Congress Is Letting This Wither and Die

Written by Adam English
Posted April 14, 2022

There is nothing better at burying bad news than even worse news.

A whole bunch of politicians are breathing a sigh of relief for just that reason.

Remember when there was a lot of talk about tightening up insider trading rules for members of Congress, their families, and staff?

They're pretty sure you don't. And from the look of how coverage has fallen out of news feeds, odds are good that a large majority have.

They're not the only ones that are glad attention has waned. Corporate insiders probably feel the same way. After all, they have vast sums of money on the line if Americans decide to tighten up rules applying to them as well.

The lack of action on the issue is part willful silence, and part “death by committee.”

Most lawmakers aren't saying a thing. The handful that are — and there are some on both sides of the aisle — are stuck bickering over exactly what would go into a bill.

Senate Majority Leader Charles Schumer, for example, has said he wants his colleagues to resolve all their issues before he brings anything to the floor.

What he isn't doing is providing any leadership or doing much, if anything, to build consensus. While politicians squabble and ultimately get nothing done, it is business as usual on the Hill and behind the scenes the money grab can carry on unabated.

House Speaker Nancy Pelosi must be quite happy. After being in the crosshairs over some very questionable trades, she and her husband are back to operating in the shadows.

That's certainly where they want to be, with trades like $1 million in a Tesla call options position established about a month before President Biden issued an executive order mandating that all vehicles in the federal fleet move over to electric.

That goes along with a lot of other options trading in tech stocks, including Google, Roblox, Micron, and Salesforce.

From 2019 through the end of 2021, the S&P 500 went up 73%. Pelosi's publicly reported investments went up 96%, creating a 31% gap in her favor in the returns accrued.

She is far from alone, especially after the wave of selling and buying in the run-up to the COVID-19 pandemic by politicians.

Of course, politicians are far from alone with these kinds of outsized investment gains.

A new lawsuit has been filed accusing Elon Musk of making an extra $143 million off of his recent Twitter position by filing the required paperwork with the SEC late. There is, of course, the tweet about Tesla going private that got Musk in trouble with the SEC in the first place.

Rumors started swirling just yesterday that insiders at Coinbase scooped up large positions in what were largely illiquid cryptocurrencies that saw massive gains once Coinbase publicly disclosed that it would list on its exchange.

But these kinds of headlines from Musk, the Pelosis, and crypto insiders focus on the most questionable insider trading.

In reality, there is a lot of it going on all the time on the corporate side of things, and it is perfectly legal and far less ethically dubious.

To be a corporate insider in the eyes of the U.S. government, you have to be a senior executive, board member, or shareholder with a 10% (or greater) stake in the company.

The numbers swirl around and are hard to track in real time, but about 80,000 of them are out there. They have to file extra forms with tight deadlines with the SEC, but otherwise they're pretty much left to do what they will as long as it doesn't break any company rules.

Insider buying and selling happens constantly, with some of it just to take advantage of new or expiring contractual options to buy stock from the company.

But the advantage is real, and it is wildly profitable. In 2008, for example, Citigroup Inc. penned a paper showing how a portfolio mirroring insiders’ trades from 1994 to 2006 yielded 23.5% a year, putting it on par with the most profitable hedge funds.

That was quite a while ago, but newer research by TipRanks shows that purchases made by all U.S. executives outperformed the S&P 500 over the next year by an average of 5% from 2015 to 2020.

That's plenty to snowball into a lot more money, but seemingly enough to avoid too much attention. And that is an average of all executives.

There are plenty of cases where well-timed insider purchases returned triple-digit gains.

The only reason we can even know this is because of those filings with the SEC.

If you've ever felt like the markets are rigged, it's because a large part of them are.

That doesn't mean we're cut off, though. Remember that the SEC requires data on these trades, and that a model portfolio of insider trading far outpaced the broader market.

We can use information on insider trading to drive snowballing gains that rapidly outpace other stocks. The devil is in the details though, and it takes expertise and a lot of time to sift through the information to find what we can use.

The Outsider Club's Alexander Boulden has been working on a new system to do this, and his readers will reap the rewards.

While he puts the finishing touches on his research and an explanation of how it works, you can make sure you're the first to get it.

Take care,

adam english sig

Adam English
Editor, Outsider Club

follow basic @AdamEnglishOC on Twitter

Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page

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