Monday, October 24, 2022

Did U.S. government officials make money buying and selling stocks based on their inside information about Covid policy?

Last month I did a post called Looks Like Some Pretty Good Capitalists Run The Congress. It was about how well did in their investments in stocks. I also mentioned how Congressmen in the early 1790s voted on the "Funding and Assumption Act" based on how much money they would receive if that bill passed. There were numbers to back that up.

The WSJ last week had two articles about stocks and Covid policy. The first is As Covid Hit, Washington Officials Traded Stocks With Exquisite Timing: Some sold in January 2020 when the government began mobilizing against the threat. Others bought shares as a market-rescue plan was taking shape by Rebecca Ballhaus, Joe Palazzolo, Brody Mullins, Chad Day and John West. Excerpts:

"Federal officials working on the government response to Covid-19 made well-timed financial trades when the pandemic began—both as the markets plunged and as they rallied—a Wall Street Journal investigation found.

In January 2020, the U.S. public was largely unaware of the threat posed by the virus spreading in China, but health officials were on high alert and girding for a crisis.

A deputy to top health official Anthony Fauci reported 10 sales of mutual funds and stocks totaling between $157,000 and $480,000 that month. Collectively, officials at another health agency, Health and Human Services, reported 60% more sales of stocks and funds in January than the average over the previous 12 months, driven by a handful of particularly active traders.

By March, agencies across the government were working on wide-reaching measures to prop the economy and markets. Then-Transportation Secretary Elaine Chao purchased more than $600,000 in two stock funds while her agency was involved in the pandemic response and her husband, Republican Sen. Mitch McConnell, was leading negotiations over a giant, market-boosting stimulus bill.

And as the government was devising a loan package aimed specifically at helping companies including Boeing Co. and General Electric Co., a Treasury Department official involved in administering the aid acquired shares of both companies.

Federal officials owned millions of dollars of stock in industries most affected by the pandemic and the government’s response. About 240 officials at health agencies and at the Pentagon, a key player in the vaccine rollout, reported owning a total of between $9 million and $28 million in stocks of drug, manufacturing and biotechnology companies that won federal contracts related to Covid-19 in 2020 and 2021, the Journal’s analysis found.

Nearly 400 officials across 50 agencies reported owning stocks in airline, resort, hotel, restaurant and cruise companies in early 2020, the review found.

By March, every major agency was drawn into the pandemic response. That month was the most active for trading by officials across the federal government, including at HHS, in the Journal’s analysis of financial disclosure forms for about 12,000 officials spanning 2016 to 2021. Federal officials reported more than 11,600 trades that month, 44% more than in any other month in the analysis."

"Agency ethics officials rarely have a complete picture of what employees are working on or privy to, especially during a fast-moving, governmentwide mobilization in response to a national emergency.

Most agencies’ ethics rules focus on what kinds of stocks officials can trade, not when they can trade. And there are no restrictions on federal officials’ investing in diversified mutual funds, which were more volatile than usual early in the pandemic. Ethics officials certified that the employees identified by the Journal were in compliance with these rules."

"On Jan. 24, four days after the CDC publicly reported the first confirmed U.S. Covid-19 infection, Hugh Auchincloss, principal deputy director at the NIH’s National Institute of Allergy and Infectious Diseases, summed up the state of his agency in an email: “New coronavirus all the time.”

That same day, while the stock market remained lofty, Dr. Auchincloss reported selling $15,001 to $50,000 of a stock mutual fund. Days later he sold two more mutual funds and a stock, Chevron Corp., according to his financial disclosures, which give wide dollar ranges. That was just the beginning."

"Among officials involved in the CDC’s early pandemic response was Stephen Redd, a veteran epidemiologist serving as deputy director for Public Health Service and Implementation Science at the agency. His role involved collecting information about the state of the virus and the federal response in order to brief lawmakers.

The CDC had a clear view of the virus’s threat by the end of January, Dr. Redd later told a student interviewer in Atlanta. “It was easy to see it was going to be a really big problem,” he said.

