Who is a better Insider Trader, Gary Cohn, Carl Icahn, or the folks at the ...?

 Jack J. Kelly  March 7, 2018  compliancex  

I need to warn you before you read this piece: this article is not suitable for an audience that will immediately think that it is partisan or political. If you are easily offended or quick to revert to your tribal politics, please do not read any further. If, however, you are interested in examples of how the elites, rich, powerful and government workers benefit while the average Joes and Janes get screwed, then please read on, my fearless and intellectual audience.

Have you ever wondered why Gary Cohn, a lifelong Democrat, left Goldman to accept Trump’s offer to join his cabinet as the Chief Economic advisor. The conventional wisdom was that Cohn, 56 at the time, grew tired of waiting for Blankfein to retire from the C.E.O. post (or get hit by a bus) at Goldman and leapt at the chance to serve his country in such a crucial role. Becoming the Director of the National Economic Council gave Cohn a graceful exit from Goldman and allowed him to follow in the footsteps of two illustrious Goldman senior partners: Robert Rubin and Stephen Friedman. Leaving also allowed Cohn the not insignificant economic benefit of being able to convert his roughly $250 million of Goldman Sachs stock into Treasury securities on a tax-deferred basis. In 2016, Goldman paid Cohn $20 million and then vested his restricted stock after he left for Washington.

At the time of his resignation, Cohn has stayed long enough in the White House to keep the tax-deferred treatment on more than $250 million in Goldman stock. What a perfect trade! Cohn gets to keep the tax treatment on his Goldman Sachs stock that would have incurred millions in taxes, has a great line item on his resume, and will be welcomed into any new job due to all the new connections he made and the stories he could regale potential clients with. What CEO would not want to chat with Cohn after he returns to the private sector, even just to gossip and hear the inside stories?

Speaking of insider stuff, shouldn’t the Securities and Exchange Commission (SEC) investigate former Trump Regulatory adviser, Carl Icahn, for possible insider trading? Hedge fund billionaire Icahn dumped millions in his steel-related stock holdings coincidently ahead of President Trump’s tariffs announcement last week. Lucky trade or smart investor with fantastic, ridiculously amazing timing? Maybe, possibly, just throwing it out there, some government official(s) inadvertently (I’m being generous) provided Icahn with non-public, market-moving information in advance of Trump’s announcement that the government was imposing a 25 percent tariff on steel imports .

In an SEC filing submitted February 22, 2018, Icahn disclosed that he had sold off nearly 1 million shares of Manitowoc Company Inc., a “leading global manufacturer of cranes and lifting solutions” heavily dependent on steel to make its products. Interestingly, it was the first Manitowoc shares Icahn had sold in three years. Trump announced the steel tariffs just one week later, and, strangely enough, Manitowoc stock fell 6 percent shortly thereafter. Icahn, a brilliant, aggressive, billionaire investor, is a long-time buddy of Trump. They have had prior business dealings and Trump used Icahn’s names liberally during the campaign to show that he is friends with smart, rich, and successful guys. President later appointed Icahn as a “special adviser” to the president for Regulatory matters (he was sort-of pushed out of this largely ceremonial position a few months later, ahead of a New Yorker article that uncomfortably pointed out Icahn’s potential conflicts of interest and allegations that Icahn was using his position and access to protect the value of his investments.

Carl Icahn unloaded nearly $3.3 million worth of stocks in a company largely dependent on the price of steel just days before President Donald Trump announced his administration would impose a 25 percent tariff on steel and 10 percent tariff on aluminum.

 Early last year, a private equity billionaire started popping up at the White House. Joshua Harris, a founder of the large private equity firm, Apollo Global Management, was presumably advising Trump administration officials on infrastructure policy. Since Jared Kushner was usually hanging around during that period (by the way, has anyone ever seen him in anything other than his blue suit, white shirt, blue tie, and haircut parted to the side? – just curious), Harris met with him on multiple occasions.

In November, Apollo lent $184 million to Mr. Kushner’s family real estate firm, Kushner Companies, which was in desperate need of financing. The loan was to refinance the mortgage on a Chicago skyscraper. According to the New York Times, even by the standards of Apollo, one of the world’s largest private equity firms in the world, the previously unreported transaction with the Kushners was a very big deal – triple the size of the average property loan made by Apollo’s real estate lending arm, according to securities filings.

