Frist Can't See "Blind Trust" Conflict
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Over at my greedy Swiss bank employer, I'm what's known as a "Permanent Insider." That means that I have access to the list of securities issuers about which my firm possesses "material nonpublic information," commonly known as "inside information." I often don't even know what the information actually is, just that the firm possesses it. I am said to sit "above the Information Barrier," once known as "striding the Chinese Wall."
Unsurprisingly, my firm (and regulators) would be very upset if I used this information to my own advantage by trading securities on these confidential lists. The practice is expressly forbidden under any circumstances.
What's more, I'm significantly constrained in all securities transactions, even for companies about which the firm has no inside information. If I want to engage in even a harmless, innocent stock trade, I need no less than four different approvals, from my immediate supervisor to the head of the investment banking division.
As you can imagine, I don't trade much.
Which is why the reports of Senate Majority Frist selling $112 million worth of stock in the company his family founded, Hospital Corporation of America ("HCA"), is an unambiguous scandal.
Let's be very clear about this: It is totally irrelevant whether Frist actually had any material nonpublic information about HCA's earnings. This is not "Martha Stewart — The Sequel." Any transaction, regardless of whether it was based on inside information, is flagrantly unethical.
A blind trust should be exactly that — blind. Any member of Congress, indeed any Congressional staffer, should be expressly prohibited from any and all private securities transactions.
This proscription becomes even more imperative with the leadership. The influence of Congressional leaders, including committee chairs, is so extreme as to make the need for a trading barrier similar to what we Wall Street insiders face self-apparent. Or so one would think.
Frist is now claiming that he ordered the stock sale to "avoid the appearance of a conflict." Huh? The whole point of a blind trust is to provide that "appearance of impropriety" insulation — piercing the blind trust by ordering the HCA sale was the quickest way to create the appearance of a conflict. Frist, and his advisers, are either liars or idiots.
The time to sell your holdings is when you first enter politics. If you have to do it at a loss, then too bad so sad — stay out of politics if you don't like it. Either that, or have your trustee work around the constraint while you remain in the dark. There are many ways to do this — build up the portfolio around the concentrated holding, or utilize a controlled, fixed periodic liquidation like corporate insiders do (called a "10b5-1 trading plan").
Politicians, bureaucrats and the legions of minions who prop them up claim to be driven by the desire to be "public servants." If greed and power-lust are not their goals, then what's the big deal about trading restrictions? Why can't blind mean blind?
And if they insist on managing their own finances rather than using blind trusts, fine. Let them do what we do on Wall Street — buy mutual funds or Treasury bonds while avoiding direct ownership of stocks, options or corporate bonds, which can create potential conflicts.
Meanwhile, the SEC and federal prosecutors have launched an investigation of HCA and subpoenaed their records relating to Frist. Good, but I want to repeat and emphasize that I am not saying that Frist engaged in insider trading — I would hope he's too smart for that (on the other hand...). My point is that even an innocent breach of the blind trust was inappropriate and should not have been allowed. Blind should mean blind.
Apparently the stock sale itself, absent any potential insider trading, is allowed by Senate rules. If so, then the Senate rules are a ass. The Senate has been described as a "Millionaires' Club." That doesn't mean it has to be a "Petty, Selfish, Greedy Millionaires' Club."
Congressional ethics rules must be amended to prevent any and all trading in corporate securities and derivatives by all Members of Congress and their senior staff. Similar prohibitions should of course extend to all senior members of government, at both the federal and state level.
It's a small price to pay for the privilege of being a "public servant."
Other thoughts at De Novo, In Dicta, FaerieWizard.
Unsurprisingly, my firm (and regulators) would be very upset if I used this information to my own advantage by trading securities on these confidential lists. The practice is expressly forbidden under any circumstances.
What's more, I'm significantly constrained in all securities transactions, even for companies about which the firm has no inside information. If I want to engage in even a harmless, innocent stock trade, I need no less than four different approvals, from my immediate supervisor to the head of the investment banking division.
As you can imagine, I don't trade much.
Which is why the reports of Senate Majority Frist selling $112 million worth of stock in the company his family founded, Hospital Corporation of America ("HCA"), is an unambiguous scandal.
Let's be very clear about this: It is totally irrelevant whether Frist actually had any material nonpublic information about HCA's earnings. This is not "Martha Stewart — The Sequel." Any transaction, regardless of whether it was based on inside information, is flagrantly unethical.
A blind trust should be exactly that — blind. Any member of Congress, indeed any Congressional staffer, should be expressly prohibited from any and all private securities transactions.
This proscription becomes even more imperative with the leadership. The influence of Congressional leaders, including committee chairs, is so extreme as to make the need for a trading barrier similar to what we Wall Street insiders face self-apparent. Or so one would think.
Frist is now claiming that he ordered the stock sale to "avoid the appearance of a conflict." Huh? The whole point of a blind trust is to provide that "appearance of impropriety" insulation — piercing the blind trust by ordering the HCA sale was the quickest way to create the appearance of a conflict. Frist, and his advisers, are either liars or idiots.
The time to sell your holdings is when you first enter politics. If you have to do it at a loss, then too bad so sad — stay out of politics if you don't like it. Either that, or have your trustee work around the constraint while you remain in the dark. There are many ways to do this — build up the portfolio around the concentrated holding, or utilize a controlled, fixed periodic liquidation like corporate insiders do (called a "10b5-1 trading plan").
Politicians, bureaucrats and the legions of minions who prop them up claim to be driven by the desire to be "public servants." If greed and power-lust are not their goals, then what's the big deal about trading restrictions? Why can't blind mean blind?
And if they insist on managing their own finances rather than using blind trusts, fine. Let them do what we do on Wall Street — buy mutual funds or Treasury bonds while avoiding direct ownership of stocks, options or corporate bonds, which can create potential conflicts.
Meanwhile, the SEC and federal prosecutors have launched an investigation of HCA and subpoenaed their records relating to Frist. Good, but I want to repeat and emphasize that I am not saying that Frist engaged in insider trading — I would hope he's too smart for that (on the other hand...). My point is that even an innocent breach of the blind trust was inappropriate and should not have been allowed. Blind should mean blind.
Apparently the stock sale itself, absent any potential insider trading, is allowed by Senate rules. If so, then the Senate rules are a ass. The Senate has been described as a "Millionaires' Club." That doesn't mean it has to be a "Petty, Selfish, Greedy Millionaires' Club."
Congressional ethics rules must be amended to prevent any and all trading in corporate securities and derivatives by all Members of Congress and their senior staff. Similar prohibitions should of course extend to all senior members of government, at both the federal and state level.
It's a small price to pay for the privilege of being a "public servant."
Other thoughts at De Novo, In Dicta, FaerieWizard.
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Posted by KipEsquire on
24 September 2005
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