Currently viewing the tag: “Insider”
Image by DonkeyHotey via Flickr
War Presidents of the United States of America
The White House Insider and his friend from Ulster had been drinking heavily when we overheard their latest discussion about Barack Hussein Obama. They despise Obama more since he did not “lead from the front” and “attack Madman Gaddafi”.
“The thing is Ulsterman” said the White House Insider “if Sarah Palin was presidentess, hick, she wouldn’t have retreated but would be reloading now. Colat… colater… clatroll… killing innocent people is all part of war and only a pussy would care…”
“Hang on a minute” replied the man from Ulster “I must just nip to the jon.”
We watched the Ulsterman stagger to use the White House Insider’s rather smelly en suite facilities. While he was away the White House Insider continued to talk to himself but his mumbling was so deep that it was difficult to understand his comments. The only words we could decipher were “Palin” and “President” and the phrase “I’d give her one”. We cannot say for sure what (if anything) this meant.
Back Room Warmongers
There was no sound of the toilet flushing to herald the Ulsterman staggering back to the table, the glasses, the bottle of hooch and his drinking partner. Apart from the splatters of urine which now decorated his trouser fronts Ulsterman came back the way he went. He was speaking passionately and reminded my boss of the Reverend Ian Paisley talking about Catholics. The Ulsterman said:
“Blood libel, that’s what we want and that’s what me darling Palin would supply”
The White House Insider belched in agreement and the man from Ulster concluded:
“Supply and demand Whitey, supply and demand. War is just about supply and demand.” After this utterance the Ulsterman went to abuse the en suite again. He didn’t return and we got bored listening to the mumbles of our own madman, the White House Insider.
In US v. O’Hagan, the SCOTUS explained that there are two theories on which one can be held liable for insider trading:
Under the “traditional” or “classical theory” of insider trading liability, §10(b) and Rule 10b-5 are violated when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information. Trading on such information qualifies as a “deceptive device” under §10(b), we have affirmed, because “a relationship of trust and confidence [exists] between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation.” Chiarella v. United States, 445 U.S. 222, 228 (1980). That relationship, we recognized, “gives rise to a duty to disclose [or to abstain from trading] because of the `necessity of preventing a corporate insider from . . . tak[ing] unfair advantage of . . . uninformed . . . stockholders.’ ” Id., at 228-229 (citation omitted). The classical theory applies not only to officers, directors, and other permanent insiders of a corporation, but also to attorneys, accountants, consultants, and others who temporarily become fiduciaries of a corporation. See Dirks v. SEC, 463 U.S. 646, 655, n. 14 (1983).
The “misappropriation theory” holds that a person commits fraud “in connection with” a securities transaction, and thereby violates §10(b) and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information. See Brief for United States 14. Under this theory, a fiduciary’s undisclosed, self serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information. In lieu of premising liability on a fiduciary relationship between company insider and purchaser or seller of the company’s stock, the misappropriation theory premises liability on a fiduciary turned trader’s deception of those who entrusted him with access to confidential information.
The two theories are complementary, each addressing efforts to capitalize on nonpublic information through the purchase or sale of securities. The classical theory targets a corporate insider’s breach of duty to shareholders with whom the insider transacts; the misappropriation theory outlaws trading on the basis of nonpublic information by a corporate “outsider” in breach of a duty owed not to a trading party, but to the source of the information. The misappropriation theory is thus designed to “protec[t] the integrity of the securities markets against abuses by `outsiders’ to a corporation who have access to confidential information that will affect th[e] corporation’s security price when revealed, but who owe no fiduciary or other duty to that corporation’s shareholders.” Ibid.
I had occasion today to look at Wikipedia’s treatment of insider trading. It correctly recognizes that misappropriation is an alternative basis of liability, but in doing so it misstates the misappropriation theory:
A newer view of insider trading, the “misappropriation theory” is now part of US law. It states that anyone who misappropriates (steals) information from their employer and trades on that information in any stock (not just the employer’s stock) is guilty of insider trading.
For example, if a journalist who worked for Company B learned about the takeover of Company A while performing his work duties, and bought stock in Company A, illegal insider trading might still have occurred. Even though the journalist did not violate a fiduciary duty to Company A’s shareholders, he might have violated a fiduciary duty to Company B’s shareholders (assuming the newspaper had a policy of not allowing reporters to trade on stories they were covering).
Let’s start with the claim that liability arises where on “steals” information. As defined by the Court In O’Hagan, however, the misappropriation theory does not deal with theft of inside information-or, at least, not directly-but rather holds that a fiduciary’s undisclosed use of information belonging to his principal, without disclosure of such use to the principal, for personal gain constitutes fraud in connection with the purchase or sale of a security and thus violates Rule 10b-5. Instead of basing liability on stealing information, the Court based the theory on “a fiduciary’s undisclosed, self serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality.”
I’m being a stickler here because this is a longstanding sore point. I have long argued that the only coherent basis for imposing insider trading liability is protection of property rights in information. From a policy perspective, those who steal information ought to be liable for insider trading. The trouble is that O’Hagan cannot be read to permit imposition of liability on such persons.
On to the next problem with the Wikipedia entry. The entry claims that the journalist in the hypothetical “might have violated a fiduciary duty to Company B’s shareholders (assuming the newspaper had a policy of not allowing reporters to trade on stories they were covering).” Wrong. The journalist is an agent of the newspaper and owes the newspaper fiduciary duties regardless of whether or not the company has an explicit policy. Put another way, the journalist’s relevant duties arise out of the employment relationship not a policy in the employee handbook.
