A new take on an old way to get rich (the politician's edition)
When juxtaposed in the real world, defining what constitutes “personal gain” has been immensely challenging.
Capital Thinking · Issue #957 · View online
Nancy Pelosi’s huge Big Tech stock trades and call options got a lot of attention last month because they were initiated at a very uncanny time just when the companies were due to announce new contracts.
Insider Trading — The New Way to Get Rich Quick
For example, she loaded up on $5 million of Alphabet (NASDAQ: GOOGL) call options 2 weeks before they were due for their antitrust hearing in which the Department of Justice ruled against them.
She also loaded up on Amazon call options just as the Pentagon cancelled a $10 billion USD JEDI contract that Amazon Web Services and Microsoft Azure (the flagship cloud computing units of both companies) were fighting over.
But, despite all the negative publicity, she got away with all of it scot-free.What might surprise you even further is that there is no explicit prohibition in the Senate or the Department of Justice on the codes of insider trading.
As of 2020, prosecutors of insider trading cases are burdened with the standard to proof that a tipster received a “personal gain” in return for violating their legal duty to protect the material, non-public information.
When juxtaposed in the real world, defining what constitutes “personal gain” has been immensely challenging. This is because tipsters usually receive things of intangible value, such as friendship with prominent individuals, prestige in socioeconomic strata, or trying to get into the good graces of your in-laws.
Without attaching any monetary value to the suit, this disavows many individuals of the aforementioned liability. Thus, it is easy to see why such a loophole allows many individuals in high public office, think congressmen as well as the heads of many divisions under the United States Senate and the Federal Reserve to operate on a very grey area.
They are routinely exposed to insider information, but it is very unclear what constitutes a direct action based on that information.What makes it worse is that such individuals usually delegate the buying and purchasing of shares and options to their significant other, rather than inputting it under their name.
For example, in the case of Nancy Pelosi, she delegated most of the buying to her spouse, Paul Pelosi, who operates Financial Leasing Services, a venture capital firm.
Without any clearly enshrined or codified statute to explicitly define and criminalise insider trading, the prosecution, SEC and FINRA have largely relied on a slipshod amalgamation of general fraud statutes, such as the Securities Exchange Act, which was drafted in 1934 and is obviously very outdated.
It is a 300-page document that outlines many of the oversight systems that were present in the 1930s, but this is sorely out of place in an era of high-frequency electronic trading systems and where there are so many more market participants than before.
Coffee Tea Investment