How Race is Lived in America
June 16, 2000

Lazio Stock Trades Before Takeover Are Called Unusual



The Associated Press
Representative Rick A. Lazio did well on his venture into options.

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When Rick A. Lazio entered Congress in 1993, he had an unremarkable portfolio of personal investments. With mutual funds, municipal bonds and a blue-chip stock or two, Mr. Lazio had salted away his money in the kind of assets that countless other middle-class suburbanites have embraced.

But in August 1997, Mr. Lazio suddenly took what appeared to be an uncharacteristic gamble: he spent $2,300 on speculative securities trades in a company controlled by some of his campaign contributors. The securities, called options, gave him the right to buy shares at a fixed price for a limited time.

Less than two weeks later, Mr. Lazio's first foray into high-risk options trading had paid off handsomely: stock in the company soared on word of a possible takeover, and Mr. Lazio's $2,300 soon became nearly $16,000, a roughly 600 percent gain.

A spokesman for Mr. Lazio, who is now the Republican nominee for Senate from New York, said there was nothing unusual about the windfall. The spokesman, Dan McLagan, noted that a few months earlier, Mr. Lazio had purchased stock in the company, Quick & Reilly, a brokerage house, and that it had been the subject of takeover rumors. Mr. Lazio had simply made a shrewd bet, Mr. McLagan said.

Asked why Mr. Lazio decided to buy options for the first time, instead of more stock in the company, Mr. McLagan said, "We are not talking about a tremendous amount of money. He was feeling bullish on the company. It had good press and it was viewed as a takeover target. So he invested a modest amount and was hoping for a good return."

Some experts in securities law, though, said Mr. Lazio's entry into speculative options trading, coupled with his sizable short-term profit on the deal and his relationship with company executives, might have led to an insider trading investigation by the Securities and Exchange Commission had it been aware of the trades at the time.

"The first-ever options purchase is always a red-flag," said Paul Gerlach, a partner in the law firm of Sidley & Austin and a former associate director of enforcement for the commission.

Besides his options profit, Mr. Lazio also made a 53 percent profit, or $6,900, in Quick & Reilly stock in 1997 and 1998. Over all, Mr. Lazio's trading in Quick & Reilly securities was far more successful than any other trades he has made since going to Washington, according to his financial disclosure forms.

Peter Quick and Christopher C. Quick, former senior executives of Quick & Reilly who along with other company executives have donated a total of at least $35,000 to Mr. Lazio's campaigns since 1995, said they never discussed the company's stock with Mr. Lazio.

"As a director and an officer of Quick & Reilly, I had a legal and ethical responsibility to the company and to the shareholders," said Peter Quick, who was recently named president of the American Stock Exchange. "I absolutely did not talk to Rick Lazio or any other investor about proprietary information."

While distinct in important respects -- Mr. Lazio engaged in a different kind of speculation over a much shorter period, and did not reap nearly as much money -- his options windfall contains some echoes of the trading success of his Senate opponent, Hillary Rodham Clinton, in the late 1970's.

Mrs. Clinton turned a $1,000 investment into nearly $100,000 over 10 months by trading in volatile commodities futures when her husband was attorney general and then governor of Arkansas.

For his part, by speculating and investing in Quick & Reilly, Mr. Lazio was making a bet on a company over which he wielded considerable influence because he is on the House Banking and Commerce Committees. In fact, members of the Quick family have been officers of the Securities Industry Association, Wall Street's lobbying arm in Washington.

There are no rules barring members of Congress from investing in companies with interests before their committees, but some members put their investments in blind trusts to avoid even the appearance of a conflict of interest.

Peter Quick, a Long Island resident like Mr. Lazio, said in a telephone interview that he knew Mr. Lazio from lobbying on Capitol Hill. Mr. Lazio serves on the Commerce subcommittee that oversees many Wall Street issues.

Of the $35,000 in campaign contributions made to Mr. Lazio by Quick & Reilly executives, at least $8,000 came a month after Mr. Lazio sold the options in September 1997.

A Quick & Reilly subsidiary donated $2,000 around the same time to a political action committee set up by Mr. Lazio, Friends of Rick Lazio.

Mr. Lazio declined to be interviewed about Quick & Reilly or to release copies of his stock trading records and personal income tax returns. Information about Mr. Lazio's trades was first gleaned from annual financial disclosure statements that he is required to file with the House of Representatives.

The forms do not detail how much was paid for each share, or how many shares were traded. That information was provided by Mr. Lazio's campaign.

Under federal securities law, people are barred from trading in a stock if they have obtained "material nonpublic information" from a company insider. It is legal to trade on the basis of rumors, so long as the trader has not learned from an insider that the rumors are true.

There is no indication that Mr. Lazio's investments attracted the attention of the S.E.C. at the time.

He described the investments in financial disclosure forms in 1998 and they drew no publicity until they were mentioned in an article in Newsday last Sunday.

The commission usually begins such investigations when trading volume and price movement before a deal is announced makes it clear that word of the deal had leaked. But such a circumstance was not present in this instance, trading records show.

In fact, an extensive search of news articles before Mr. Lazio's option purchase indicates that there was little public discussion of Quick & Reilly as a takeover target.

Options are speculative investments because they have only a limited life. The option Mr. Lazio bought would have expired worthless if the stock did not rise before Oct. 17, 1997.

His first purchase of Quick & Reilly came on Feb. 11, 1997, a few weeks after he joined the House Commerce Committee.

Mr. Lazio paid about $25.50 a share, adjusted for a subsequent split, for his stock in Quick & Reilly. The price rose above $26 when the split was announced a few days later, but it soon slipped and by late June, Mr. Lazio's investment was showing a loss.

Rather than take the loss, he bought more stock, paying $23.75 a share on June 24. It was the first time he had ever added to an existing holding since joining the House in 1993, records show.

The date of the additional purchase, June 24, was also the day that Quick & Reilly hired Gleacher NatWest, an investment banking firm, to look for a company to buy Quick & Reilly. Quick & Reilly hired Goldman Sachs to join the effort on July 10, although neither action was disclosed to the public until several months later.

Volume in Quick & Reilly stock began to climb when Goldman Sachs was hired, and the price began to edge up a few days later.

On Friday, Aug. 1, 1997, Mr. Lazio bought the options on Quick & Reilly stock. With the stock trading around $27 a share, Mr. Lazio bought options entitling him to buy shares of Quick & Reilly for a price of $30 anytime until Oct. 17.

The $1,396 he spent on the options would vanish if the stock did not rise above $30 during the 11 weeks before it expired.

After the close of trading on Aug. 1, the Dow Jones News Service ran an article quoting a Lehman Brothers analyst as saying there had been speculation that Quick & Reilly might be an acquisition candidate.

On Monday, Aug. 4, Mr. Lazio spent another $905.48 on Quick & Reilly options.

On. Aug. 11, word leaked out that Quick & Reilly was seeking a buyer. On Sept. 17, the company announced that it was being acquired by Fleet Financial Group. On that same day, Mr. Lazio sold the options for $15,944.46, according to his campaign.

He sold his stock in Quick & Reilly the following January, shortly before the acquisition by Fleet was completed, for $40 a share.

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