Treasury Probing Bond Trades
The U.S. Treasury is promising a quick decision on whether to refer suspicious trading in the 30-year bond Wednesday morning to government lawyers after an investment consultant admitted telling clients the security was to be eliminated.
Pete Davis said he informed clients based on a press briefing he attended Wednesday before public release of the news sparked the biggest rally in 14 years.
The price on the benchmark Treasury bond rose from 1021/2 at 9:30 a.m., when the meeting with the press ended, to 104 at 10 a.m. By contrast, between 9 a.m. and 9:30 a.m., the bond traded within a range of 1/8 of a point.
“My office is looking into it,” said David Aufhauser, Treasury’s general counsel. The Treasury “will make referrals to appropriate authorities. ... “ he said, adding that a decision would come “almost immediately.”
Those authorities may include the Securities and Exchange Commission and the U.S. attorney’s offices in New York and Washington, he said.
“If there’s been illegal insider trading, the SEC would have the capacity to prosecute,” said Karl Groskaufmanis, a partner at law firm Fried, Frank, Harris, Shriver & Jacobson in Washington who has been involved in insider trading investigations. “This would be unusual but not completely unprecedented. There have been isolated instances in which the SEC has initiated insider trading cases involving government, municipal or corporate debt securities.”
Davis was in a meeting of reporters who were advised of the decision to eliminate the bond by Undersecretary of Treasury for Domestic Finance Peter Fisher on condition they not release the information until 10 a.m.
Davis said he disclosed what he learned to representatives of Stone & McCarthy Research Associates and Capra Asset Management.
“I thought I was dealing with people who were writing analytical pieces who would honor the embargo for release time,” Davis, president of Davis Capital Investment Ideas, said in an interview.
Ward McCarthy, managing partner of Stone & McCarthy, said he and his staff honored the embargo.
James Capra, president of Capra Asset Management, declined comment on his role, though he pointed out that the largest pre-announcement move in price was just 9/32, between 9:55 a.m. and 10 a.m. “As a bond practitioner and analyst, that’s not much,” he said.