Coincidentally, after the loan from Apollo, the private equity firm was a huge beneficiary of Trump’s tax-cut package. On the campaign trail, Trump called for the closing of a loophole that allows private equity managers to pay taxes at a crazy low rate. This promise was not upheld, the loophole remained, and Apollo (along with many other firms) benefited greatly by keeping the reduced tax rate.

Here’s just a little more insider trading activities that nobody seems to care about. According to research from the Columbia University, employees at the U.S. Securities and Exchange Commission (SEC) earn investment returns similar to the insider traders they prosecute.

The study indicates that a portfolio of trades executed by SEC employees between 2009 and 2011 earned excess returns of about 4 percent a year for all securities, with abnormal gains jumping to 8.5 percent when only stocks of firms based and registered in the U.S. were tracked. The outsized returns seemed to be primarily due to employees selling stocks ahead of bad news revelations. SEC employees are required to divest their holdings in companies they are assigned to investigate. Therefore, the policy is tantamount to forcing employees to sell stock on non-public information given that virtually all investigations initiated by the SEC are private. So, the SEC employees know before anyone else that a company is in trouble and could and allegedly, according to the report, sell their stock in the troubled companies before the rest of the public is aware. Sound kind-of Ichanish. This opens up the question why SEC employees should be allowed to hold individual stocks to begin with?

This appearance of financial impropriety undermines the credibility of the SEC and the government generally. It gives the appearance that the public at large are second-class citizens appeared to the rich, powerful, and government workers. The study concludes, “While potentially draconian, such a policy [prohibiting the SEC from owning and trading stocks] is the simplest way to abrogate the concerns of even the most cynical observer”.

Then we come to poor, schnooky, schmuky Sam Nunberg. Nunberg was a former fringe minor hanger-on to Trump early presidential campaign posse. He was recently served with a subpoena to appear before Robert Mueller’s gang for further question and to supply emails. Nunberg was interviewed by almost every TV station and goaded into venting his anger (and weirdness). Nunberg, brandishing a crumpled subpoena from Mueller, complained and whined over having to provide his email correspondence and appear before a Grand Jury.

His bizarre performance included lashing out at Trump, and former Trump aide Corey Lewandowski. He constantly asserted his love and affection for his mentor and father figure, Roger Stone, and claimed that he didn’t want to get Stone into trouble. Oh, also, he called press secretary, Sarah Huckabee Sanders, a “fat slob” and made many innuendoes about others at the White House. If you missed his performances, you could catch them here: Gloria Borger, Jake Tapper and Erin BurnettBloomberg TV and NY1.

It was all good fun for and a ratings bonanza for the media to put on a spectacle and allow Nunberg, who seemed either troubled or under the influence of something, and clearly emotionally distraught.

All of the stations used him as an opportunity to see if he had ammunition to take down Trump and also garner ratings, due to his over-the-top, manic performance. Not one reporter even bothered to talk about the considerable costs involved with being caught-up in a government probe. For instance, Nunberg mentioned that he spent about 15 hours recently being interviewed by investigators and will now have to appear in front of a grand jury. If you start calculating the hours involved and attendant legal costs, it becomes enormous. If he has reasonably priced lawyers at $500.00 per hour, think of all  the billable hours spent reviewing this matter, researching all the documents, preparing him for testimony, accompanying him to the interviews, interacting with opposing counsel, and so on. The ballooning expenses could be enormous and would most likely cripple him. Unlike Icahn and Kushner, Nunberg is not wealthy and could easily be left bankrupt. Also, assuming he is as innocent as the driven snow, who would hire someone embroiled in this mess? He will need to spend hundreds of thousands of dollars and have little future prospects of work.

Some may say, “Who cares? He deserves it.” Sam could be anyone one of us. The elite have the power, money, connections, and clout to fight off the government, whereas ordinary people don’t and are usually screwed over. How can you blame him for being such a mess on television?

Maybe instead of arguing and fighting on Facebook, over family dinners, in the workplace, or social engagements, we should focus on the big picture and those that are profiting from questionable activities, while we are too busy hating each other.