What would happen if the newspaper had an explicit policy of allowing journalists to trade on the basis of such information? I discuss that here.
One thing the entry does get right is that “the journalist did not violate a fiduciary duty to Company A’s shareholders.”
The misappropriation theory’s origins are commonly traced to Chief Justice Burger’s Chiarella dissent. Burger contended that the way in which the inside trader acquires the nonpublic information on which he trades could itself be a material circumstance that must be disclosed to the market before trading. Accordingly, he argued, “a person who has misappropriated nonpublic information has an absolute duty [to the persons with whom he trades] to disclose that information or to refrain from trading.”
In O’Hagan, the court’s majority opinion grounded liability under the misappropriation theory on deception of the source of the information. As the majority interpreted the theory, it addresses the use of “confidential information for securities trading purposes, in breach of a duty owed to the source of the information.” Under this theory, the majority explained, “a fiduciary’s undisclosed, self-serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information.” So defined, the majority held, the misappropriation theory satisfies § 10(b)’s requirement that there be a “deceptive device or contrivance” used “in connection with” a securities transaction.
The Supreme Court thus expressly declined to embrace Chief Justice Burger’s argument in Chiarella that the misappropriation theory created a disclosure obligation running to those with whom the misappropriator trades. Instead, it is the failure to disclose one’s intentions to the source of the information that constitutes the requisite disclosure violation under the O’Hagan version of the misappropriation theory.
The WSJ reports that:
David Sokol, widely seen as the leading contender to succeed billionaire Warren Buffett at the helm of Berkshire Hathaway Inc., defended himself Thursday morning after resigning unexpectedly amid surprising revelations about his personal stock trading.
In an unusual and personal announcement Wednesday evening, Mr. Buffett said the resignation followed revelations that Mr. Sokol had purchased roughly $ 10 million in shares of a chemicals company that Berkshire recently agreed to buy at the suggestion of Mr. Sokol, Lubrizol Corp.
“I don’t believe I did anything wrong,” Mr. Sokol said in an interview on CNBC. “I don’t think you can ask executives not to invest their own families’ capital.” …
Mr. Buffett said Mr. Sokol, 54 years old, had bought 96,060 shares in January, before Berkshire reached a $ 9 billion deal to acquire the company. Berkshire’s purchase price of $ 135 per share meant that Mr. Sokol’s stake rose $ 3 million in value. …
Securities lawyers debated whether Mr. Sokol’s dealings could fall into a gray legal area. In broad terms, insider trading laws prohibit individuals from trading on shares based on material nonpublic information in violation of some duty of trust.
One key question, lawyers say, is whether Mr. Sokol knew that he would pitch a Lubrizol deal to Mr. Buffett, or even that he might do so, at the time he bought Lubrizol shares. If Mr. Sokol did know at that time, that could suggest he had material information at the time he bought the shares, lawyers said.
However, lawyers said it could be hard to show that Mr. Sokol misappropriated information in breach of a duty to Berkshire. A question would be whether in buying shares he wrongly used knowledge about what Berkshire was likely to do.
It’s hard to see how what Sokol did qualifies as insider trading under SEC Rule 10b-5. The classic disclose or abstain theory doesn’t apply because Sokol didn’t trade in the stock of the company of which he is an insider. So you’d have to rely on the misappropriation theory. The trouble here is that the SCOTUS in US v. O’Hagan made clear that liability is premised on the use of “confidential information for securities trading purposes, in breach of a duty owed to the source of the information.” Under this theory, the majority explained, “a fiduciary’s undisclosed, self-serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information.” If Sokol traded before Berkshire made any decisions, did he really trade on the base of confidential information belonging to Berkshire-Hathaway? In effect, he traded on the basis of what he knew that HE intended to do. Even though he’s an agent of Berkshire, I’m not sure trading on the basis of the knowledge that he was going to pitch a takeover to his boss counts as inside information.
Larry Ribstein opines:
Sokol may have had material information when he bought his second batch of shares: i.e., that he was going to pitch the company to Buffett. Although he didn’t know whether Buffett would go for it, a company’s just being pitched to Buffett by a trusted insider likely increases its value. [Update: See Sorkin: “though he had no control over Mr. Buffett’s ultimate decision, he was one of a select few who were in a position to influence such a transaction.”]
But did Sokol breach a duty to Berkshire? The company policy says employees should ask “themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper—to be read by their spouses, children and friends—with the reporting done by an informed and critical reporter.”
On the other hand, Buffett knew. On the third hand, did Buffett know the extent of Sokol’s ownership, or the fact that he bought the shares knowing of Berkshire’s possible interest? On the fourth hand, it seems highly unlikely Sokol thought he was doing anything wrong.
The WSJ reports that:
David Sokol, widely seen as the leading contender to succeed billionaire Warren Buffett at the helm of Berkshire Hathaway Inc., defended himself Thursday morning after resigning unexpectedly amid surprising revelations about his personal stock trading.
In an unusual and personal announcement Wednesday evening, Mr. Buffett said the resignation followed revelations that Mr. Sokol had purchased roughly $ 10 million in shares of a chemicals company that Berkshire recently agreed to buy at the suggestion of Mr. Sokol, Lubrizol Corp.
“I don’t believe I did anything wrong,” Mr. Sokol said in an interview on CNBC. “I don’t think you can ask executives not to invest their own families’ capital.” …
Mr. Buffett said Mr. Sokol, 54 years old, had bought 96,060 shares in January, before Berkshire reached a $ 9 billion deal to acquire the company. Berkshire’s purchase price of $ 135 per share meant that Mr. Sokol’s stake rose $ 3 million in value. …
Securities lawyers debated whether Mr. Sokol’s dealings could fall into a gray legal area. In broad terms, insider trading laws prohibit individuals from trading on shares based on material nonpublic information in violation of some duty of trust.
