Quick Trading of ‘Hot’ Stocks Earned $28,000 for Rep. Foley

House Majority Leader Thomas S. Foley (D-Wash.) earned at least $28,000 between 1983 and 1986 from trading in “hot” new-issue stocks, sometimes clearing thousands of dollars in profits in a day through a type of transaction available to a limited number of investors.

The bulk of the profits in Foley’s account were made by buying and then quickly selling newly issued stocks that were eagerly awaited by investors.

Such “hot” issues sometimes rise in price on the first day they are offered for sale. An investor who acquires shares at the predetermined issue price before the first day of trading can earn substantial profits by selling them later if market demand causes the price to rise.

The new-issue stock transactions in Foley’s account do not appear to have violated any securities or ethics laws. In separate interviews, Foley and his investment adviser said the successful new-issue trades were allocated to Foley’s account out of friendship and not as part of any effort to obtain political favors.

Foley said also that his knowledge of the details of his investment account was “virtually nil.” He said he has never initiated or discussed any specific stock trades with his investment adviser, Boston money manager Peter De Roetth.

Foley’s account, on Sept. 26, 1984, for example, purchased 4,000 shares newly issued by D’Lites of America, a chain of health-food restaurants, for $9.50 a share. When the issue came to market, the price rose quickly. Foley’s account sold 2,000 shares later that day for $13 a share and 2,000 more the next day for $12.875 a share. His profits in the two-day transaction amounted to $13,750.

In another case, Foley’s account participated in the May, 1986, issue of shares in Home Shopping Network Inc., a cable-television marketing concern. On May 13, when they came to market, the shares skyrocketed from their issue price of $18 to a first-trade market price of more than $40 a share. Foley’s account bought 100 shares at $18 a share and sold them later the same day for $38.6451, earning a $2,064.51 profit.

Stock brokers selling a popular new issue where quick profits seem assured often funnel shares to favorite customers, usually investors who engage in large amounts of trading with the brokerage.