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For almost one year now, I have closely observed developments on stock markets. I mainly focused on major indices such as the Dow Jones and DAX (I am from Germany). Both indices suffered losses during the hot phases of the "trade war" between the US and China, but recovered when there were signs of relaxation.

Imagine the following scenario for a president of the United States (POTUS):

  1. Start a trade war.
  2. Buy when stock prices are low.
  3. Proclaim agreement (or any sign of relaxation)
  4. Take the profits after markets react positively

Is there any mechanism that would prevent such a scenario? Undoubtably, the POTUS' actions can have a large impact on stock markets. I would consider any investments made by a POTUS insider trades. Is the POTUS even allowed to act on the stock markets?

J. D
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PKlumpp
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    I think what your are describing falls into the category of "manipulation" rather than insider trading. https://www.make-money-stock-value-investing.com/stock-market-manipulation.html – David D May 07 '19 at 15:52
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    Until 2012, it was perfectly legal for Washington politicians and judges to use information obtained through their official position for monetary gain. Essentially, "insider trading" was not a crime. This all came to an end with the STOCK Act. – Michael Benjamin May 07 '19 at 21:44
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    https://law.stackexchange.com/q/40738/3344 – Count Iblis May 07 '19 at 22:54
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    Kennedy apparently stockpiled on cigars prior to signing the embargo against Cuba. These appeared to be for personal consumption rather than trading though. https://www.youtube.com/watch?v=dHazLBTZUEs – James May 08 '19 at 10:12
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    @DavidD That would depend on whether steps 1 and 3 were a deliberate sham, to enable steps 2 and 4. It is equally plausible, and I would argue more plausible in practice, (and indeed the OP did not specify), that steps 1 and 3 were genuine policy, in which case steps 2 and 4 would be insider trading. – JBentley May 09 '19 at 09:53

3 Answers3

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Is there potential for the President of the United States to commit insider trading? Certainly. The President has access to all kinds of material information that is non-public, either because it’s classified, confidential, or not yet cleared for public consumption.

Some examples of material information that the President could have access to before the general public:

  • Knowledge of the progress of trade talks (Have we made a breakthrough? Is the other side insisting on something that we’re never going to accept? Is this negotiation a priority for the administration, or will we drop it if we don’t get a great deal?)
  • More critically, what is actually in these deals, before they’ve been publicly released? What concessions were extracted? What did we agree to? These details can have a huge effect on many industries.
  • The decisions of departments under the control of the Executive Branch like the EPA, FDA, or FAA
  • The President’s own decisions, for example, if the President knows they will institute tarrifs. (Though there is a lot of overlap with manipulation here)

Is there any mechanism to prevent this? No, aside from public outrage and the democratic process.

Until the current administration, every president in the modern era has voluntarily put their assets into a blind trust to prevent corruption (including insider trading) or the appearance of corruption. In a blind trust, one’s assets are being actively managed, but the owner is not aware of how they are invested and cannot control or influence their management. In this situation, insider trading is impossible since the President cannot actively manage their investments.

This policy is not a law or rule, though, it was just a tradition; and there’s nothing stopping a president from refusing to do so (as President Trump has), in which case insider trading would be easy to carry out. NOTE: I am not aware of any evidence that Trump has engaged in insider trading or stock market manipulation, but it would be trivially easy for him to do so.

So, what mechanisms can prevent this? It’s unlikely that the SEC could bring charges, even if they wanted to, as the President is likely protected by executive privilege. Pretty much the only options would be Impeachment or being voted out of office by a public outraged by a President who used their office to enrich themselves. As @Accumulation pointed out, the STOCK Act makes insider trading by politicians and government employees illegal, but without an enforcement mechanism that applies to the President, the only remedy remains Impeachment or getting voted out.