One key question, lawyers say, is whether Mr. Sokol knew that he would pitch a Lubrizol deal to Mr. Buffett, or even that he might do so, at the time he bought Lubrizol shares. If Mr. Sokol did know at that time, that could suggest he had material information at the time he bought the shares, lawyers said.
However, lawyers said it could be hard to show that Mr. Sokol misappropriated information in breach of a duty to Berkshire. A question would be whether in buying shares he wrongly used knowledge about what Berkshire was likely to do.
It’s hard to see how what Sokol did qualifies as insider trading under SEC Rule 10b-5. The classic disclose or abstain theory doesn’t apply because Sokol didn’t trade in the stock of the company of which he is an insider. So you’d have to rely on the misappropriation theory. The trouble here is that the SCOTUS in US v. O’Hagan made clear that liability is premised on the use of “confidential information for securities trading purposes, in breach of a duty owed to the source of the information.” Under this theory, the majority explained, “a fiduciary’s undisclosed, self-serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information.” If Sokol traded before Berkshire made any decisions, did he really trade on the base of confidential information belonging to Berkshire-Hathaway? In effect, he traded on the basis of what he knew that HE intended to do. Even though he’s an agent of Berkshire, I’m not sure trading on the basis of the knowledge that he was going to pitch a takeover to his boss counts as inside information.
Larry Ribstein opines:
Sokol may have had material information when he bought his second batch of shares: i.e., that he was going to pitch the company to Buffett. Although he didn’t know whether Buffett would go for it, a company’s just being pitched to Buffett by a trusted insider likely increases its value. [Update: See Sorkin: “though he had no control over Mr. Buffett’s ultimate decision, he was one of a select few who were in a position to influence such a transaction.”]
But did Sokol breach a duty to Berkshire? The company policy says employees should ask “themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper—to be read by their spouses, children and friends—with the reporting done by an informed and critical reporter.”
On the other hand, Buffett knew. On the third hand, did Buffett know the extent of Sokol’s ownership, or the fact that he bought the shares knowing of Berkshire’s possible interest? On the fourth hand, it seems highly unlikely Sokol thought he was doing anything wrong.
Barack Hussein Obama and the Libyan No Fly Zone
The world waited with baited breath for the 44th president of the United States of America to act on the Libyan crisis. Pundits loyal to this usurping president – who was born outside the US of A, has a forged birth certificate and a secret mosque beneath the White House (you heard it here first) – will say this procrastination was due to heartfelt worries about murdering innocent men, women and (worst still) children. The White House Insider tells another tale.
Image via Wikipedia
Michelle Obama’s Problem
The truth is that the secret Muslim president was actually delayed in coming to a decision about Libya because of Michelle Obama’s problem. Big Bum Michelle, as she is referred to by Tea Bags who profess that they are no way racist but have never heard of misogyny, just could not decide. I mean, should the new color of the ceiling be white or should she introduce a different shade? Should the snot green walls be changed to a more healthy yellow? You can see Michelle’s problem illustrated in the photographic evidence below.
Barack Hussein Obama a Muslim and a Loyal Husband
“Say what you like about Barack Hussein Obama” said the White House Insider “but do not say he is a disloyal husband. Apart from anything else, Michelle Obama has done Voodoo on him so Barack will not be going anywhere else. Of course, this Voodoo spell has further ramific… ramificas… ramifi whatsernames. The most unfortunate of these (apart from Obamacare and running the country for the Koch brothers) is that if Michelle clicks her fingers the 44th president comes a running”.
The Delayed Libyan Decision
The decision as to whether to get involved in the Libyan No Fly Zone and preventing the West’s friend Madman Gaddafi from slaughtering the Libyan population was delayed because Michelle Obama wanted his input (so to speak) on the colors to adopt in the White House Lounge. What really angered the White House Insider and, indeed, drove him to the demon drink again, was the way Michelle summoned Laura Bush to the White House to ask her opinion. See the proof of this meeting in the picture below which we retrieved from the White House Insider’s secret camera before he passed out the worst for wear and a bottle of hooch.
Image via Wikipedia Laura Bush summoned to the White House by Michelle Obama to give her some advice on the new color scheme for the White House lounge. Proof that everything contained in this article is true!
Image via Wikipedia Michelle Obama is not only fat as this photograph which had to be photoshopped proves but has also done Voodoo on Barack. If you believe this or anything else in this article you must be very stupid or Sarah Palin.
Image by DonkeyHotey via Flickr
The White House Insider Diary Entry 11:00 March 8th 2011
Today was the day I decided to get to the bottom of the matter. It had long irked me that this so called 44th President was an interloper and despite my successful attempts to prove he:
- possessed a false birth certificate
- was born outside the good old US of A
- was a Muslim
- had – through the employ of a secret building contractor – had a Mosque carved from the rock beneath the White House’s foundations.
- was regularly holding talks with aliens from the planet Zarg
- was regularly holding talks with aliens from the planet Grimblob
- was regularly holding talks with aliens from the planet Quimblast
- spoke via a black hole (no pun intended) to the alternative universe where an alternative president ruled an alternative US of B
President Barack Hussein Obama was still held dear by the people of the good old US of A. No matter what I reveal this president sits pretty. He damned approval rating is pushing back up slowly but surely. Why did mud not stick to him? By the end of this propitious day I will hold sufficient information to bring him down.
