Is Multi-Millionaire Nancy Pelosi Trading With Insider Knowledge?

Despite holding a career in public service for the vast majority of her life, California Congresswoman Nancy Pelosi is damn rich. The Center for Responsive Politics puts Pelosi’s net worth as of 2018 at $114.7 million. The report uses disclosures from Congress members of assets and liabilities and gives an average between a minimum and a maximum the congressperson can account for owning. In effect, Pelosi could be worth as “little” as $40 million or as much as $251 million. “Damn rich” regardless.

Now, we all know Pelosi did not get that rich from her Congressional salary. Even with a very generous annual salary that has increased from $89,500 to $193,400 over her 34 working years (and even a bit higher yet during her Speaker of the House years). Some financial traders and more conservative outlets claim that Pelosi illegally made these millions through shady backroom deals. For the most part, Pelosi did not obtain her wealth illegally. Her husband, Paul Pelosi, is a businessman who owns a real estate and venture capital firm.

Paul Pelosi has some possible generational wealth to his name, as his father owned an insurance business in San Francisco while Paul was growing up. Most of the Pelosis wealth comes from investments in stocks and real estate, such as the couple’s investment in a St. Helena Winery, which was bought for $2.35 million in 1990 and is now worth a self-reported $5-25 million. All above-board, standard investment vehicles for a wealthy venture capitalist, albeit not preferable for a leader of the only U.S. party interested in redistributive economic policy.

Nancy Pelosi is a bit of a turd in the Democratic melting pot. She is a reasonably staunch liberal with a decent voting history but often stands in the way of substantial progressive change as Speaker of the House. Her disdain for Alexandria Ocasio-Cortez and the Squad, her love for PAYGO – the austerity measure that forces congresspersons to draft legislations that include funding in the form of either tax increases or spending cuts, and her utterly insane statement where she thanked George Floyd for “sacrificing his life” after he was murdered are a few recent flubs. Still, she is no Manchin or Sinema trying to train-wreck President Biden’s agenda. She comes off as a relatively savvy political player at 81 years old and falls in line with the Democratic Party agenda.

The problem is, her husband has been making trades this year that stand out.  Reddit’s WallStreetBets, FinTwit, and TikTok have had popular posts about following Nancy Pelosi’s disclosures and using the information to buy stocks. Generally, the responses are pretty facetious. For instance, a headline with the title “Nancy Pelosi Upset About the Debt Ceiling Talks” results in Twitter mentions of “she’s worried about her call options!”

Nancy Pelosi is not the only congressperson buying and selling stocks. In 2021, we have seen over 4000 stock trades for $315 million exchanged in by either Senate or House members. The difference is that Paul and Nancy Pelosi are hoovering up so much profit from their stock trades that they put hedge funds to shame in 2020. Most Senate and House members are also not buying many options, which are more technical than holding stocks. An option is a contract that allows the holder to buy or sell an asset at a certain strike before a specific date. The value of an option is much more volatile than the actual stock as the value is dependent on time to expiration, adding an extra variable to stock holding.

It is not illegal to purchase options as a sitting congressperson. And, if any congressperson has options on their ledger, it would be one married to an investment banker. All above board still, but again the Pelosis are just killing it this year. The entire stock market has performed very well for the past year; the SPY500 returned about 36% between June 2020 and June 2021 for one of its best-ever years. Pelosi still easily beat the SPY500 with average returns between stocks and options of 56%.

A 56% return on investment in one year is incredible. The average hedge fund in 2020 “only” had returns of 11.6%, notably underperforming even broader market at large. Pelosi’s options returns were even more robust, with a return of 66.7%. The returns the Pelosis generated in 2020 and 2021 are extraordinary and certainly raise some alarm for the future.

Still, it is not out of the realm of possibility for an investment banker to have a strong year. Many hedge funds have had returns equal to or greater than the year the Pelosis had – Paul is a special trader but not unique. Analyzing the trades Pelosi has disclosed, we can see that Paul only bought one type of option – calls, which essentially are a bullish bet that stock price will go up. It makes sense that someone who bought calls after the market crash in March due to the COVID pandemic would have generated returns beyond the broader market. The stock market had one of its all-time best years in 2020, calls on almost literally anything would have great returns but especially the assets that Paul traded most frequently. Virtually every single asset purchase by Pelosi was a tech stock, which explains his great returns and makes the trades appear a bit precarious.

Paul Pelosi started 2020 by exercising some leaps, or very long-dated call options, in Amazon and Facebook, a bullish bet from the prior year that paid off into $1-5 million worth of Amazon stock. He sold the remaining options due to expire within days for an additional $500,000 - 1 million. Then, in February, Paul makes the first potentially interesting trade, buying 10,000 shares of Slack Technologies, the popular work communications app, on February 20 and then Microsoft and Google call options immediately afterwards – both developers of some of the most popular communications programs like Microsoft Teams and Google Hangout.

