Hillary's First Felony, "Cattle Straddles" - Memorize the name for future access to the links and articles. I have no link fo the 1994 WSJ article; it was emailed to me in pdf by the deputy editor.
1 in 31 trillion are the odds that Hillary told the truth about her amazing commodity trades. Quoting the Journal of Economics and Finance: "Economists from the University of North Florida and Auburn University investigated the odds of gaining a hundred-fold return in the cattle futures market during the period in question. Using a model that was stated to give the hypothetical investor the benefit of the doubt, they concluded that the odds of such a return happening were at best 1 in 31 trillion." http://link.springer.com/article/10.1007%2FBF02920493
Stating it the other way around, the odds are 31 trillion to one that Tyson Foods was buying state government favors from the Governor by depositing rigged commodity trading profits with his wife, with her knowledge.
Facts of Hillary's trades were analyzed by a former IRS chief prosecutor of commodities trading crimes and published in the WSJ article below. The commodity trader that Tyson Foods referred to Hillary was convicted of this exact crime for trades done with other clients during this exact same time period.
Quid pro quo. It was the NY Times that broke this case in 1994: "During Mr. Clinton's tenure in Arkansas, Tyson benefited from a variety of state actions, including $9 million in government loans, the placement of company executives on important state boards and favorable decisions on environmental issues."
http://www.nytimes.com/1994/03/18/us/top-arkansas-lawyer-helped-hillary-clinton-turn-big-profit.html?pagewanted=allThe statute of limitations had expired by the time these trades were known. The crime is otherwise a felony for all involved. https://www.law.cornell.edu/uscode/text/7/13
The Mystery of Hillary's Trades
By David L. Brandon
7 April 1994
The Wall Street Journal
PAGE A14
(Copyright (c) 1994, Dow Jones & Co., Inc.)
As former head of the IRS chief counsel's Commodities Industry Specialization Team in the mid-1980s, I have followed with great interest the media stories on Hillary Clinton's excellent adventures in the commodities markets. As a proud capitalist and free market proponent (and an avid beef eater), I would be the first in line to salute this woman's success with cattle futures. But based on my years of experience with these markets, her story just doesn't add up. In fact, the chances of someone making almost $100,000 in the futures markets on her first try are about as great as walking into a casino in Las Vegas, hitting the million-dollar jackpot on your first try at the slots, then walking out never to play again. It just doesn't happen that way.
For those unfamiliar with the details of Mrs. Clinton's remarkable venture into the commodities markets, she allegedly made more than $99,000 in cattle futures (and other commodities) in late 1978 and 1979, withdrawing from trading just before the markets went bust. No explanation has been offered of how Mrs. Clinton managed to satisfy state laws that require futures investors to demonstrate a minimum net income and net worth, nor how a novice could have such uncanny timing.
There is, in fact, a much more probable explanation for Mrs. Clinton's good fortune. The media have already suggested that trades may have been moved to Mrs. Clinton's account after gains had been realized. However, the stories thus far have not clearly focused on a common trading strategy called a "straddle" that was very much in vogue at the time.
Straddles have the unique ability to produce exactly equal and offsetting gains and losses that can be transferred or used by the straddle trader for a variety of purposes. During the late 1970s and early 1980s, straddles were used for all kinds of illegal activities, ranging from tax evasion to money-laundering and bribes. In fact, this activity prompted a number of legal and regulatory changes by the Reagan administration to curb the abuses.
Although it sounds somewhat esoteric, a commodities straddle is a relatively simple trading device.
A commodities futures contract is nothing more than an agreement between two parties to buy or sell a certain type of commodity (in Mrs. Clinton's case, cattle) for a stated price on some date in the future. If the price of the commodity goes up before the contract delivery date, the individual who agreed to buy the commodity will realize a gain equal to the difference between the current price and the contract price. The individual who agreed to sell will realize a loss in an equal amount. Conversely, if the price goes down, the buyer will lose and the seller will gain.