The White House Insider Diary Entry 14:50 March 8th 2011
Things have not gone as I planned. I met my friend with no name, you know diary, the man with the long face who came from Ulster in Northern Ireland. We had a few drinks and a few more and then I asked him what it was like in Derry. This was a mistake of course. While we were rolling around on the floor fighting I discovered why. Calling his hometown Derry was an insult so big it led to an automatic fight. While rolling about on the floor with this Ulsterman atop me I discovered I would always refer to this town as Londonderry. It was the Loyalist way. Unfortunately I also discovered that I had missed my chance of catching the 44th president of the US of A up to anythinmg untoward… I’d passed out in the rest room… again. I must stop drinking diary. Please help me!
The White House Insider Diary Entry 19:20 March 9th 2011
Spent the day in bed. Note to self try to avoid Ulsterman and must stop drinking alcohol. Please help me do this diary!
The White House Insider Diary Entry 14:00 March 10th 2011
Bingo! I found a package of green herbal substance in the president’s kitchen earlier. I have taken it to my contact in the CIA and I am expecting the results of the analysis of the substance later. I know that the substance is marijuana but I will wait for official clarification. Hey diary, good idea to have booked a press conference later today or what? All the press and TV media will be there when I take the podium and announce that the 44th president of the US of A needs to be impeached for smoking marijuana. Can’t wait.
The White House Insider Diary Entry 22:00 March 10th 2011
That man has done it again. The press conference was a nightmare. The rumours that I had found evidence of drug use by the 44th president were out. All I had to do was to confirm them and show them the package with the president’s finger prints. I had the package in my hands, the press were frantically taking photos. Then I had to announce, in the manner of an Obama supporter, that the President of the nited States does not use drugs of any king, including marijuana. I had to add that because of its free radicals and antioxidants, the president did however drink green tea. Green tea, I had to add and seemingly insult my good friends in the Tea Party, is better for health than black tea.
Image via Wikipedia
Image by DonkeyHotey via Flickr
The White House Insider Diary Entry 11:00 March 8th 2011
Today was the day I decided to get to the bottom of the matter. It had long irked me that this so called 44th President was an interloper and despite my successful attempts to prove he:
- possessed a false birth certificate
- was born outside the good old US of A
- was a Muslim
- had – through the employ of a secret building contractor – had a Mosque carved from the rock beneath the White House’s foundations.
- was regularly holding talks with aliens from the planet Zarg
- was regularly holding talks with aliens from the planet Grimblob
- was regularly holding talks with aliens from the planet Quimblast
- spoke via a black hole (no pun intended) to the alternative universe where an alternative president ruled an alternative US of B
President Barack Hussein Obama was still held dear by the people of the good old US of A. No matter what I reveal this president sits pretty. He damned approval rating is pushing back up slowly but surely. Why did mud not stick to him? By the end of this propitious day I will hold sufficient information to bring him down.
The White House Insider Diary Entry 14:50 March 8th 2011
Things have not gone as I planned. I met my friend with no name, you know diary, the man with the long face who came from Ulster in Northern Ireland. We had a few drinks and a few more and then I asked him what it was like in Derry. This was a mistake of course. While we were rolling around on the floor fighting I discovered why. Calling his hometown Derry was an insult so big it led to an automatic fight. While rolling about on the floor with this Ulsterman atop me I discovered I would always refer to this town as Londonderry. It was the Loyalist way. Unfortunately I also discovered that I had missed my chance of catching the 44th president of the US of A up to anythinmg untoward… I’d passed out in the rest room… again. I must stop drinking diary. Please help me!
The White House Insider Diary Entry 19:20 March 9th 2011
Spent the day in bed. Note to self try to avoid Ulsterman and must stop drinking alcohol. Please help me do this diary!
The White House Insider Diary Entry 14:00 March 10th 2011
Bingo! I found a package of green herbal substance in the president’s kitchen earlier. I have taken it to my contact in the CIA and I am expecting the results of the analysis of the substance later. I know that the substance is marijuana but I will wait for official clarification. Hey diary, good idea to have booked a press conference later today or what? All the press and TV media will be there when I take the podium and announce that the 44th president of the US of A needs to be impeached for smoking marijuana. Can’t wait.
The White House Insider Diary Entry 22:00 March 10th 2011
That man has done it again. The press conference was a nightmare. The rumours that I had found evidence of drug use by the 44th president were out. All I had to do was to confirm them and show them the package with the president’s finger prints. I had the package in my hands, the press were frantically taking photos. Then I had to announce, in the manner of an Obama supporter, that the President of the nited States does not use drugs of any king, including marijuana. I had to add that because of its free radicals and antioxidants, the president did however drink green tea. Green tea, I had to add and seemingly insult my good friends in the Tea Party, is better for health than black tea.
Image via Wikipedia
Cases against federal employees alleging insider trading have been very rare. Interestingly, however, almost concurrently with the reintroduction of the STOCK Act to ban such trading comes news that the SEC has charged a Food and Drug Administration employee with insider trading:
The Securities and Exchange Commission today charged a U.S. Food and Drug Administration (FDA) chemist with insider trading on confidential information about upcoming announcements of FDA drug approval decisions, generating more than $ 3.6 million in illicit profits and avoided losses.
