While Citi analysts are downgrading stocks based on information from right-wing astroturf campaigns, Citi executives found a way to make a quick buck:
Four Citigroup Inc. executives who bought the bank’s stock last week generated a $2.2 million paper profit within nine days, regulatory filings show.
The executives, including director Roberto Hernandez, benefited as the company’s stock climbed 47 percent from March 10 through yesterday’s close of markets, after Chief Executive Officer Vikram Pandit said in a memo that the bank is having the best quarter since 2007. Their buying spree was the first by bank insiders since Jan. 14, filings show.
“You’re supposed to buy when everyone else is selling,” said Bruce Foerster, a former Lehman Brothers Holdings Inc. managing director who now runs South Beach Capital Markets in Miami. Banks have internal systems to monitor executive trades and prevent abuses, he said.
I’m sure it is just a coincidence they bought a bunch of their own stock before they released a positive earnings report that caused their stock price to jump from 1.05 to 1.67.
Pure coincidence.
Comrade Stuck
I reckon when the greed bug bites you pretty much stay bit.
C Nelson Reilly
Cramer probably recommended it – isn’t he right most of the time?
clone12
Imagine the cosmic irony if an astroturf paper funded in part by WalMart inadvertently caused its own stocks to be downgraded.
Comrade Stuck
Speaking of that particular devil, he’s supposed to Tango with Stewart tonight on TDS. Oughta be fun/
TenguPhule
Bring on the guillotines.
Matthew Hooper
"I am shocked, shocked to learn that there is gambling going on at this casino."
More and more, I’m convinced that the entirety of the stock market it one big scam.
scruncher
Is that not insider trading?
Ricky Bobby
If these guys actually did just dig their own graves, $2.2 mill isn’t a bad price I s’pose.
/greed
Dennis-SGMM
"And they work darned well," he added. "No bank executive has suffered any abuse whatsoever for speculating away his bank’s capital or for running the American economy into a ditch."
gbear
Somehow, this seems like the appropriate response to that.
JenJen
It also seems that, following today’s Roundtable with the President, Citi said it doesn’t need any more government capital.
http://www.reuters.com/article/newsOne/idUSTRE52B7SD20090312
We’re allowed to hold them to that, right?
Just Some Fuckhead
I still haven’t figured out how they were profitable. Were they counting the 36 billion dollars taxpayers just gave them as income/assets?
TenguPhule
And there’s your problem.
Lack of beatings to improve morale.
TenguPhule
Free money is obviously the definition of profit.
Nevertheless, it’s time to beat them to death with a frozen trout.
Jackmormon
Isn’t this the textbook definition of insider trading? Is there some nuance I’m missing?
TenguPhule
Yes. Shut up, that’s why.
Comrade Stuck
@Just Some Fuckhead:
I’d like to know where all the billions and billions of cash went for all these asshat companies. Can’t help but wonder if it ever really existed to begin with, and they’ve just been playing with Monopoly Money all along trying like hell to pass Go and stay our of jail. And now we’re giving them real hard earned dollars to cover their alleged losses. Perfect scam if you think about it.
AnneLaurie
The pius archbishops of the Supreme Omnipotent Church of the Invisible Hand of the Market increase both their prayers and their tithes during these turbulent days of disbelief and rebellion — and their faith is duly rewarded manyfold, just as the sacred predicitions attest. Yet cynics and skeptics find fault with these miraculous signs and wonders! Truly, these are dark days for the one true American religion, a/k/a/ "I Got Mine"…
passerby
If these guys are profiting, and they took TARP or whatever bailout was being passed out, doesn’t that mean those "profits" belong in the U.S. Treasury?
Hocus pocus dominocus.
Damn. These guys don’t know when to quit.
Sheisters.
Dennis-SGMM
The Bankers Entrance Exam:
1. Never give a ___________ an even break and never smarten-up a __________.
Kirk Spencer
A point to consider, folks. It’s not (yet) illegal insider trading.
They haven’t made a profit. As long as they don’t make a profit by selling it within the next six months, it’s not (by law) illegal insider trading.
Now, Strong v Repide (a 1909 Supreme Court decision) would say they committed the fraud due to this purchase. But later decisions and laws have diluted this. In particular, the Securities Exchange Act of 1934 (note the date) and its numerous modifications, all of which basically say what I already noted.
If they sell this for a "short swing" profit, they’re in trouble. If they hold it for more than six months, they’re ok.
Ash Can
On the subject of insider trading, if these Citi execs knew that their company was going to report better-than-expected earnings, or knew of some other favorable event before it was made known to the general public (and there are a variety of ways to do that), and purchased stock based on that knowledge, they’d be guilty of insider trading. Based on the very little I know about this instance, I’m not able or willing to blame them. This could just be a case of them figuring the stock was ridiculously low, they had reason to believe (the same reasons we all would have by following the news) that it wasn’t going to stay this low forever, and snapped up what they thought was a bargain. On the surface, they did nothing wrong — in fact, they may have boosted investor confidence in the stock with their purchases, which could have helped the stock price go up as well.
Now, pre-existing knowledge can be difficult to prove or disprove. Also, if these guys have a lax compliance (legal) department, that wouldn’t put their dealings in a very good light either. But based solely on the facts presented in this post, they didn’t break any laws or regulations. With so many other fuck-ups to go after so many crooks for, we shouldn’t waste our ire on these guys unless and until something truly incriminating comes out of this story.
ETA: And I see Kirk Spencer has covered this already, and far better than I did. So, um, what he said. :)
Olliander
Take the article for what its worth. There’s no indication of any illegal activity here, as long as they haven’t sold their shares and realized gains.
