June 16, 2000
Lazio Stock Trades Before Takeover Are Called Unusual
By CLIFFORD J. LEVY and FLOYD NORRIS
hen 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.