The SEC alleges that Cheng Yi Liang illegally traded in advance of at least 27 public announcements about FDA drug approval decisions involving 19 publicly traded companies. Some announcements concerned the FDA’s approval of new drugs while others concerned negative FDA decisions. In each instance, he traded in the same direction as the announcement. Liang went to great lengths to conceal his insider trading. He traded in seven brokerage accounts, none of which were in his name. One belonged to his 84-year-old mother who lives in China. …
Daniel M. Hawke, Chief of the SEC’s Market Abuse Unit, added, “The insider trading laws apply to employees of the federal government just as they do to Wall Street traders, corporate insiders, or hedge fund executives. Many government agencies like the FDA routinely possess and generate confidential market-moving information. Federal employees who misappropriate such information to engage in insider trading risk exposing themselves to potential civil and criminal charges for violating the federal securities laws.”
Employees, yes. members of Congress, not so much. I explain all in Insider Trading Inside the Beltway:
In United States v. O’Hagan, the US SCOTUS grounded liability under the misappropriation theory on deception of the source of the information; the theory addresses the use of “confidential information for securities trading purposes, in breach of a duty owed to the source of the information.”[1] According to the Court, “a fiduciary’s undisclosed, self serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information.”[2] So defined, the Court held, the misappropriation theory satisfies § 10(b)’s requirement that there be a “deceptive device or contrivance” used “in connection with” a securities transaction.[3]
Where a Member of Congress, a Congressional staffer, or other government information obtains material nonpublic information in the course of their duties and then uses it to trade in the stock of the relevant issuer, their conduct could be colloquially described as a theft of the information, but under O’Hagan any potential insider trading liability under the misappropriation theory would require proof of a duty of disclosure between the official and the source of the information.
The Standards of Ethical Conduct for Employees of the Executive Branch provide that: “Public service is a public trust, requiring employees to place loyalty to the Constitution, the laws and ethical principles above private gain.”[1] Accordingly, an employee of the Executive Branch should be deemed an agent of the government or, at least, to stand in a similar relationship of trust and confidence with the government.[2] The Standards further provide that: “An employee shall not engage in a financial transaction using nonpublic information, nor allow the improper use of nonpublic information to further his own private interest or that of another, whether through advice or recommendation, or by knowing unauthorized disclosure.”[3] As such, the relationship between the government and one of its employees is such that the undisclosed use by the latter of information gained in the course of his employment would give rise to liability under the misappropriation theory.
So this should be a very straightforward case.
The interesting question is whether this case portends greater SEC attention to insider trading by government employees. There’s a lot of chatter these days about political intelligence, but that’s not this case. This is classic insider trading by somebody with access to confidential information.
Moreover, it’s insider trading by a guy who made classic boneheaded errors:
The SEC alleges that Liang used the trading profits for his own personal benefit. Checks totaling at least $ 1.2 million were written from the accounts he used for trading to a bank account in his name, to him or his wife directly, or to credit card companies to pay off balances in accounts in his or his wife’s name. Nearly $ 65,000 worth of checks were written from the brokerage accounts to car dealerships to purchase vehicles later registered to Liang and his wife.
Hint: If you live on a government salary, don’t start depositing hundreds of thousands of dollars into your personal bank accounts. If you went to the trouble of using 7 brokerage accounts under false names to hide your trail, don’t then write checks on those accounts to buy yourself a car.
My guess is that the SEC got a tip that something wasn’t kosher w/r/t Liang. Once they subpoenaed this financial records the whole thing would have unraveled very quickly.
[1] 5 C.F.R. § 2635.101. I assuming here that government ethics rules embodied in the terms of employment of government employees banning the use of nonpublic information for personal gain will be deemed to constitute the requisite agreement. In fact, however, the question of whether an employee handbook constitutes a contract arises in many legal settings and, in general, does not admit of easy resolution. See generally 19 Williston on Contracts § 54:10 (4th ed. 2009) (discussing cases).
[2] Joseph Kalo, Deterring Misuse of Confidential Government Information: A Proposed Citizens’ Action, 72 Mich. L. Rev. 1577, 1581 (1974) (“The application of fiduciary duties to activities of government employees is not novel.”).
[3] 5 C.F.R. § 2634.703(a). Nonpublic information is defined for this purpose as “information that the employee gains by reason of Federal employment and that he knows or reasonably should know has not been made available to the general public.” Id., § 2634.703(b).
 National Post |
Fantasy Insider: Analysis for the Shell Houston Open
PGA Tour Next week's Masters field stands at 99 following the withdrawal of Bernhard Langer, who is out two months following surgery on his left thumb. If not already eligible, the champion of this week's Shell … Shell renews contract with Houston Open Shell extends sponsorship of Houston Open for five more years Shell Oil extends sponsorship of Houston Open |
BNA reports that:
Rep. Louise Slaughter (D-N.Y.) introduced a bill March 17 that would prohibit members of Congress and federal employees from profiting, or helping others profit, from non-public information—primarily through stock and futures trading—gleaned through their access to privileged, political-based information.
In a March 18 statement, Slaughter’s office said the Stop Trading on Congressional Knowledge Act would foster greater oversight of “the growing ‘political intelligence’ industry.” Slaughter said the legislation, H.R. 1148, which is co-sponsored by Rep. Tim Walz (D-Minn.), “is about fairness and transparency.” Similar bills introduced several times since 2006 have failed to gain traction.
The bill would level the playing field between corporate and congressional insiders. While the federal securities laws already prohibit trading on material nonpublic corporate information, there is no analogous restriction for information gained in the course of government service.
The bill would amend the 1934 Securities Exchange Act and the Commodity Exchange Act to make it illegal for congressmen and their staffs to trade based on information picked up through knowledge of pending or prospective legislation. It has been referred to the committees on Financial Services, Agriculture, Judiciary, and Administration.