Dr. Redd disclosed sales of between $95,004 and $250,000 in stocks and bonds in January. He reported the sale in February of $100,001 to $250,000 of bonds, along with purchases of between $2,002 and $30,000 of short-term bond funds, a low-risk investment."

"On Feb. 28, Fed Chairman Jerome Powell signaled in a written statement that the central bank was prepared to cut interest rates, a stimulatory move aimed at quelling the economic disruption.

In the seven days preceding that statement, officials at the Treasury and Fed reported more than twice as many trades as they made during the same seven days of 2019."

"Two Fed bank presidents resigned last year after they disclosed a series of investments during Fed market interventions in response to Covid-19. The central bank in February 2022 prohibited its top officials from buying individual stocks and sector funds and barred trading during periods of “heightened financial market stress.”"

"That same day [March 16], Ms. Chao, the transportation secretary, made three purchases in stock funds that track the S&P 500 and the U.S. stock market broadly, totaling between $600,003 and $1.2 million, according to her financial disclosures."

"By the end of the month, her investment in the S&P fund had gained 8%. By the end of the year, it was up 57%, according to its net asset value."

"At around the same time, a Treasury official later involved in administering the stimulus package made a series of well-timed trades.

Early on, the Trump administration made it clear it wouldn’t leave Boeing or the rest of the aviation and airline sector hanging, as the travel industry was thrown into turmoil. “We have to protect Boeing,” Mr. Trump said March 17. “We’ll be helping Boeing.”

The Treasury Department publicly detailed what it wanted to see in the stimulus legislation on March 18, including $50 billion in loans for airlines and $450 billion for “severely distressed sectors” and small businesses.

Two days later, Treasury domestic finance counselor Jeff Goettman reported purchases of 15 stocks, including Boeing and General Electric, totaling between $29,015 and $260,000, according to his financial disclosure.

Boeing was in close contact with Treasury officials as it lobbied the administration and Congress for federal aid.

Days after Mr. Goettman’s stock purchases, lawmakers inserted a $17 billion provision for companies deemed essential to national security, which congressional officials said at the time was partly designed to help Boeing."

"Mr. Goettman convened the group that administered the legislation’s $80 billion for airlines"

"A week after Mr. Goettman’s March 20 stock purchases, Boeing’s shares were up 70%, and GE’s were up 17%."

The other article is The $1 Million Amazon Conflict: Washington’s Ethics Czars Struggle to Enforce Stock-Trading Laws: The U.S. has rules limiting federal officials’ stock-market investing. They can be waived by Rebecca Ballhaus, Joe Palazzolo and Brody Mullins. Excerpts:

"The U.S. has a law aimed at preventing the nation’s thousands of obscure but powerful federal officials from using their influence on regulations, policies and investigations to benefit themselves.

With penalties up to $50,000 and five years in prison, the law is supposed to ensure that officials in the executive branch don’t work on any matter that could affect their personal finances."

"It doesn’t. It has exceptions. Violations often go unpunished. When a problematic holding is identified, if the official resists selling it, the rules often are waived. The result is a system that largely relies on government employees to police their own stock investing.

A Wall Street Journal investigation revealed how more than 2,600 federal officials invested in companies that stood to benefit from their agencies’ work from 2016 through 2021. The Journal reviewed annual financial disclosure reports filed for those years by about 12,000 senior executive-branch officials at 50 federal agencies, from career employees to political staff to presidential appointees.

The investigation found that some federal officials received waivers from conflict-of-interest rules because they were considered too important in a particular job. In other cases, officials were permitted to keep holdings because they weren’t large enough to be a problem under the law. Owning $15,000 or less in a stock isn’t considered a conflict.

The Federal Energy Regulatory Commission allowed an official who reported a financial interest of between $50,001 and $100,000 in a hydroelectric company to work as director of the agency’s hydropower administration and compliance division."

"Under federal law, agencies can grant waivers from the conflict-of-interest rules if an ethics official determines that an investment is “too remote or too inconsequential to affect the integrity of the services of the Government officers or employees.”"

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