The fact that Pandit issued a statement–actually all three of the biggest insolvent megabanks (Citi, JPM and BAC)–announced that they were turning a profit the first two months of the year (pay no attention to the gaping holes in their balance sheets, however), most likely to calm the markets a bit.
But, just last week we’ve been told that at least Citi is basically insolvent, and now everything is fine? I don’t think so.
Plus, Citi shares have lost about 95% of their value. These executives have nothing more to lose really.
Punchy
If you think that "upbeat" report CEO Vikram gave was in any way accurate, I’ve got a shit sandwhich to sell you.
We’ll find out in about 2 months how bullshit it was, but by then, Vikram’s out and nobody’ll ask any questions about this obvious malfeasance.
D-Chance.
No one could have forseen a major bank seeing an uptick on its $1 stock price after getting billions in cash from Obama…
Robin G.
Um, I’m going to remove my comment 15 sec after posting it because it made no sense.
jim
Oh, the magic of the marketplace. So all they have to do is hang tight for six months & a day, & they can steal legally?
(?!?)
I believe the title of this post is missing the word "Monkey" at the front.
John Cole
@D-Chance.: Fair point.
@Kirk Spencer: Duly noted.
@jim: If the stock is still above the purchase price in six months.
The whole thing just seemed unseemly to me. I have no idea how the free market is supposed to work when the average guy has no access to equal information.
Olliander
Banking will probably be a lucrative business in the near term. Fed funds are basically zero–costing banks nothing to finance lending–and they can lend that money at anywhere from 6%-10% depending on what they’re financing (auto loans, business loans, etc.)
But Citi, Bank of America, et al., can turn a profit all they want….it’s going to take a lot of profit to plug the holes in their balance sheets.
QDC
@Kirk Spencer:
That’s not quite right. Section 16(b) of the Securities Exchange Act covers "short swing profits" on trades made within 6 months. This is a civil provision and the penalty is disgorgement of the profits. You don’t want to run afoul of this provision, but you don’t go to jail for it.
The real action for insider trading, and where the criminal penalties attach, is under Section 10b of the Securities and Exchange Act, and Rule 10b-5 in particular. Under Rule 10b5-1 trading (either buying or selling) while in possession of non-public material information is insider trading and punishable criminally. If these executives knew that the earnings report was coming, or what it said, then they would be liable both civilly and criminally.
My guess is that they did not know, because the SEC tracks these things and there is a 100% chance of being caught in a situation like this. [In the sense the the SEC is not going to miss such a purchase.] Given the public mood they would be looking at jail for sure. They might be that greedy/stupid; it’s hard to rule out at this point, but they would have to have been *really* stupid.
Bottom line is that we want them to be buying the stock (assuming it’s not on inside info), and given that we all own 40% of the bank, I want them to make money on it too. And hey, why wouldn’t they? At a buck a share and with the government in the trenches with them, why not take a flier? It’s as cheap as a lottery ticket.
Cat Lady
@ John Cole: this should be cross posted in Assholes.
You’re welcome.
Crusty Dem
I can believe it’s not legally insider trading, but it sure as shit should be. It’s a crime to time the selling of your stock, why shouldn’t it be a crime to time the buying?? Particularly when the information leading to the buying is crystal clear (although there’s obviously a pretty good chance there won’t be a profit in 6 months).
I think anyone guilty of this behavior should serve a 3-5 stint in federal PMITA prison, just to avoid any confusion. Is this worse than what Martha Stewart was accused of? Because it sure sounds worse..
blahblah
When did conflict of interest and insider trading become an anachronism? Where are the prosecutions?
Crusty Dem
Thanks for the info, QDC, but I think you’re overestimating the intelligence and underestimating the greed of Citigroup executives…
Calouste
@John Cole:
If there’s no equal information, it is not a free market, simple as that. The "free" in free market stands for freedom of information, not freedom of regulations like the neocons have been telling people. Rockefeller didn’t have many regulations in his day, but you wouldn’t say that Standard Oil, with all it’s hidden kick backs and near monoply in some markets, was operating a free market.
Imagine for example if there were no regulations at all on the selling of gas to consumers. This would be the ideal of a free market according to some idiots. Until they say find out that the gallons of gas they have been sold only had 112 ounces in them instead 128. Are they going to bring a measure to the gas station every time to check? Or that the premium gas they thought they bought was actually regular. Are they going to bring a chemistry kit to the gas station every time? In this example, as in many other situation, regulations are necessary to create a working free market, because without regulations the playing field is tilted far too much towards the side that has the information and against the side that can’t afford to get the information.
gex
@Matthew Hooper: As I recall there was some trickiness involved when Frist sneaked the Internet poker ban into legislation. When trying to limit people’s ability to wager on the Internet they had to work very hard to keep from making online securities trading out of the banned activities.
Brian J
Not that I like the appearance of sketchy trading, but I wonder how much they have lost now that the stock has fallen so far. This doesn’t excuse any wrong doing, mind you, but it does you take a step back.
flounder
My question is how many millions of options are they awarding each other right now that they are going to exercise 2 years from now when the price is $6 a share?
Church Lady
In the meantime, Maxine Waters was busy getting the Treasury Dept. to give TARP funds to OneBank. She just forgot to tell them that her husband had served on the bank’s board and had a substantial investment in the bank’s stock. Oops.
joe from Lowell
John,
Do you ding it at all odd that this happened four days after Richard Shelby said this?
nota bene
It’s a feature, not a bug….