In the statement explaining the bill, Slaughter’s office said “there is reason to believe some members of Congress or their staff may have shared nonpublic information about current or upcoming congressional activities with individuals outside of Congress working for political intelligence firms.” It said that indications were that the information was used for “investment purposes.” The statement added that “the increase in the number of political intelligence firms suggests that the leaking of nonpublic congressional information occurs regularly.” …
Slaughter and Rep. Brian Baird (D-Wash.) introduced similar bills in 2009, 2006, and 2007 (41 SRLR 153, 2/2/09). While the bills failed to pass, a Financial Services subcommittee held an oversight hearing on the topic in July 2009 (41 SRLR 1358, 7/20/09).
My article Insider Trading Inside the Beltway reviewed the need for and analyzed the potential effectiveness of the 2009 version. The abstract follows:
A 2004 study of the results of stock trading by United States Senators during the 1990s found that that Senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade.
Under current law, it is unlikely that Members of Congress can be held liable for insider trading. The proposed Stop Trading on Congressional Knowledge Act addresses that problem by instructing the Securities and Exchange Commission to adopt rules intended to prohibit such trading.
This article analyzes present law to determine whether Members of Congress, Congressional employees, and other federal government employees can be held liable for trading on the basis of material nonpublic information. It argues that there is no public policy rationale for permitting such trading and that doing so creates perverse legislative incentives and opens the door to corruption. The article explains that the Speech or Debate Clause of the U.S. Constitution is no barrier to legislative and regulatory restrictions on Congressional insider trading. Finally, the article critiques the current version of the STOCK Act, proposing several improvements.
Rahm Emanuel didn’t go back to Chicago to help protect Barack Obama. Rahm Emanuel went back to Chicago to have the power to help destroy the whole myth of Barack Obama – or even more importantly, to destroy Valerie Jarrett and her entire collection of kooks that is the Obama White House. The bodies buried in Chicago…it’s time for somebody to start digging them up don’t you think? Who better to do that than Rahm Emanuel…
You really think Rahm Emanuel would do that? He would be willing to take on the Obama White House?
Yes. That doesn’t mean he will do that – but he would do that if the necessary. And he might just feel it’s necessary these days. I just wanted to make it clear to your readers that Rahm Emanuel is not on the side of Valerie Jarrett and Michelle and Barack Obama. Listen to what I’m saying right now very closely…if a story comes out relating to the Obamas and links back directly to Chicago, Rahm Emanuel will have played a part in that. When he won the race for mayor…that race – that victory, was a victory against Jarrett. Against Obama. They were working against Rahm but they couldn’t go too far against him because Rahm could push back – hard. Granted, it would make it a hell of a lot easier if there was some help from the Republicans in the House – Issa…
(Interrupts) How was Jarrett working against Rahm? And what about Bill Daley replacing Rahm? There has to be a connection there.
Sure-sure…let me talk here though, ok? Just let me have my say for a bit.
Sorry. Go ahead.
Regarding Rahm and the election – the mayoral race. I know you already did some work on this – good work. People…not enough people, were really paying attention to what was going on with that race. It was so very clear to those who were paying attention just how forceful the Obama White House, and when I use that term I basically mean to say Valerie Jarrett – how forceful Valerie Jarrett was attempting to remove Rahm from the ballot. Burt Odelson was the attorney who was the main guy, the one who was putting up the strongest legal challenge, right? The same Burt Odelson who is the legal extension for one of Chicago’s most powerful labor unions – #134. He also played a hand in trying to get Obama’s good buddy Alexi elected to Obama’s former Senate seat. I know you covered some of this- but it’s worth repeating here now. Alexi of course is Broadway Bank. The Broadway Bank. A failed bank with ties to the mob. A failed bank that housed Obama’s own campaign financing back in the day. A failed bank that magically had the feds give a pass most recently regarding some very odd accounting practices.
So we have this very politically connected – very labor union connected, attorney attempting to work the system to prevent Rahm Emanuel from even getting on the ballot. Now think about that move. Who did a very similar thing not so long ago to secure an election? Removing opponents from the ballot? Who is already well practiced in that kind of thing? Barack Obama. It is exactly how he won the election in 1996 – he removed opposition from the ballot. Was it any coincidence that the very same thing was being used against Rahm Emanuel? Valerie Jarrett and the unions came after Rahm. Rahm won. They lost. I guarantee you the White House is not sleeping so soundly because of that.
As for Bill Daley going to the White House…I’m not privy to the exact nature of that arrangement, but am pretty certain it was part of some deal. What part Rahm is playing in that, I don’t know. Rahm is friendly with the Daleys. More so Bill than Mayor Daley…the Clinton years. The two respect each other. Jarrett did not want Daley in – I shared that with you before, right? She allowed it because she had to, not because she wanted to. And you should know that the Mayor Daley was never completely sold on Obama. That is my understanding. He knows Jarrett well of course, but that relationship is not as close today as some might think. She has “gone off the reservation” one too many times apparently, and the mayor is not so supportive of her, and perhaps even less so of Obama. But people shouldn’t confuse Bill Daley with his brother – the mayor. Mayor Daley is king of Chicago, right? Bill is much more a national Democrat. He is far more accomplished on the national level. He is a good Democrat. A good man. He’s the kind of guy—
(Interrupts) So what is he doing at the Obama White House? What—
(Interrupts) Give me a chance to get there – I’m getting to that if you’ll let me. What I’m saying to you is that Bill Daley is a good Democrat, right? Jarrett, Obama…they aren’t Democrats. At least not in the traditional sense. They’re something -expletive- else. Bill Daley is a solid Democrat. Smart guy. Very smart. I believe…been told here and there – I believe Daley was sent to the White House by certain party donors to straighten things out. Patch it up as best as possible and to minimize the damage Jarrett and Obama were inflicting on the Democratic Party. The brand name has been absolutely -expletive- by Obama. People have had it with that you know. And so you send a guy like Daley in there to try and repair some of that damage and prevent more of it from happening. That is his role – and he’s doing it for the party, not for Obama, and certainly not for Jarrett. Otherwise, whether it’s 2012, or 2016…the Democrats will be so damaged…it would be 2010 all over again.
