If the government could investigate itself for insider
trading, the timing of a recent stock sale might have triggered a few
alerts.
In December, the Treasury Dept. sold the last of its shares in General Motors (
GM),
wrapping up the controversial bailout that began when GM declared
bankruptcy in 2009. Taxpayers ultimately lost about $10 billion on GM,
and some critics argued the Treasury could have recouped more of its
investment if it held on to its GM shares longer and waited for the
price to rise. But now the timing of the sale looks superb, especially
since a mushrooming safety controversy — which the government knew about
for years but the public didn’t — has been pushing down the value of GM
shares.
In February, GM announced the recall of about 1.4 million
Chevrolet Cobalts, Pontiac G5s and other vehicles for a faulty ignition
switch that’s been linked with 13 deaths in 31 crashes. As more
information about the safety problem has surfaced, it's become apparent
GM
knew about it for nearly 10 years
and did nothing to fix it, which has now prompted Congress to
investigate and the Justice Dept. to consider pressing criminal charges.
Had the Treasury held on longer to its GM shares, that could have led
to a bizarre situation in which the government ended up investigating
and perhaps even prosecuting a large business entity it held a
controlling interest in.
A strange situation
The
whole situation is weird enough as it is. A chronology of events GM
provided to the government’s auto-safety regulator, the National Highway
Traffic Safety Administration (NHTSA), shows GM was internally
investigating the ignition-switch problem even in the midst of the
company’s 2009 bankruptcy filing and government bailout, which gave the
Treasury Dept. a 61% ownership stake in GM. There appears to have been a
lull in GM’s internal inquiry from 2009 to 2011, but the probe
intensified from 2012 to early 2014, leading to GM’s decision to mount a
recall in February.
General Motors returned to public markets in
November 2010. On Dec. 21, 2012, the Treasury Dept. announced it planned
to unload its GM shares over the course of the next 12 to 15 months,
and it completed that process by Dec. 9, 2013. During that time, the
price of
GM shares
mostly rose, ranging from about $27 to $41. The peak price in GM's
post-bankruptcy era occurred about two weeks after Treasury sold its
final GM shares, at the end of 2013. So the Treasury sold as the stock
price was rising, finally exiting its position with the share price near
its peak — and about to fall.
In
a normal investing situation, that would constitute excellent timing,
perhaps even raising questions about whether the sellers knew more than
they were letting on. Treasury, for its part, said all along it was not
involved in operational issues at GM. And by selling GM shares at a $10
billion loss, when it could have waited longer, the Obama administration
signaled its eagerness to disentangle itself from the automaker and
from awkward questions involving executive pay, regulatory issues,
political posturing and other matters. A Treasury spokesperson
reiterates the department was not involved in the day-to-day management
of the company, and had no prior knowledge of the ignition-switch issue.
The
NHTSA did know about the problem, however, and raised it with GM no
later than 2007. The NHTSA is part of the Transportation Dept., not the
Treasury Dept., and even though most Americans may think of “the
government” as one organization, it’s actually hundreds of agencies that
don’t necessarily communicate with each other and don’t even have the
same computer systems. So it’s quite plausible information held at NHTSA
never reached Treasury and had no bearing at all on its sale of GM
stock. Still, it’s a connection Congressional investigators —
representing the arm of the government charged with oversight of the
executive branch — will undoubtedly explore.
The
timing of Treasury’s GM stock sales, meanwhile, could end up being a
better deal for taxpayers than it initially seemed. The median price of
GM stock in 2013, when Treasury sold most of its shares, was about $34.
GM shares are now down around 14% for 2014 and are trading around $35.
So if they fall much more, 2013, in retrospect, will look like a good
year to have sold. And if the shares recover, at least the government
won’t have to investigate itself as the GM saga develops.
http://finance.yahoo.com/blogs/the-exchange/strange-new-questions-about-the-government-s-sale-of-gm-stock-155925152.html
