When we covered the lawsuit targeting GameStop’s Keith Kill in February, it became clear that the law seems to apply differently to politicians and other insider trading brokers. Since the Kodak scandal erupted and covid-informed senators were cleared, insider trading within the political class is now seen as something to be expected, if not useful.
Nancy Pelosi – A lucrative political career
After it became public that Nancy Pelosi bought Tesla Calls ahead of the Biden administration’s goals for electric vehicles by 2030, retail traders took this behavior as another tool to add to their set of ‘trading tools. Nancy Pelosi has become a person to watch, playing a role similar to that of eToro’s CopyTrader.
After all, in the infamous showdown with veteran journalist Stephen Kroft from 60 minutes, the current Speaker of the House offered no response other than the deviation regarding his conflict of interest with the purchase of VISA shares. That was over 10 years ago. Nothing has changed much since, Nancy Pelosi continuing to outperform the indices by a significant margin.
Now even dedicated TikTok channels have emerged to copy Pelosi’s husband’s stock trades. If you’re wondering why politicians are so openly disclosing their transactions, they are required to do so under the Stocks Act, enacted in April 2012, to prevent politicians from getting an insider knowledge advantage. This begs the question, what exactly is insider trading and how is it handled legally?
Gray area of insider trading
The Securities and Exchange Commission (SEC) defines illegal insider trading as trading in securities on the basis of information that is not publicly available.
“Illegal insider trading generally refers to the buying or selling of a security, in violation of a fiduciary duty or other relationship of trust, based on material, non-public information about the title. “
However, you may have noticed the wording “illegal insider trading”. What type of insider trading can be considered legal? Peter Schweizer of the Hoover Institute wrote a book about this in 2011, titled at length “Throw Them All Out: How Politicians and Their Friends Get Rich with Insider Stock Advice, Land Deals, and Crony that Would Send the Rest of Us to Jail“.
After the share law was passed, Schweizer noted that this was not very helpful as there are a myriad of ways politicians can get rich by using their positions legally. In an interview with CBS News, he gave the example of a Medicare committee mission.
“The point is, if you sit on a health committee and you know Medicare, for example, is considering not paying for a certain drug that changes market information. And if you can trade stocks from that information and do it legally, it’s a great opportunity to make a profit. And that kind of behavior continues.
Additionally, the Stock Law imposes an extremely small fine – on average $ 200 – which a daily retail trader could easily dismiss as a cost of high frequency trading. To compound the problem, charges are most often dismissed by House or Senate ethics committees.
In the case of Senator Burr (R-NC), after the FBI seized his phone, he was publicly ashamed to step down as chairman of the intelligence committee. Initially, Senator Burr claimed to have acted on his stock moves based on news reports.
Later, in January 2021, the Justice Department cleared him of all criminal charges for acting on insider knowledge base of covid.
Who are the 2021 Stock Law Violators?
Although Nancy Pelosi and her husband have gained public attention due to the president’s high-ranking political career, insider trading is entirely a bipartisan issue. You will notice that when elected politicians allegedly engage in such practices, they are almost always recorded as “late disclosures”.
The SEC noted this phenomenon as selective disclosure:
“… many issuers disclose material non-public information, such as advance earnings warnings, to securities analysts or selected institutional investors or both, before fully disclosing the same information to the general public. . “
This leeway to declare beyond the 30-day requirement then leads to a predictable result.
“Where this happened, those who knew the information beforehand were able to make a profit or avoid a loss at the expense of those who remained in the dark.”
In 2021, 37 members of Congress are known to have engaged in such practices. According to research by @unusual_whales, the pandemic has made the Senate richer at a time when small businesses have been wiped out by lockdowns. Since they know which industries are affected by their budget proposals and stimulus plans, the breakdown of sector investments reflects this.
Here are some of their top stock picks for 2021.
Keeping in mind that supply chain disruptions are on the increase and the global chip shortage is still unresolved, KLAC, AVGO, AMAT are more predictable choices than others. After all, the semiconductor industry has posted triple-digit gains over the past year.
Ultimately, no one has a suitable solution to solving the puzzle – how do you impose rules on those who make the rules? Basically, a socio-political study published in 2014, entitled “Testing American Political Theories: Elites, Interest Groups, and Average Citizens” had already shown that ordinary citizens have no impact on the policies adopted.
However, we do know that cryptocurrencies tend to outperform the traditional stock market, and without it being so intimately dependent on Fed policies. In particular, some DeFi protocols outperformed traditional finance by 1662%.
Learn how, with Five Minute Finance.
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About the Author
Tim Fries is the co-founder of The Tokenist. He has a BSc in Mechanical Engineering from the University of Michigan and an MBA from the Booth School of Business at the University of Chicago. Tim was a Senior Associate in the investment team of RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in detection, protection and protection solutions. control.