Meanwhile, Icahn makes money on the deal, by anticipating market reaction to his lobbying. Even though it doesn't succeed, the market drops, his short selling profits, and he's up about $200M.
If he still is shorting the credits he's at risk of being forced to cover at a massive cost. He could get short squeezed really hard, and which is why other wall street players are shorting his refineries stock.
You would think so, but apparently not. (Or perhaps more accurately, "maybe, but it would be politically inconvenient to investigate.") From the article:
> In May, after the revelations about the rin trading by CVR, the senators wrote to the heads of the S.E.C., the E.P.A., and the Commodities Futures Trading Commission, calling on them to investigate. But it could not have escaped the senators’ attention that two recipients of their letter—Jay Clayton and Scott Pruitt—had met with Icahn in the context of securing their jobs. The Senate Democrats cannot issue subpoenas to agencies unless they get the Republican majority to sign on—an unlikely outcome. In May, the C.F.T.C. replied to the senators’ letter: the agency would not be investigating Icahn or CVR, because rins, even though they are commodities, do not trade on a futures market, and the agency therefore had no jurisdiction to look into the matter. By this logic, the fifteen-billion-dollar market for renewable-fuel credits is not regulated by any government agency.
Insider trading laws are a series of sanctions exclusive to the equities market, about trading equities. This trade didn't involve equities.
There is nothing illegal about having an edge in the capital markets.
Even if the CFTC did "investigate", there isn't a prohibition on having "inside information" in the futures markets either... for the most part.
You have to look at the history and intent. Investing in companies is a great way to grow an economy, adding a ring of confidence by the state helps promote that so they can push that kind of investment exclusively on the population. As a result stock investing is really popular but the rules around it are extrapolated to being relevant to other capital markets only due to the similarities of trading.
Insider trading is an agency problem. You're in trouble if you have a fiduciary duty to someone else (either overtly or implied, directly or indirectly) and you take advantage of insider information to trade against their interests.
Using information only you have to trade in the market is not "insider trading" by itself; in fact, it's the only way the markets can actually function!
> The SEC adopted new Rules 10b5-1 and 10b5-2 to resolve two insider trading issues where the courts have disagreed. Rule 10b5-1 provides that a person trades on the basis of material nonpublic information if a trader is "aware" of the material nonpublic information when making the purchase or sale.
Insider trading laws were written for small fish. Large players are protected because, apparently, the trading they do is "public". So, the thinking goes, it is just fine if they use inside information for their deals. A guy who uses inside information in every deal is, of course, Warren Buffet. But since he is big and a long term investor, they see no problem.
I don't agree with your statement about Buffett. I am curious about one thing though. Buffett prefers to buy businesses during a recession when the books aren't looking so hot and Berkshire Hathaway can get a good deal. What sort of insider information could be useful in that scenario?
I believe OP was referring to a few stories that recently showed how Buffett profits from the reaction to the news of his investments, and companies also offering him sweet deals (i. e. buying new stock at a discount) because they see an investment by him as excellent PR.
That's not so much insider trading, and "market manipulation" also doesn't completely fit. I guess Buffett has just become a self-fulfilling investment prophet.
Buffett's returns today, while still very good, are a pale shadow of the returns he put up in his first decade, or even his first 30 years. Somehow all these "sweet deals" haven't moved the needle for Berkshire.
The real reason current returns are lower is that the constraints on Buffett have grown over time and now are the heaviest they've ever been. Investing a $400B portfolio offers him far fewer opportunities than a $50M or even $10B portfolio did.
And announcements of his purchases are very damaging to his returns. Typically only has a month or two before he's required to file with the SEC disclosing significant new purchases. So accumulating billions of dollars of stock in most companies in those months without driving up the price is either impossible or really difficult. Once he files his SEC report, the prices almost always increase substantially from 'free riders' trying to piggyback on his trades.
The stock price popping up quickly not good for Buffett, in fact it's terrible. It forces him to stop buying what he regarded as a bargain. He never flips his positions, he's going to hold them for many years, usually many decades. The free rider problem means he has to invest less, and make less on each investment, hurting his returns.
And the "sweet deal" allegation is pretty ludicrous. Berkshire is a very special financial source, a CEO can call Buffett directly and get a hard price almost immediately. The price he gives is never very good, but for businesses that need money badly they know he will always close the transaction quickly without trying to renegotiate or bailing out.
Goldman Sachs during the 2008 crisis was a good example. Goldman is owned/run by hard eyed partners, but during the crisis their backs were against the wall. They had to add more capital, and were being forced to sell shares at really horrible prices to raise it. They got $5B from Warren in an emergency phone call, and in preferred shares were less dilutive than selling common shares.
No one else on earth was willing to step up during that immense crisis and give Goldman a better deal, more likely any deal at all (Lehman had just filed bankruptcy). If someone else gave them a slightly better offer, the sharks at Goldman would have taken it.
And Buffett is always laughed at when making these deals because wall street execs claim he overpaid. Its not till years later when the results come in that revisionists says they were obvious sweetheart deals. Yet somehow the revisionists never picked up the phone to get in on them.