A straddle is created when an investor enters into contracts to both buy and sell the same commodity. In this case, any gain on one contract will be exactly offset by a loss on the opposite contract. While straddle trading today is used in a variety of legitimate ways, these transactions lend themselves to all sorts of abuses as well. Before regulatory changes in the 1980s, it was common to enter into straddles to wipe out large capital gains for tax purposes. For example, an investor who realized a $100,000 capital gain in the stock market might enter into a large straddle in the commodities market. When the commodity price moved, the investor would close the loss leg of the straddle and realize a $100,000 loss, which offset his gain in the stock market. The investor was not required to report the unrealized $100,000 gain in the opposite leg of the straddle until that leg was closed in the following year. Typically, the investor entered into another straddle in the following year, thereby indefinitely rolling over the capital gain into subsequent years.
Another ploy common during that time required the assistance of a friendly broker. An investor could create a straddle using two separate investment accounts with his broker. After the straddle had moved, so that a gain and an offsetting loss had been created, the friendly broker simply wrote in the name of the investor's tax-exempt retirement fund on the account that held the gain leg of the straddle. The result was that a loss was realized that was reported on the investor's tax return, while the gain went unreported in the tax-exempt retirement account.
In the late 1970s and early 1980s, the IRS began noticing large numbers of individual tax returns that curiously showed commodities losses just big enough to wipe out unrelated capital gains; no corresponding commodities gains, which would suggest a straddle, ever appeared on subsequent returns. Even more curiously, the profile of these investors always had one thing in common, which was limited experience or no prior experience in commodities trading. In the early 1980s, an IRS agent in Chicago thought to look into one taxpayer's retirement fund and, of course, found the hidden gain leg of the straddle.
After that experience, the IRS redoubled its efforts to seek out thousands of missing straddle gains. It found them in retirement accounts, in London, in the Cayman Islands -- almost anywhere a taxpayer thought he might hide them from the IRS. With respect to these thousands of mysterious, isolated commodities transactions that showed up on tax returns, the IRS uncovered some form of questionable trading in virtually 100% of the cases it investigated. Well before the close of the 1980s, the IRS had assessed more than $7 billion in delinquent taxes and penalties attributable to these transactions and eventually settled these cases out of court for approximately $3.5 billion.
While most of the IRS's efforts were directed at finding hidden gains of the ubiquitous straddle, the trading device could just as easily be used to openly transfer gains while hiding the offsetting loss. If someone desired to make an illicit payment to another party, a straddle could be used to accomplish this purpose with no incriminating or suspicious-looking bank withdrawals or deposits. In fact, the IRS found numerous incidents of straddles being used for money-laundering purposes.
Does Mrs. Clinton's trading activity fit the profile of the illegitimate straddle trader? She was a novice in the commodities markets who, against all odds, realized large gains. Although she intermittently realized losses, it does not appear that she ever had to risk her own capital beyond her initial $1,000 deposit, which itself may have been insufficient to cover even her first transaction (which netted her $5,300). According to the trading records released by the White House, most of Mrs. Clinton's gains were recorded as intra-month transactions. This means that these records include no information regarding key elements of the trade, such as the type and quantity of the contracts, acquisition dates, acquisition prices, etc. Such information is needed to determine whether trades were part of a prearranged straddle.
It also appears that Mrs. Clinton's broker, Robert L. "Red" Bone, was no stranger to the spicier practices of commodities trading, according to The Wall Street Journal's front-page article last Friday.
It seems more than coincidental that Mr. Bone was a former employee of Tyson Foods and that Mrs. Clinton's investment adviser, James Blair, was the company's legal counsel. Tyson, the poultry concern, is one of the largest employers in the state of Arkansas. The fact that the Clintons withheld disclosing only those tax returns that included their commodities gains until the transactions were reported by the New York Times in February also appears quite suspicious. From my standpoint as a former government staff attorney with extensive experience in these matters, Mrs. Clinton's windfall in the late 1970s has all the trappings of pre-arranged trades.
How would a straddle have been used in Mrs. Clinton's case? The Journal has already reported that gains theoretically could have been transferred to Mrs. Clinton's account, while "others" may have absorbed losses. Such a transaction could be accomplished with a straddle.
A party desiring to transfer cash to another's personal account for legal or illegal purposes could enter into a straddle in a particularly volatile commodity, such as cattle futures in the late 1970s. After gains and losses were generated in the opposite sides of the straddle, the gain side would be marked to the beneficiary's account, while the loss side would remain in the account of the contributor. The contributor might even be entitled to use the loss to offset other gains. Such a transaction would be not only well-hidden from government authorities but potentially tax-deductible.