I know you wanted me to talk some about 2012 – what I think will happen there based on what I already know or have been told. I’m gonna do that for you, but I want to share something else with you first. I want to make it very clear to you just how isolated Valerie Jarrett is becoming. She may run that White House, but she sure as hell doesn’t run the party. She has pissed off a lot of people – people with influence. People with money. If it wasn’t for her relationship with the First Lady, if it wasn’t for the fact she probably has more goods on the Obamas than anyone, Valerie Jarrett would have been removed from this administration long ago. For now, it’s a stalemate – but she’s far more concerned these days about her place in the administration than ever before – and we have Bill Daley to thank for that. I told you before to watch for the power play that was going to take place between those two, right? It’s unfolding right now. Daley has already minimized Jarrett’s influence with Congressional Democrats, while building much more influence with Republicans in Congress. The Chamber of Commerce thing? Jarrett was opposed – she despises the business community outside of her own limited previous experience. Daley pushed Obama into that- all but demanded it, and he won out. But he ain’t doing it for Obama – he’s doing it for the party, and I have such great respect for that. Most Americans have no idea who Bill Daley is. I’m telling you right now he might very well be the guy who is saving this country – and that is no exaggeration. The president…Barack Obama… is a puppet. Knowing that requires you figure out who’s pulling the-expletive- strings, right? That was almost entirely Valerie Jarrett, with some help from the First Lady. That’s why you see Obama trying so hard to project this masculinity, right? This blackness thing, right? Despite the fact he grew up raised by a white family for the most part – upper middle class Hawaii ain’t exactly the hood, right? (Laughs) Why does somebody do that? It’s a cover. It’s to hide the weakness inside them, and let me tell you, Barack Obama is one weak, -expletive-. So now we have Bill Daley in there pushing back against the bullshit progressive crap of Valerie Jarrett and Michelle Obama. Maybe we get some semblance of goddamn sanity in the White House – God willing!
You have to explain what you just said a bit more. You called Obama a puppet – that description certainly isn’t new. But you also implied he’s controlled by women – at least I think that is what your meaning was. Is that correct?
Yeah – hell yes that’s correct. Look, President Obama is incapable of making a decision. Anyone who tries to argue against that fact is simply avoiding the truth. We’ve had two years to prove that, right? The man cannot decide on anything himself. He waits to be told what to think. That is how he functions, if you can call it that. He’s a barely functioning president, and that is a big reason why the situation is so dangerous. His primary source of direction is Valerie Jarrett, who has no real experience with this kind of leadership. She manipulates. She schemes. She’s a product of the most radicalized section of Chicago. I’ve said all of this before, right? And the First Lady is cut from the exact same cloth. And so they take this weak man, who has been told what to say and think all of his life, and they continue to do just that – tell him what to think and say. But that’s where things are falling apart – Valerie Jarrett doesn’t really understand national politics, or international leadership – most people don’t. So the messaging that comes from the president is uncertain because it’s Jarrett’s uncertainty we are seeing. Jarrett understands some of what is going on in the country, but Obama understands none of it, and so between the two of them, we get this president who is almost completely detached from the responsibilities of being President of the United States. Take away the canned political speech, take away the like minded crowds of supporters, and President Obama is completely lost. He has been running away from the job of president since day one hasn’t he? Does anyone really believe that isn’t true anymore?
But you still say Obama will most likely be re-elected in 2012 – which brings us to the next election cycle, and how the Republicans might defeat Obama. You promised me you would share your thoughts on that.
That’s right…
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The White House Insider Diary Entry 11:00 March 8th 2011
Today was the day I decided to get to the bottom of the matter. It had long irked me that this so called 44th President was an interloper and despite my successful attempts to prove he:
- possessed a false birth certificate
- was born outside the good old US of A
- was a Muslim
- had – through the employ of a secret building contractor – had a Mosque carved from the rock beneath the White House’s foundations.
- was regularly holding talks with aliens from the planet Zarg
- was regularly holding talks with aliens from the planet Grimblob
- was regularly holding talks with aliens from the planet Quimblast
- spoke via a black hole (no pun intended) to the alternative universe where an alternative president ruled an alternative US of B
President Barack Hussein Obama was still held dear by the people of the good old US of A. No matter what I reveal this president sits pretty. He damned approval rating is pushing back up slowly but surely. Why did mud not stick to him? By the end of this propitious day I will hold sufficient information to bring him down.
The White House Insider Diary Entry 14:50 March 8th 2011
Things have not gone as I planned. I met my friend with no name, you know diary, the man with the long face who came from Ulster in Northern Ireland. We had a few drinks and a few more and then I asked him what it was like in Derry. This was a mistake of course. While we were rolling around on the floor fighting I discovered why. Calling his hometown Derry was an insult so big it led to an automatic fight. While rolling about on the floor with this Ulsterman atop me I discovered I would always refer to this town as Londonderry. It was the Loyalist way. Unfortunately I also discovered that I had missed my chance of catching the 44th president of the US of A up to anythinmg untoward… I’d passed out in the rest room… again. I must stop drinking diary. Please help me!
