trading
51 Pages Posted: 7 Jun 2017
Date Written: May 5, 2017
Should the same legal principles that prohibit insider trading require corporations to disclose their political spending as well? The question seems particularly important in light of the increasing dominance of corporations in the political realm, the lack of transparency regarding corporate political activity, and the inherently suspicious motives of corporate executives who use corporate treasuries to advance their personal political preferences. This Article examines how the fiduciary principles of trust that underpin prohibitions on insider trading could inform and enhance the content of the general fiduciary duties that corporate officers and directors owe to their shareholders. Although insider trading prohibitions rest on the statutory foundation of federal securities law, the U.S. Supreme Court extrapolates the content of insider trading doctrine from the overarching common law fiduciary duties that govern the daily decisions of corporate managers. In the insider trading context, however, the Supreme Court has articulated a special disclosure obligation based on those fiduciary duties that is not currently recognized in other areas of corporate law. In particular, the Supreme Court requires that to avoid liability for illicit insider trading, a corporate insider who possesses material nonpublic information must either disclose that information to shareholders prior to trading or abstain from trading altogether.
A fiduciary breach due to secret use of corporate assets for personal gain marks the essential concern in both the insider trading realm and in the context of corporate political spending. Therefore, adopting a similar common law fiduciary rule that corporate managers must disclose the amount and target of political expenditures or refrain from engaging in political activity does not seem like much of an intellectual leap. Not only would such a common law disclosure duty fit neatly within existing corporate governance principles, but the compelled transparency would not offend corporations’ First Amendment rights. In the end, prohibiting political insider trading through a “disclose or abstain” rule for corporate political spending would promote greater efficiency in the capital markets, ensure corporate accountability and political legitimacy, and sustain the growing market for corporate social responsibility.
Keywords: Corporate Speech, Corporate Political Expenditures, First Amendment, Insider Trading, Corporate Governance, Corporate Disclosure, Fiduciary Duties
While Nancy Pelosi been getting in front of every camera she can and shouting gibberish about Donald Trump’s taxes, she has a lot to answer for: like how she accrued a net worth of at least $202 million as a career politician.
Liberals would never shut up about how wealthy Mitt Romney was when he ran for president (and had an estimated net worth of around $250 million), but at least he made his money restructuring failed businesses. And we all know how insane they have been about Donald Trump.
Pelosi began her political career in the House of Representatives in 1987, meaning she’s racked up that net worth in a mere 30 years in public service. Accrued at an equal rate, that would imply a net flow of money coming in (net of expenses) of 6.73 million annually.
As Pelosi continues to be among those calling for Trump to release his tax returns, (which will be an epic fail for Democrats if they’re anything like the 2005 return Rachel Maddow leaked) but she has been accused of ‘insider trading’ before.
In the premiere episode of “The Truth with Dennis Michael Lynch,” co-host Harlan Hill pointed out that Pelosi is one of the richest members of Congress, to the tune of at least $202 million in 2014.
Hill said Pelosi’s husband Paul is an “ultra-wealthy real estate investor and venture capitalist who has been an active investor in large companies that have been impacted by his wife’s regulations,” but yet we don’t have a record of his finances.
“Nancy Pelosi has engaged in insider trading,” Hill said, “because she’s been the beneficiary of information that other people wouldn’t have, so Paul Pelosi is able to make active trades on her insider knowledge.”
H/T: Dennis Michael Lynch
Hill was speaking of ‘insider trading’ in terms of Pelosi influencing legislation ahead of trades. Until Peter Schweizer’s 2011 book “Throw Them All Out” brought this fact to the American public’s attention, most didn’t know that it was legal for members of congress to ‘insider trade’ in this way.
Even 60 Minutes reported on it, exposing how Pelosi exploited the process:
Sound like she’s in it for the little guy?
In her rhetoric only. Typical lib!
The media, investors, and regulators often consider trading by corporate insiders to be a signal of firm value, given that insiders know their business better than do others. Although trading on material, non-public information can be illegal in the U.S., insiders may still attempt to profit from their informational advantage, as evidenced by dozens of insider trading enforcement actions each year.
Research also suggests that politically connected firms may avoid investigations by, or receive lower penalties from, regulatory agencies. And since insiders are the ones who decide to build political connections for the firms, they may do so to seek both corporate and personal benefits. In a new study, I find that politically connected corporate insiders are more likely to engage in risky insider trading. This may stem from the belief that their political connections provide some protection from the SEC.
I use political contributions as a proxy for political connections. Corporate insiders can build these connections personally (i.e., individual contributions) or through their firms (i.e., PAC contributions). For each publicly traded firm and each of its corporate insiders, in each election cycle from 1988 to 2016, I compute political connection measures based on political donation history as well as the power of the political candidates supported. Overall, about 10 percent of the firms make some political contributions to at least one candidate in an election cycle. Firms also support more candidates than do individual insiders. While a typical firm donates to about 50 candidates in each cycle, a typical insider donates to only two candidates. To examine the trading activities of these insiders, I use the sample of all their trades from 1988 to 2016.
If politically connected insiders are more likely to trade on their private information, their trades should be more profitable than those of their counterparts. Consistent with this prediction, my results show that sales by connected insiders, on average, are followed by lower returns compared with sales made by their non-connected counterparts. However, returns for politically connected and non-connected insider purchases are not significantly different. One explanation for this could be that the SEC is more likely to investigate insider sales. If political connections have some impact on insider trading, the effects should be greater for insider sales since the connections are more likely to protect them from the legal risks.
Among corporate insiders, directors and officers are more likely to possess nonpublic information relative to blockholders and outside associates. The higher insider trading profit associated with political connections is indeed concentrated among insiders classified as directors and officers. The profit is even higher for groups of senior officers who also hold a director position. This is consistent with the theory that having a CEO also serve as a director erodes the quality of corporate governance, which in turn gives insiders more opportunities to trade on their private information.
Campaign finance data show that, on average, Senate candidates receive more total dollar contributions from companies and are supported by a larger number of firms and individuals. The effect of connections to Senate candidates on insider trade performance is greater than the effect with respect to House candidates. That is, insiders appear particularly concerned with connections to Senate candidates. This may be because the Senate have more control over the selection of SEC commissioners and judges.
Data also show that Republican candidates get more political contributions from firms and individuals. However, a lot depends on which political party is in control of the government. When the Republican (Democratic) party controls both House and Senate, connections with that party are more strongly related to the trade performance of the connected insider. When there is a separation of control (e.g., Democratic House, Republican Senate), the effects of connections with these two major parties are approximately similar.
The evidence of politically connected insiders being more likely to trade on their private information is not limited to the profitability of their trades. I also find that political connections are related to the timing of their trades. The periods before major corporate events are compelling to investors, media as well as regulators since the information asymmetry is usually high. The vast majority of charged insider trades occurs just prior to these price-sensitive firm events. However, with their connections to the politicians, insiders trade closer to these events, for example, before earnings announcements. Moreover, my evidence shows that insiders with political connections are more likely to violate the SEC trade reporting deadline.
With possible protection from politicians, corporate insiders may benefit personally from engaging in other risky activities. The main conclusion I draw from my study is that politically connected insiders are more likely to trade on their private information. This behavior often leads to poor corporate governance. Political contributions are an expense for shareholders, but they may not be in shareholders’ interest.
This post comes to us from Thuong Harvison, a PhD candidate at the University of Arizona’s Eller College of Management. It is based on her recent article, “Political Connections and Insider Trading,” available here.