No direct evidence of wrongdoing has been produced in the case of Mrs. Clinton's trading activity. In fact, no conclusive evidence of anything has been produced. In order to settle the legitimate questions surrounding her trades, a satisfactory explanation is needed for her apparently low initial margin deposit and whether the requirements relating to an investor's minimum net income and net worth were satisfied. In addition, the details of her numerous intra-month trades should be provided, as well as the details of the trades of persons who may have had a special interest in how well she did. If it is discovered that certain interested parties happened to realize losses in cattle futures at the same time, and they were comparable in size to the gains reported by Mrs. Clinton, this would amount to a "smoking gun."
This is not a matter of partisan politics. Even if the public had never heard of Hillary Rodham Clinton, the circumstances surrounding her unusual good fortune would still appear suspicious to anyone awake to abuses of the commodities markets. In this writer's experience, the normal trading world just doesn't work that way.
Mr. Brandon was a career attorney in the Office of Chief Counsel of the Internal Revenue Service from 1983 to 1989. During that time he also served as head of that department's Commodity Industry Specialization Team, which was responsible for coordinating and developing the IRS's legal positions on tax issues arising in connection with commodities transactions.
Dow Jones & Company - copyright, reprinted with permission
Update:
Bringing more links forward:
A few days after Hubbell’s resignation, the New York Times ran a lengthy story about Hillary’s commodity trades. Her aides and lawyers had finally provided financial records to the Times, but only after the newspaper made clear that it was preparing to publish a detailed account of her trading profits.
Initially, senior aides to the Clintons said in March 1994 that Hillary “based her trades on information in the Wall Street Journal.” That explanation was subsequently dropped. An aide to Hillary then said she had withdrawn from the market in the fall of 1979 because she had found trading too nerve-racking in the final months of her pregnancy. But another White House aide quickly declared that excuse “inoperative” after it was disclosed in April 1994 that Hillary made $6,500 in a commodities-trading venture in 1980 but failed to report that profit to the IRS.
Shortly after that, Hillary took responsibility—in her standard combination of singular acknowledgment and plural blame—for her aides’ confusing answers to reporters, saying they stemmed from her being away, working on other issues. “I probably did not spend enough time, get as precise,” she explained, “so I think that the confusion was our responsibility.”
...
A reporter asked whether her criticism of the Reagan era as a decade of unabashed greed appeared hypocritical in light of her recently disclosed commodities-trading windfall.
“I think it’s a pretty long stretch to say that the decisions we made to try to create some financial security for our family and make some investments come anywhere near” the “excess of the 1980s,” she replied. Inverting reality, she claimed that it was her father’s stubborn frugality and quest for financial security that had helped her succeed at trading commodities.
http://www.politico.com/magazine/story/2015/03/hillary-clinton-emails-pink-press-conferences-115952_Page2.html#ixzz3VDuOabvgMrs. Clinton traded with Mr. Bone[known crook], the chief broker in 1978 at the Springdale, Ark., offices of Ray E. Friedman & Co., or Refco. In 1981, Mr. Bone was fined $100,000 and barred from trading for three years after an investigation of allegations that
he had been allocating winning positions to favored clients.
New Records Outline Favor for Hillary Clinton on Trades
By STEPHEN ENGELBERG,
Published: May 27, 1994
WASHINGTON, May 26— The White House today released new records showing that Hillary Rodham Clinton received preferential treatment from her commodities broker in the late 1970's, when she was allowed to trade in cattle futures without depositing the cash that normally would have been required.
Mrs. Clinton ultimately turned a $1,000 investment into profits of nearly $100,000. The records showed that she had earned her initial $5,300 in profits without depositing $12,000 in cash that ordinarily would have been needed for the purchase of a contract for 400,000 pounds of cattle.
In such margin trading, brokerages are required to deposit $1,200 per cattle contract with the commodity exchanges, and they typically demand that their customers put up the money in case, as sometimes happens, the market moves against them and the customers lose more than their original investment. Margin Rules Ignored
Several commodities experts said the failure to enforce the margin requirements had amounted to favorable treatment. But Mr. Kendall said she would have been liable had the market turned against her.
