Nancy Pelosi Sold Nvidia, Then It Fell

Today’s technology offers instant access to information, and it is possible to analyze massive amounts of data in just a few seconds. In theory, these capabilities make it difficult to profit from the stock market short-term. Under this theory, stocks are always priced correctly because everyone has access to the same information at the same time.

In practice, some investors do make legitimate profits from short-term trades due to their skill in predicting market behavior and their ability to identify undervalued companies just before the market catches up.

However, there are other investors who make their profits or avoid losses by employing unsavory tactics. Specifically, they obtain sensitive information about stocks before it is made public, giving them an edge over other shareholders.

In the hedge fund business, using material nonpublic information to make trading decisions is called the “black edge.” Some industry experts believe this type of trading is expected of hedge fund managers. However, according to the law, buying or selling stocks based on material nonpublic information is known as insider trading.

Insider trading is illegal – the sort of crime that sends people to prison – but it is notoriously difficult to prove. Many investors are asking if Nancy Pelosi exploited that fact when she and her husband sold $4 million in Nvidia shares just before the Nvidia stock price dropped.

Did they act on confidential information? Are Nancy Pelosi and her husband guilty of insider trading? And is insider trading legal for congress?

Why Did Nvidia Go Down?

Nvidia stock is down more than 55 percent year-to-date, which is not uncommon for tech stocks in 2022. However, unlike Nvidia’s tech industry peers, the company hasn’t been struggling since the start of the year.

Nvidia saw a slight decline at the beginning of 2022 when tech fell out of favor and investors moved their assets to safer alternatives. But Nvidia fared better than most. Demand for its popular line of semiconductors kept revenue flowing despite market volatility.

That changed in late August when Nvidia reported that it would be subject to new sanctions on computer chip sales to Russia, China, and Hong Kong. Congress decided to restrict sales of certain types of chips to these countries to prevent advanced computer chips from being used in Russian or Chinese military applications.

None of Nvidia’s revenue comes from Russia, so that portion of the regulation isn’t an issue. However, Nvidia reported that the prohibition on sales to China and Hong Kong will eliminate approximately $400 million in revenue for the quarter, out of a total projected $5.9 billion.

Nvidia’s share price went down more than six percent in the first day of trading following the announcement, and it has been declining gradually ever since. While the company intends to request an exception to the new requirements, it is unclear whether and on what terms such an exception might be granted.

When Did Nancy Pelosi Sell Nvidia Stock?

Nancy Pelosi’s husband, Paul, is a venture capitalist with primary responsibility for managing the couple’s substantial portfolio. Both Nancy and Paul came under intense scrutiny when they purchased Nvidia stock just weeks before a major bill was scheduled for a Congressional vote.

The bill, referred to as the CHIPS and Science Act, provides subsidies for US chipmakers. Its goal is to reduce the country’s reliance on imported computer chips, which is expected to reduce the price of technology for American families.

The Pelosis’ sale of Nvidia stock occurred before the CHIPS+ vote, so the Pelosis did not benefit from the subsequent boost in stock price. In fact, they sold the shares at a loss of $341,365.

At first, it seemed that nothing was amiss. After all, the Pelosis missed out on gains in the early days after the CHIPS+ Act passed. Then, Nvidia released more details on how the national security provisions of the bill would impact sales, and the stock price dropped.

The Pelosis claim that the sale was intended to eliminate any perception of a conflict of interest when it came to owning a stock that was set to benefit from the CHIPS+ Act. However, as it turned out, the couple avoided substantial losses as a result of their sale of Nvidia stock.

It has been suggested that the Pelosis traded on the knowledge of how the sanctions would affect Nvidia – knowledge that wasn’t truly available to all investors.

While that would concern voters under any circumstances, the current state of politics has made the issue especially contentious. The idea that members of Congress can use the information they learn through their legislative work to make trading decisions is distasteful – but is it illegal?

Is Insider Trading Legal For Congress?

In 2012, President Obama signed the STOCK Act into law. It expressly speaks to insider trading by members of Congress. Specifically, it says that they are not exempt from insider trading laws that prohibit the use of material nonpublic information to be used in trading decisions.

However, many believe that the law doesn’t go far enough to prevent members of Congress from an unfair advantage in the stock market. In the course of Congressional work, members of Congress are privy to all sorts of information. Most of it is technically public.

Anyone who follows the legislative sessions knows when votes are coming up and what is included in the bill, which means that members of Congress aren’t trading on inside information when they buy or sell stocks based on how new regulations might impact them.

There is a fine line between what the public knows and what members of Congress have learned in their work. Plenty of people believe it is impossible to participate in Congress and simultaneously avoid any type of insider trading.

While there is no evidence that Nancy Pelosi disclosed confidential information to her husband that prompted a trading decision, the fact that members of Congress typically earn better-than-average returns on their portfolios has raised eyebrows.

There is discussion of a bill that would ban ownership of individual stocks outright for members of Congress and their families. Nancy Pelosi has indicated that she is likely to be supportive of such a bill. She denies any wrongdoing, but it appears that she understands how a hint of impropriety can distract from the work of running a country.

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