Regarding The Kentucky Daily’s recent article about Rand Paul’s wife’s purchase of some COVID-19 stock, there was a great deal of interest in House Speaker Nancy Pelosi’s husband, Paul Pelosi, and his purchase of stock in Tesla at a suspicious time. Though we typically try to stay within Kentucky, we felt our readers would be interested in knowing what really happened. Below is our look at that stock trade and investing by Congresspersons, in general. - Ed.
On March 17, Paul Pelosi, husband of House Speaker Nancy Pelosi, exercised a call option to buy Tesla stock at a $500 strike price. His purchase, documented in this disclosure, was two days before President Biden signed a bill, the bipartisan “Infrastructure Investment and Jobs Act,” that provides up to $12,500 in tax incentives per electric vehicle to promote EV use.
The Implication: Some commentators on TV, radio, and podcasts implied that Pelosi was in some way using secret knowledge to make his trade, that Speaker Pelosi used some form of private knowledge to enrich herself and her husband.
The Reality: Paul Pelosi is an investment banker. He routinely makes multi-million dollar purchases. Many of his purchases are the stocks of tech companies based in and around San Francisco where the Pelosi’s live and the area the Speaker represents.
The bill that Pelosi’s purchase was allegedly based on was introduced in the House of Representatives on June 4, 2021. It passed the House in November of last year. It took a great deal of negotiation and a reconciliation bill from the Senate to pass the Act into law. It was signed by Biden on March 19.
Pelosi had a “call option,” a somewhat obscure derivative trading device on stocks. Nerdwallet explains call options, “A call option is a contract that gives the owner the option, but not the requirement, to buy a specific underlying stock at a predetermined price (known as the “strike price”) within a certain time period (or “expiration”).”
In other words, at some point before March 17, Paul Pelosi entered into a contract with someone to buy Tesla stocks when it met certain criteria. On March 17, the stock met that criteria and Pelosi decided to invest the money. The option was set to expire in two days.
Important to Know: The implication of insider trading is ill-informed and unsubstantiated. This bill had been in the public eye for 9 months before it was signed by Biden, including very high profile and contentious negotiations with the Senate.
By definition, Pelosi had entered into the call contract before March 17 and before the bill was available for Biden to sign it.
Speaker Pelosi, in accordance with the law, declared the existence of the trade within weeks. Congress members are allowed 45 days to declare trades, whether buying or selling.
Comparison to Kelley Paul’s Stock Purchase: Mrs. Paul is not an investment banker. Her profile on Wikipedia lists her as “political consultant and freelance writer.”
According to reports, the Paul’s had not bought stock in a single company in over a decade, though likely they bought mutual funds or other consolidated stock purchasing devices.
Rand Paul did not disclose the purchase for 16 months, well beyond the 45 day deadline required by law.
The stock that was parched by the Paul’s was for a company that makes an antiviral drug. At the time of the purchase, February 26, 2020, COVID-19 was not declared a pandemic. It wouldn’t be until March 11, 2020, approximately 13 days later. The World Health Organization has declared a Public Health Emergency of International Concern (PHEIC) at the time of the purchase.
Senator Paul, as a doctor, is a member of the U.S. Senate Committee on Health and had allegedly been in multiple hearings and meetings regarding the novel Coronavirus that had started in China and, by the time of the stock trade, had infected over 7,000 people worldwide.
The Paul’s ultimately lost money on the transaction, whereas the Pelosi’s have made significant gains on their Tesla stock purchase.
Summary: The summary is that, in this case, there’s no indication of insider trading by the Pelosi’s and the Speaker followed the disclosure laws to the letter. The Paul’s may have benefited from the Senator’s deeper than public knowledge of the rise of COVID-19, but they clearly violated the law by not disclosing the transaction for 16 months, as opposed to the legally required 45 days.
The Bigger Picture - The purchase by Paul Pelosi is another incident where politicians may have benefited from information that they were able to gain through their position. This “insider trading” has been under scrutiny as many politicians, Democrat and Republican, appear to have made money off the misery of the COVID-19 pandemic. While the rest of the country was in lockdown and suffering physically, financially, and emotionally, many politicians were trading stocks and making millions.
Business Insider assembled a list of 64 members of Congress who have violated the Stop Trading on Congressional Knowledge Act of 2012, known as the STOCK Act.
Rand Paul’s “error” is just the latest example of politicians “forgetting” to let citizens know that they’re making money on investments that might be informed by their elected position.
A move is afoot to prevent Congress members and their immediate families from investing in single businesses or industries, with some calling for blind trusts for all politician’s investments.
At this time, there is no serious legislation in either chamber to change the laws.
By United States Congress, Office of Nancy Pelosi - https://twitter.com/SpeakerPelosi/status/1272974657700978688/photo/1, Public Domain, https://commons.wikimedia.org/w/index.php?curid=92351590
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