The White House Insider Diary Entry 19:20 March 9th 2011
Spent the day in bed. Note to self try to avoid Ulsterman and must stop drinking alcohol. Please help me do this diary!
The White House Insider Diary Entry 14:00 March 10th 2011
Bingo! I found a package of green herbal substance in the president’s kitchen earlier. I have taken it to my contact in the CIA and I am expecting the results of the analysis of the substance later. I know that the substance is marijuana but I will wait for official clarification. Hey diary, good idea to have booked a press conference later today or what? All the press and TV media will be there when I take the podium and announce that the 44th president of the US of A needs to be impeached for smoking marijuana. Can’t wait.
The White House Insider Diary Entry 22:00 March 10th 2011
That man has done it again. The press conference was a nightmare. The rumours that I had found evidence of drug use by the 44th president were out. All I had to do was to confirm them and show them the package with the president’s finger prints. I had the package in my hands, the press were frantically taking photos. Then I had to announce, in the manner of an Obama supporter, that the President of the nited States does not use drugs of any king, including marijuana. I had to add that because of its free radicals and antioxidants, the president did however drink green tea. Green tea, I had to add and seemingly insult my good friends in the Tea Party, is better for health than black tea.
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Obama administration appointees in the Department of Homeland Security purposely stonewalled Freedom of Information Act (FOIA) requests by journalists and citizens, according to emails obtained by The Associated Press. This disclosure comes days before Rep. Darrell Issa (R-CA) is to hold an oversight hearing on the agency’s handing of FOIAs — including the claim that information requests were vetted for political reasons.
In the emails, Chief Privacy Officer Mary Ellen Callahan — who was responsible for handing over FOIA requested documents to be scrutinized before release — complained about the laborious process, and went so far as to suggest that the department might be sued over the unreasonable delays.
From the AP:
“This level of attention is CRAZY,” Callahan wrote in December 2009 to her then-deputy, Catherine Papoi. Callahan said she hoped someone outside the Obama administration would discover details of the political reviews, possibly by asking for evidence of them under the Freedom of Information Act itself: “I really really want someone to FOIA this whole damn process,” Callahan wrote…
They [the emails] show that insiders described the unusual political vetting as “meddling,” “nuts” and “bananas!” Together with other confidential emails obtained by the AP for the first time, the files reflect deep unease about the reviews and included allegations that Napolitano’s senior political advisers might have hidden embarrassing or sensitive emails that journalists and watchdog groups had requested. The government said this didn’t happen.
On Thursday, Callahan is expected to testify before the House Oversight and Government Reform Committee, during a hearing titled “Why Isn’t the Department of Homeland Security Meeting the President’s Standard on FOIA?”
Obama administration appointees in the Department of Homeland Security purposely stonewalled Freedom of Information Act (FOIA) requests by journalists and citizens, according to emails obtained by The Associated Press. This disclosure comes days before Rep. Darrell Issa (R-CA) is to hold an oversight hearing on the agency’s handing of FOIAs — including the claim that information requests were vetted for political reasons.
In the emails, Chief Privacy Officer Mary Ellen Callahan — who was responsible for handing over FOIA requested documents to be scrutinized before release — complained about the laborious process, and went so far as to suggest that the department might be sued over the unreasonable delays.
From the AP:
“This level of attention is CRAZY,” Callahan wrote in December 2009 to her then-deputy, Catherine Papoi. Callahan said she hoped someone outside the Obama administration would discover details of the political reviews, possibly by asking for evidence of them under the Freedom of Information Act itself: “I really really want someone to FOIA this whole damn process,” Callahan wrote…
They [the emails] show that insiders described the unusual political vetting as “meddling,” “nuts” and “bananas!” Together with other confidential emails obtained by the AP for the first time, the files reflect deep unease about the reviews and included allegations that Napolitano’s senior political advisers might have hidden embarrassing or sensitive emails that journalists and watchdog groups had requested. The government said this didn’t happen.
On Thursday, Callahan is expected to testify before the House Oversight and Government Reform Committee, during a hearing titled “Why Isn’t the Department of Homeland Security Meeting the President’s Standard on FOIA?”
Politico profiles Steve Clemons, leader of the heterodox Afghanistan Study Group and blogger at The Washington Note, in a splashy, above-the-fold, front-page feature. Presented as the outsider’s insider, the piece emphasizes Clemons’ conciliatory approach. His “frenemies” at AIPAC call his ideas “out of the mainstream,” but Clemons still refuses to let his allies demonize the Israel Lobby:
… please don’t demonize [AIPAC]. I don’t do it — I just debate issues with them and just don’t want that angle to distract from the bigger policy battles.
Clemons is right to stay focused on policy issues. Too often opposition to the foreign policy consensus descends into drawing horns on the neocons, leading only to easy marginalization. Clemons may not be used to the kind of front-page attention he’s getting today — but let’s hope that it signals that his ideas are not as “out of the mainstream” as his frenemies would suggest.
But perhaps the most interesting bit comes at the end of the profile, with Clemons signaling that he might support a Jon Huntsman presidential bid:
I think Jon Huntsman is terrific,” he said in a recent email. “I do and have talked with him on many occasions. Last met him at his office in Beijing but looking forward to seeing him soon at his new home in Kalorama. He reminds me of Chuck Hagel — and I might support him if he runs. I think he’d make a great president.