Needless to say, Pelosi knocked those trades out of the park; he literally bought the Slack stock at the top of the stock market. The day after, February 21, the stock market began to crash and would not reach the heights of February 20 until six months later. It certainly looks like Paul knew something about the future need for communications software in February, which has led some to believe his wife could have tipped him off. However, February 2020 media was pretty doom and gloom already, with plenty of analysts predicting fallout from COVID. Investing in Slack, Microsoft, and Google right at the peak of the market and as it began to turn downwards seems more like a play based on market sentiment at the time. Paul Pelosi definitely initiated his trade with COVID in mind, but the logic that companies would require these communications platforms due to remote work doesn’t seem extraordinary.

The most damning trades Paul Pelosi made immediately preceded the House Judiciary Committee’s vote on reining in big tech monopolization. The week before the vote, Paul exercised 40 call options on Alphabet, which netted him $5.3 million of stock in Google’s parent company. He essentially executed a trade from the previous year where he made a bullish bet that allowed him to buy Alphabet stock at $1200 per share, while shares closed the day of trade at over $2500. But, that was only exercising options from the previous year, which merely expired as of the date of execution. You could make the argument that the purchases made in Apple and Amazon that same period may be more representative of potential insider information. Still, they also fit his modus operandi pretty straightforward – the man likes tech stocks!

Glenn Greenwald has a good write-up on some other occurrences of potential insider trading:

“Paul Pelosi in March exercised $1.95 million worth of Microsoft call options less than two weeks before the tech stalwart secured a $22 billion contract to supply U.S. Army combat troops with augmented reality headsets.

In January, he purchased up to $1 million of Tesla calls before the Biden administration delivered its plans to provide incentives to promote the shift away from traditional automobiles and toward electric vehicles.”

And, again, even mentioning the execution of call options seems a bit illogical. Paul’s options were expiring that day, and he continued to bet on the stock by exercising the right to purchase the shares. Ideally, if he had insider information, and the HoloLens announcement was such a big deal, he should have tried to time his option to include the HoloLens, U.S. Army contract.

That isn’t to say there is nothing wrong with the Pelosis’ trading while Nancy serves as a sitting congresswoman. Nearly all of Paul’s favorite stocks to trade are tech. Apple, Amazon, Alphabet, Microsoft, Facebook, and Nvidia make up most of his trading. That is not ideal when you have an ongoing antitrust case in Washington, where the Democrats should be prioritizing reigning in big tech monopolization. Nancy has come out in support of the antitrust efforts by Democratic lawmakers, but most should know that the Democratic parties’ efforts to modulate and appease moderate dealmakers always results in inadequate legislation. Any meaningful measure that could reduce the power that tech companies have managed to grasp would cause Nancy’s net worth to take a potential multimillion-dollar hit.

Paul Pelosi’s stock trading and the wealth generated from it represent a more significant issue of appeasement to capital and potential conflict of interest between capital and labor interests -- Paul was just the most successful from his stock trading. Congressman Dan Crenshaw invests much less money than Pelosi, but his trading appears to correlate much better with congressional news. For instance, he sold quite a bit of stock during the market crash of March 2020, then bought into numerous airline and travel stocks on March 25th-27th

The CARES Act passed on March 27, which provided billions in aid to distressed airlines forced to shut down during the COVID-19 pandemic. That seems exceptionally timely, although, like in Pelosi’s case, many rumors were swirling about the potential for airline relief funding. The difference is that Crenshaw wouldn’t have had to rely on rumors or second-hand sources.

The STOCK Act was passed in 2012 with clear goals outlining restricting the trading of stocks on insider information. Unfortunately, it did not go far enough, and insider trading is still occurring. How could it not? These are the representatives of the people, meant to be informed on as many issues as possible. They draft the policies that impact the stock market and the economy. There is simply no possible way for legislators to trade stock ethically. One of the writers of the STOCK Act, Tyler Gellasch, wrote the following:

“But given that Congress’ first obligation is to the American people and that serving that obligation so often requires having more knowledge than ordinary American investors, why should members of Congress be permitted to trade individual stocks at all? Why should we expect them to even be capable when making business decisions of separating what they know as a result of their public responsibility and what they might otherwise know as private individuals?

Members of Congress often have information that can mean millions or even billions of dollars to market participants. Should they knowingly be misappropriating that information for themselves, their families, or their friends? Of course not. But it’s also unreasonable to expect members of Congress to pretend to not know something.

The STOCK Act is a useful tool to combat corruption, but it isn’t sufficient. Stock trading isn’t the only way that members of Congress could be misusing the material, nonpublic information they learn. Information can also be valuable in real estate transactions, for example. Congress should consider prohibiting significant outside business activities for all members, and limit any securities trading to diversified funds, with all trades first precleared by an appropriate ethics office. That kind of process is common at investment banks and other firms where employees are often in possession of material, nonpublic information. Many compliance officers at companies like those sometimes even conclude that insiders ought to be prohibited from trading in entire industries. We should expect at least as much of members of Congress.”

Do Paul Pelosi and Dan Crenshaw have access to insider information? In Crenshaw’s case, undoubtedly. We don’t know for Paul, but let’s also not be naïve to the problem at hand. The current system somehow expects that legislators should ignore insider information for their stock actions, which would require them to regularly also ignore their self-interest and the interest of their family members they one day intend to bequeath their wealth. There is no way to balance the interest of the American people with the stock trading done by sitting legislators.