Last night, 60 Minutes aired its report on possible insider trading by Members of Congress. A principal focus of the report was House Minority Leader Rep. Nancy Pelosi (D-CA) and her participation in an IPO of Visa, one of the hottest IPOs in recent years. Reporter Steve Kroft questioned Leader Pelosi recently at a press conference about her investment and its possible impact on credit card legislation before the House during her term as Speaker.
I will have much more to say on this soon, as the legislative maneuvering around the recent credit card bill is a rich narrative and suggests there may be something to Kroft’s suspicions. For now, though, I have a more fundamental question: How did Nancy Pelosi get access to Visa’s IPO in the first place?
Participation in a stocks IPO, i.e. Initial Public Offering, is one of the more sought after trades on Wall Street. Often, an IPO investor is able to get into a stock at a relatively low price and realize an almost immediate gain once trading commences, especially if the IPO is “hot” or, rather oversubscribed, meaning more investors wanted shares than were available. Visa’s IPO was blockbuster-level “hot.” As reported by The New York Times:
Visa’s blockbuster initial public offering is currently oversubscribed for its expected trading start on March 20, Scott Sweet of the research firm IPO Boutique told MarketWatch.
Mr. Sweet told the publication that the I.P.O. is drawing “extreme demand.”
It is very difficult for any individual investors to participate in an IPO, as most of the shares are reserved for major brokerage clients, institutional investors and pension funds. It is so difficult, in fact, the SEC has published an “FAQ” on why it is so difficult for individual investors to participate in IPOs:
The underwriters and the company that issues the shares control the IPO process. They have wide latitude in allocating IPO shares. The SEC does not regulate the business decision of how IPO shares are allocated.
Somebody, somewhere decided to allow Nancy Pelosi-or her husband-participate in what was the most anticipated IPO that year. It could have been one of the underwriters selected by Visa to manage its IPO or it could have been Visa itself that awarded the Pelosis the coveted shares. Who was it? And, did they approach Pelosi or did Pelosi approach them?
In Politico‘s attempt to white-wash the burgeoning scandal, they look past the IPO and simply report:
Paul Pelosi, husband of the then-speaker, bought $2 million worth of Visa stock in March 2008.
They completely fail to note or report that Paul Pelosi’s purchase of these shares was an opportunity that the overwhelming majority of investors didn’t have. How were he and his wife, then-Speaker of the House, so lucky?
It is an important question, because Politico does go on to note:
Under House rules, lawmakers are prohibited from using their official position “for personal gain.” This ban includes instances when a lawmaker uses “his political influence, the influence of his position … to make pecuniary gains” or take any official action that affects their own personal finances, the House Ethics Manual states.
So, again, how did Pelosi get access to Visa’s IPO? Did it have anything at all to do with her legislative position? Might be a question worth asking.