For all of the ink and airtime devoted to criticizing Republican Meg Whitman's stock deals, she's not the only top-of-the-ticket candidate who benefited from early access to initial public offerings, or IPOs.
At least twice during her political career, U.S. Sen. Barbara Boxer turned quick profits on IPOs that were unavailable to the general public, records and published reports show [PDF]. The transactions, which were made public in 1994 and 2000, allowed her exclusive access to several lucrative investments.
During the 2000 tech boom in California, Boxer was given access to several hot stocks that she bought and sold within a day or two.
In one case, Boxer bought between $15,000 and $50,000 worth of shares in Palm Inc., the handheld computer company, at $38 apiece on March 1, 2000 – the day before the company was made public. On the first day of trading, shares soared to $140 before closing at $95. Goldman Sachs and Morgan Stanley managed the offering.
Days earlier, she bought between $1,000 and $15,000 in stock from an online advertising and marketing company called Avenue A at its opening price of $24. Boxer sold it the next day when the share price tripled to $72.
In an interview, Boxer spokesman Matt Kagan said the senator received no special treatment and had no knowledge of the trades, which were handled by a financial adviser. Boxer’s family investment adviser at the time, Gail Seneca, told the Wall Street Journal that her firm distributed IPOs equitably among its clients and that she gave Boxer no special treatment.
Kagan emphasized that the senator has kept her assets in a blind trust since 2001, meaning she has not had knowledge of how her portfolio was composed or traded for nearly a decade.
Because short-term profits are virtually assured, access to IPOs is often dangled as a prize for select investors. The practice is not unusual, even among lawmakers. Others, including House Speaker Nancy Pelosi, D-San Francisco, and Rep. Buck McKeon, R-Santa Clarita, have also traded IPOs in the past, according to published reports.
Whitman’s preferential access to IPOs while she was CEO of eBay has brought more attention to the investment maneuver – sometimes called "spinning" – although her situation differed from Boxer’s in several key ways. For one, Whitman dealt in substantially more IPOs – more than 100, according to congressional investigators.
Whitman and other eBay executives also later settled a lawsuit with shareholders, causing her and other executives to forfeit more than $3 million in profits they made trading the stocks. The suit accused executives of obtaining access to the offerings in return for steering eBay’s bond business to Goldman – a charge Whitman and other executives denied.
In a Los Angeles Times column about the practice, and about Whitman's close relationship with Goldman Sachs, writer Michael Hiltzik described such profits as "effectively gifts, and the investment banks the givers."
Whitman campaign spokesman Tucker Bounds dismissed the IPO investments as legal at the time and "literally very old" news. But Hiltzik added about Whitman, who had also served on the board of directors of Goldman Sachs:
Financial regulators had been warning brokers for years that it was wrong to hand out hoards of IPO shares 'to reward persons who could otherwise direct business to them.' Although that rule was directed at the brokers, not their customers, surely Whitman understood the concept of aiding and abetting. To avoid further confusion, the Securities and Exchange Commission later spelled out the rules: Offering such deals is now illegal.
No similar allegation of quid pro quo has followed Boxer. Regulations approved since by the Securities and Exchange Commission would outlaw such transactions between investment banks and their corporate clients but place no such prohibitions on similar transactions between banks and lawmakers.
"It's not only that the SEC rules wouldn't have applied because of Senator Boxer's status as in individual investor," Kagan said, "they wouldn't have applied because she didn't participate in the practice they're trying to regulate."
Still, each time lawmaker IPO deals have made headlines, pundits have questioned the ethics of brokers delivering what often amounts to free money to policymakers who could affect their bottom line.
In 2002, when Congress began looking closely at IPO spinning, the consumer watchdog group Public Citizen called for an end to the practice in an interview on CNN.
And in 1994, the first time Boxer's IPOs made headlines (along with Pelosi's and others), an editorial in the Los Angeles Times condemned the practice and called for its outright ban: "The remedy is apparent. A flat ban on IPO trades for anyone in government who remotely could be influenced by such acts of favoritism."
Boxer's opponent, Republican candidate Carly Fiorina, also made brief mention of the trades a few weeks ago. It's worth noting that Fiorina spent some time on the other side of the IPO world, helping oversee a $3 billion offering from Lucent Technologies in the mid-1990s. Her leadership of the AT&T spinoff later raised a few questions of its own.
Details of Boxer's 2000 IPO trades follow:
|STOCK||BUY DATE||SELL DATE||BUY PRICE||SELL DATE CLOSE|
|Avenue A Inc.||2/28/00||2/29/00||$24||$72|