divibisan
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    Comments are not for extended discussion; this conversation about how Donald Trump could theoretically perform insider trading and how it could be persecuted has been moved to chat. – Philipp May 09 '19 at 05:54
  • There was the convention for presidents to put their business interests into a blind trust, to avoid any suspicions. Interestingly, this is something that Trump failed to do. – Dohn Joe Oct 16 '19 at 11:30
  • Arguably the traditional practice is an implementation of the constitutional prohibition of emoluments, which broadly speaking prohibits obtaining personal gain from holding public federal office, a definition broad enough to encompass insider trading. A U.S. Court of Appeals has held that violations of this clause may be enforced with a private cause of action. – ohwilleke Oct 16 '19 at 21:42
  • @Philipp "how it could be persecuted" Freduian slip? I assume that you meant to say "prosecuted." – ohwilleke Oct 16 '19 at 21:45
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According to Wikipedia,

In the United States, Canada, Australia and Germany, for mandatory reporting purposes, corporate insiders are defined as a company's officers, directors and any beneficial owners of more than 10% of a class of the company's equity securities.

So if the president does not fall under any of those categories, then they would not be a "corporate insider". However:

The provision of the Stock Act was a compromise in which government officials were required to disclose trades to the public in exchange for being able to trade in the first place. If disclosure proved too burdensome, government officials could simply adopt personal no-trading policies and avoid the cost of disclosing trades altogether. The new law scraps the disclosure requirements for the staffers, leaving them in place only for members of Congress, Congressional candidates, and the President and Vice President.

https://www.cnbc.com/id/100647407

So it appears that the president would at the very least have to disclose the trades.

Stormblessed
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Acccumulation
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Insider trading requires non-public material information. It doesn't sound like anything in your scenario is non-public though. Maybe if an agreement had been made but not made public and then the President bought the stocks and then she or he announced the agreement that could be insider trading.

David Rice
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    How are “The President is calling off trade talks” or “The President is going to propose new tariffs” or “We just had a big breakthrough in our ongoing trade negotiations with China” not non-public material information? The progress of ongoing trade talks and the unannounced intentions of the President are definitely not public information. Are you using a more technical definition of non-public? – divibisan May 07 '19 at 15:37
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    The existence of trade talks is generally assumed. When an agreement is made, that agreement is generally made public fairly quickly. Only if the trade happens after the agreement is made but before announced is it material and non-public. Before the agreement is made, it's speculation, so it's not material information. – David Rice May 07 '19 at 15:50
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    @DavidRice I'm not sure it would be speculation on the part of someone heavily involved in making those agreements. – Time4Tea May 07 '19 at 15:55
  • @Time4Tea It would be - talks fall apart at the last minute, things aren't finalized until they are finalized. – David Rice May 07 '19 at 15:58
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    @DavidRice they would still have a much better idea of where the talks are headed than the average Joe on Wall Street. – Time4Tea May 07 '19 at 16:00
  • @Time4Tea That's true, but having a better idea isn't the same as acting on material, non-public information, even if it should be. It also gets more complicated with things like investing in funds or etfs that take advantage of broad market movement. – David Rice May 07 '19 at 16:57
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    The president could short manufactured steel products and then declare a tariff on steel, then buy a long position on manufactured steel products, and then end the tariff on steel. This would not be a trade agreement and does not require two-party consent to succeed. – John May 07 '19 at 17:30
  • The President would obviously have to decide that "I'm going to place a tariff on widgets" some time before actually doing so or making that intention public. Granted, it's hard to decide whether this should be called insider trading or market manipulation. – jamesqf May 07 '19 at 17:42
  • @John yes, like I said - if he trades before making the announcement, then it's insider trading. – David Rice May 07 '19 at 18:10
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    Arguing that the person who sits at a desk equipped with dozens of levers of the economy could not profit from that power is naivety in the extreme. – Oscar Bravo May 09 '19 at 06:02
  • @OscarBravo Nobody's arguing that though. The law isn't so broad as "if you change the market in any way and profit from it you're guilty". (Also, the President generally has much less effect on the economy than people give them credit for, positive or negative) – David Rice May 09 '19 at 14:14