"I don't think it was a favor," he said. "She was under margin, that's true, but she was still on the hook. If they needed the money, they could have gotten it from her. They knew who she was. She violated no rules. Margin is for the protection of the broker."
The documents did not conclusively settle questions raised by some commodity experts about whether her broker had improperly allocated winning trades to her account.
"It doesn't suggest that there was allocation, and it doesn't prove there wasn't," said Leo Melamed, the former head of the Chicago Mercantile Exchange, to whom the White House directed press questions. "I told them I couldn't say it wasn't."
Merton H. Miller, professor emeritus at the University of Chicago Graduate School of Business, agreed. "It doesn't answer the questions people were asking," he said in a telephone interview this afternoon. "It's her account number, but it doesn't necessarily they were her trades." Explanation Changes
Mrs. Clinton earned the commodities profits in 1978 and 1979 with trading advice from James B. Blair, the general counsel of the Arkansas-based Tyson Foods and a close friend of both Clintons. Mrs. Clinton initially said that she had placed all of her trades herself and had made her decisions by consulting Mr. Blair, other advisers and The Wall Street Journal. Later, she acknowledged that Mr. Blair had placed many of her trades.
From the beginning, some experts suspected that Mrs. Clinton's good fortune had stemmed from favorable treatment by her broker, Robert Bone, a good friend of Mr. Blair's. Mr. Bone was disciplined by commodity regulators both before and after Mrs. Clinton's trading.
Mr. Blair and Mrs. Clinton traded with Mr. Bone, the chief broker in 1978 at the Springdale, Ark., offices of Ray E. Friedman & Co., or Refco. In 1981, Mr. Bone was fined $100,000 and barred from trading for three years after an investigation of allegations that he had been allocating winning positions to favored clients. Mr. Bone was also accused of "serious and repeated" violations of recordkeeping rules and margin requirements.
Margin requirements, former commodity regulators explained, are a matter between brokerages like Refco and the Chicago Mercantile Exchange, which wants to make sure the costs of trades are covered. Generally, brokers in turn require their customers to put up the money. But in the late 1970's, Refco permitted many of its customers to trade without putting up their margins in advance.
Earlier this year, the White House made public documents concerning commodity trading from Mrs. Clinton's personal files. Today, the White House released records of her account maintained by the Chicago Mercantile Exchange. Promises to Buy or Sell
Futures trading is essentially a bet on the price of cattle, soybeans or some other commodity. A speculator enters into a contract promising to buy or sell a given amount of cattle, say, at a certain price on a specific date in the future. The contracts are typically sold and resold months before they expire. Speculators can gamble that the price of cattle will rise or fall, depending on the type of contract. If the prices move favorably, the speculators sell their contracts and reap profits.
In 7 of Mrs. Clinton's 32 transactions, the Mercantile Exchange records are missing at least one segment of the transactions described in her personal documents. Mr. Melamed said this could stem from poor recordkeeping or a mistake by a clerk or it could reflect trading in large blocks of stock.
He said these were unlikely to be part of a scheme to allocate winning trades to Mrs. Clinton's account, since all of the transactions with missing data involved trades over more than one day.
"If this were predominantly day trading, you would hear me saying something different," Mr. Melamed said. "If there was anything wrong, there's no way the Federal Government, the exchange or anyone else would have gone to Mrs. Clinton and said, 'You violated something.' " Constency Noted
Mr. Kendall, the Clintons' lawyer, noted that Mrs. Clinton's personal records and the Chicago Mercantile documents were consistent. "At no point do they contradict," he said.
All of the records released by the White House make clear that Mrs. Clinton ran substantial risks in her trading. On one day in July 1979, for example, she held contracts for two million pounds of cattle, worth around $1.36 million.
What would have happened if the market had moved against her, and Mrs. Clinton had run up large losses? Professor Miller said no records would ever make clear what understandings might have existed between brokers and customers.
"Suppose that first trade had gone the other way and she had lost $5,300," he said. "Would she have paid it? She says she would have, but the question is, Did someone agree to vouch for those trades and say, in effect, 'Don't worry about it'? I'm not suggesting it did happen, but there's no way to say it didn't."
http://www.nytimes.com/1994/05/27/us/new-records-outline-favor-for-hillary-clinton-on-trades.html
