To understand how pissed off it makes me that Congress can legally trade on inside information and others can’t, I relate this little tale, and it’s true. Mid 90s, pre-Lewinsky, fall of the Soviet Union, peace and prosperity, ahh the innocence lost. The stock market has just started rocking and rolling on what would turn into a parabolic shot into the stratosphere. The firm I worked for has taken a local Texas restaurant chain public, it was a hot IPO, the stock of what we’ll call D&R went up about 20 or 30 % off the open. A year or so later I get a call from a trading client. “Hey, I just heard from one of the head guys, D&R will be bought out by Apple-pie restaurants.”
Now, as a stock jock, I got supposed insider info from excited clients all the time. Almost all of it was bunk, stuff their dumbass friend or some idiot on CNBC told them. I still chuckle thinking of the time a lady who worked at Dell called me and whispered furtively that she knew Dell’s earnings were going to be way better than expected; she was right, except Dell had released those earnings two days before she called!
But the client who called me with the purported inside info an D&R was different. He was a retired Air Force pilot, had been a big wheel in Lockheed’s Skunkworks, and had a really good head on his shoulders. He was talking about buying a lot, two or three jumbo CD’s had just matured in his local bank account; he was toying with enough stock to move the market in a thinly traded issue like that. And since my firm took D&R public and made a market in the stock, I could buy a huge chunk of it wholesale and sell it to him and other clients at retail, plus charge commission, and do the same when those clients sold their stock, plus plug the proceeds into something else that would produce commissions. The well-oiled broker wheels were already turning in my mind with dollar signs and production bonuses leading the way … all told his order and others I was already scheming on would have turned this into a $10,000 take home month for me. That’s on top of whatever else I made that same month. Not bad for a conversation on the phone in a plush sky rise office overlooking downtown Austin.
So I really, really, wanted to do it. Nevertheless, when he told me that info I launched into my usual insider spiel given out to hordes of less credible clients almost every week. “If this is a rumor you heard on CNBC or read in the paper, I can accept the order, I’ll mark it unsolicited and give you a 20% discount on the commission. Just understand that in my experience, info like this is either always bunk or everyone already knows it. If you have reason to believe the info is legit, I can’t run trades on this for both our sakes. That would qualify as insider trading, and not only would you lose any profit you made, you would be fined up to ten times the profit and we both might end up in jail. How do you wish to proceed?”
He said it was legit info, straight from the “D” in D&R who was apparently the son of one of his west Texas flying buddies. Then he thought about it, (Did I mention he had a good head on his shoulders?) and ended up buying a utility stock and some municipal bonds. Two days later Apple-pie made a tender offer for D&R about 40% above where the stock was trading.
I still get a chill when I think about it. If I had jumped in thinking only of my immediate bottom line, and my client’s, we would have bought thousands and thousands of shares. When the buyout was announced it would have absolutely attracted my firm’s compliance department and probably the SEC to large positions taken on right before the stock popped, and this one would have stuck out like a sore thumb. We would have both been questioned about it, under oath, at length, and inevitably one or both of us would have spilled the beans, no doubt about it.
D&R is just one example where I stumbled into some actual, actionable, intel that I could have made a fortune on but didn’t, because getting caught wasn’t worth it. So when I read that Congress has written themselves out of insider trading regulations, and that some members have been acting on them and passing the info on to hedge fund managers or CEOs who reqard them with hot IPOs or other goodies, it fucking pisses me off. In more ways than one, and it’s just one more example of the broken corrupt political system We the People are forced by low info and no info voters to endure.