Commerce secretary denies insider trading after selling shipping stock [The Dallas Morning News]
June 20–U.S. Commerce Secretary Wilbur L. Ross Jr. has denied any wrongdoing in connection with the sale of stock in a shipping firm linked to the Kremlin.
Ross, a longtime investor who years ago bought a large stake in a Dallas-based oil and natural gas drilling company, was accused of shorting shares of shipper Navigator Holdings days after learning that reporters were preparing a potentially negative story about his dealings with the Kremlin-linked company, according to a report in The New York Times.
Stock shorting is an investment tactic that allows shareholders to profit if a stock’s price falls. It involves borrowing shares and selling them at the lower price.
The transaction took place last fall after Ross became aware that journalists investigating offshore finances were looking at his investments in Navigator Holdings. The shipping firm’s major clients included a Russian energy company, the report said. The Times emailed a list of questions about Navigator to Ross on Oct. 26.
Three business days later, Ross opened a short position in Navigator, The Times said, quoting from filings released on Monday by the Office of Government Ethics. The company’s stock price slid about 4 percent before Ross closed his position on Nov. 16, eleven days after the articles were published by The Times and the International Consortium of Investigative Journalists as part of the “Paradise Papers” project.
The transaction was first reported on Monday by Forbes. In interviews, ethics watchdogs raised alarms, saying the short sale created the appearance that Ross was acting on nonpublic information to potentially profit, which federal officer-holders are prohibited from doing.
Ross’s office denied any impropriety, saying he disclosed the sale to the government ethics office, which “certified that the transactions documented are in compliance with federal ethics requirements.”
“These allegations are completely false,” the Ross statement said. “The reporter contacted me to write about my personal financial holdings and not about Navigator Holdings or its prospects. I did not receive any nonpublic information due to my government position nor did I receive any nonpublic information from a government employee. “
In a lengthy and complex explanation, Ross said he chose to sell his stock in Navigator “to avoid any possible perception of a conflict of interest.”
He said he ended up borrowing Navigator shares to meet a New York Stock Exchange requirement to transfer shares within two days of a sale.
“To complete the divestiture as quickly as possible, I had to borrow shares in Navigator equal to the number of shares I sold to complete the transaction under the NYSE rules since the trust agent had not yet transferred the shares I owned to my brokerage account. I then replaced the borrowed shares with the shares held in my name when I received them a few weeks later.
“Securities laws presume that information known to or provided by a news organization is by definition public information,” the statement said. “The fact that the reporter planned to do a story on me is certainly not market-moving information. “
Typically in a short sale, investors borrow stock on the open market and sell it, hoping they can later replace the borrowed shares with new ones purchased at a lower price, pocketing the difference as profit. It wasn’t immediately clear if Ross made a profit on the sale.
“I received the value of the shares as of the short sale date, and paid my brokerage firm a fee for the loan of the borrowed shares,” his statement said.
Ross has had ties to at least two North Texas firms.
In the early 1990s, Ross was an adviser to creditors in the 7-year LTV Corp. bankruptcy that eventually ended with the Dallas-based aerospace division being sold and the corporate office moving to Cleveland where LTV Steel was headquartered.
In 2010, Ross tried to help rescue Dallas natural gas driller EXCO Resources, which sought bankruptcy protection earlier this year.
Ross is the former chairman and chief strategy officer of WL Ross & Co. LLC and has more than 55 years of investment banking and private equity experience.
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