Insider Trading And The Manipulation Of Our Wealth
In life there are no shortage of laws to follow. For most of us, as children we readily questioned other’s perceptions of right and wrong, but as adults we all too often fail to do the same. We no longer question the prescribed truth, we accept thought terminating clichés rather than utilizing our own logic and reason, and we abide by social norms and obligations simply because we place too much value on other’s opinions. What if I shared with you an example where others don’t have to follow their own rules? What if I told you they were outside the system, but they would confiscate your health, and your wealth, for merely walking in their shoes. Would you begin to open your eyes and see things a bit differently?
What Exactly Is Insider Trading
Insider trading is defined as the act of trading securities (i.e., stocks, bonds, options, etc) by individuals with access to nonpublic information. Although insider trading was by and large made illegal under the Securities Exchange Act of 1934 and the subsequent amendments to it over the years, our Congress and other high ranking government officials are not required to abide by these insider trading laws themselves. The public servants we entrust to form our nation’s laws are once again exempt from having to follow their own rules; rules that if you and I broke, we would be sent straight to prison. The only legal insider trading, is Congressional insider trading.
How Does Insider Trading Affect The Economy
Have you ever played a zero sum game? For those of us who have friends and family who frequent Las Vegas, Nevada, we are intimately familiar with the concept. A zero sum game is a game in which one individual’s gain is equivalent to another’s loss. In other words, I only earn a dollar if you were to lose one.
In Vegas, this is called gambling. In investing, this is called the stock market. Now imagine you and I are at a poker table, and everyone is prohibited from looking at anyone else’s hand besides their own except for one person, and all he can do is win. Just how long do you think you would want to play that game?
This is not merely just a simple allegory, it is in fact happening every year here in the United States, by the very public officials that we voted for (or failed to vote) out of office.
In 2004 under the Bush administration, the Journal of Finance and Quantitative Analysis published a groundbreaking article that revealed members of the United States Congress who actively participated in the stock market, saw an average return 12% higher than the market average per any given year (1993-1998).
These same men and women have done very poorly managing the nation’s bottom line, (as of March 17, 2018, our current national debt stands just over $21 trillion), but have done quite well managing their own. This is nothing more than cronyism poorly disguised as capitalism.
Why Our Ignorance Has Been Their Bliss
Nancy Patricia D’Alesandro Pelosi
Many of us are familiar with Nancy Pelosi, as she has made a quite a spectacle in the news lately. As the current minority leader for the United States House of Representatives, Pelosi and her husband (Paul Pelosi) have participated in no less than eight initial public offerings since the inception of her career as a politician. While there is nothing wrong with participating in an IPO organically, it is the manner in which she has that should be a crime.
On March 18, 2008, Pelosi and her husband. Paul Pelosi, purchased 5,000 shares of Visa at a cost of $44 per share, for a total investment of $220,000. Coincidently at the time, the Credit Card Fair Fees Act had been introduced to the House of Representatives where it was currently waiting to be brought to the floor for a vote. Had the act passed, which it never did not thanks to Pelosi ensuring it never reached the floor, credit card companies such as Visa would have seen their interchange fees cut drastically. These fees are a very important source of income for credit card companies, as the fees range from 1-3% of the total purchase price of anything that we buy using our credit or debit card.
Two days later on March 20, Visa shares had climbed to $65 per share which resulted in an unrealized gain of $325,000 for Pelosi. At today’s current price of $124.53 a share, Pelosi shares would have an unrealized value of $622,650.
Not only did Pelosi have insider knowledge as to the fate of the Credit Card Fair Fees Act, she was instrumental in ensuring that it never came to the floor for a vote. She used her position of public trust to profit for her own personal gain, and this article has not even covered the other seven IPO’s she has participated in since taking public office.
At a net worth of over $29.35 million, it’s hard to imagine how a public servant could become so wealthy. Let’s move on to some more insider trading examples.
