By Andrew Snyder We’ve taken an in-depth look this week at the profits that can be made by tracking the trades of the most in-the-know folks.
We’ve made it quite clear that, yes, when an insider buys… you should too.
But let’s be fair. There is a sinister side to insider trading.
It’s long been illegal for corporate insiders to buy and sell on news that’s not publicly disclosed. Of course, they’ll always know more than any press release could ever convey.
That’s why lawmakers force insiders to disclose their trades… and it’s why we track them.
But Washington doesn’t always eat what it cooks. In fact, from healthcare to pensions… what’s good for you and me is rarely good enough for our elected officials.
You shouldn’t be surprised that Washington’s rules for insider trading are far different from the rules it set for others.
Cheaters
It shouldn’t be alarming to hear, for example, that less than two weeks before the meltdown of 2008, at least 10 senators dumped large chunks of stock.
While the folks outside the beltway had no idea what was coming, elected insiders scrambled to protect their money.
In just one example, Sen. Shelley Capito gained access to privileged information from the Treasury and the Fed. She took what she learned and quickly sold between $100,000 and $250,000 of Citigroup (NYSE: C) stock.
The day after she sold… shares fell 23%.
What’s worse is who she sold those shares to.
She unloaded, of course, on the open market. In other words, she knowingly dumped bad assets on the Americans who trusted her to protect them.
Buyers got burned within 24 hours.
Capito wasn’t alone.
All throughout Congress, in-the-know elected officials used private information to their benefit.
In another example, former Rep. Spencer Bachus – who was, at the time, the highest-ranking Republican on the House Financial Services Committee – talked with Fed Chair Ben Bernanke and Treasury Secretary Hank Paulson about the trouble ahead.
Shortly after their conversation, he protected his portfolio with a slew of option trades.
Again, while average Americans were left to fend for themselves, Washington insiders found ways to profit.
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New Laws… Erased
Ah, yes, not all insider activity we track leaves a pleasant taste in our mouths.
But if you wander the halls of Congress and ask about this problem, the donkeys and the elephants will tell you not to worry… Obama fixed it.
It’s true the STOCK Act – aka the Stop Trading on Congressional Knowledge Act – received lots of fanfare when Obama used his left hand to sign it into law in 2012.
Even the cheats who took advantage of their privileged statuses smiled for pictures as constituents cheered them on for voting for the “fairness” law.
The new rules made it illegal for members of Congress, the executive branch and their staffs to trade on nonpublic information. It also enacted new disclosures and a searchable database (similar to the one we showed you on Wednesday).
But, alas, few good things grow sturdy roots in Washington’s toxic soil.
Despite the publicity the rule received when it was signed… few folks noticed when Congress quietly got out …read more
Source:: Investment You
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