Dianne Goldman Berman Feinstein
One of the more famous insider trading scandals in recent history was that of Senator Dianne Feinstein who used her position of trust within Congress to exploit the US stock market. Senator Feinstein invested $1 million into Amyris Biotechnologies, an alternative energy company focused on plant-based renewable fuels and chemicals, back in 2009. The Feinstein’s million dollar investment was their only stock transaction for the entire year, but a very timely and profitable one nonetheless.
Similar to Pelosi, who had intimate knowledge that the Credit Card Fair Fees Act would never reach the floor by her own hand, Feinstein also had nonpublic information at the time regarding Amyris. This nonpublic information came in the form of a $24 million grant that Amyris was to receive from the Department of Energy (DOE) two weeks later from the date of her initial investment. Amyris went on to release their IPO and go public the following year. and raised roughly $85 million dollars in the process.
This is not Feinstein’s only skirmish with exploiting the stock market through the use of nonpublic information. Back in April of 2009 Feinstein had introduced a bill in order to raise $25 billion for the Federal Deposit Insurance Corporation (FDIC) in an attempt to assist the FDIC in the number of mortgage foreclosures it was facing. What was not mentioned however, was that CB Richard Ellis Group (CBRE) – the commercial real estate firm that her husband Richard Blum heads as board chairman – had won the competitive bidding for a contract to sell the foreclosed properties that FDIC had inherited from failed banks.
Are we beginning to see a pattern?
Maxine Moore Waters
One of the more recent insider trading scandals revolves around Maxine Waters. Unfortunately for her, very little of her newfound fame is positive. In August of 2010, Maxine Waters, the 10-term Democratic incumbent, was charged with three counts of violating house rules and federal ethics in relation to her involvement in privately introducing treasury officials to C level officers of One United Bank. Waters, who interestingly enough sits on the Financial Services Committee, prevented One United Bank from declaring chapter 7 bankruptcy by arranging a personal meeting with Treasury Secretary Henry Paulson to ensure the bank would not go under.
Had One United Bank collapsed, Waters and her husband stood to lose $350,000 in their stock investments. Fortunately for Waters, One United received a timely $12 million bailout prior to such a tragedy occurring.
While other investors were placing their trades in anticipation of One United declaring bankruptcy, Waters simply funneled federal funds to them not because she thought the bank was too big to fail, but that she was to big to fail. Naturally, the company’s stock has been on the rise ever since. Another example of favouritism by Congress to further their own greed.
What’s unfortunate is that the list goes on and on and on. Yet remember, it’s not a crime for members of Congress to trade using inside information, or apparently to even manufacturer the outcome (i.e., Maxine Waters). Maybe it’s time to take a closer look at exactly who is writing our nation’s laws.
How Are Insider Trading Laws Enforced On Congress
On April 4th, 2012, President Barack Hussein Obama signed into law the Stop Trading On Congressional Knowledge Act, more commonly referred to as the Stock Act, in which it now became a federal crime for members of Congress to place trades using non public information. The bill was originally written to explicitly prohibit the use of insider information for private profit and require government officials to disclose securities transactions within 45 days as opposed to the previous requirement of one year. Unfortunately however, the bill was silently gutted under much less fanfare and media coverage than the original passage of the act one year later, and things are really no different than before.
In April of 2013, Congress quietly rolled back a significant part of the law that mandated government officials to report any securities transactions within 45 days. With the public no longer possessing this degree of visibility in relation to the securities transactions of our government officials, it is once again much harder to uncover any insider trading that may be going on currently. If anything, it is rather comical that the Stock Act passed with near unanimous support during an election year where confidence in Congress had reached another all-time low, only to have key provisions silently repealed the following year.
Where We Go One, We Go All
We truly live in interesting times. While it may feel like time immemorial that we have had to tolerate their political corruption and backroom deals at our country’s expense, that paradigm is already beginning to shift.
President Donald J. Trump will finish what John F. Kennedy started, our economy will continue to become further decentralized, restoring the power back to the people and not the government, and the omnipresence of the internet and our shared beliefs will continue to grow until those in office can no longer escape answering for their crimes.
Remember, the bible says that the weeds must grow up with the wheat, and that harvest is nearly upon us.
Thank you for reading, and God bless.