Republican Insider Trading of Asbestos Stocks?

Serious accusations about insider stock manipulation by day traders operating out of the offices of the United States Congress was reported last week by Josh Orton at Daily Kos:

Insider Trading in Frist and Delay's Office: Story Growing

In an exclusive last night on Air America Radio's The Majority Report, Rep. Louise Slaughter alleged that day-traders had been operating inside the offices of Senator Frist and Congressman Delay.  Telling us that her source was "as good as gold," Rep. Slaughter promised to investigate further and get back to us.  Audio available via AMERICAblog here.

Insider trading is earmarked by a sharp flunctuation in stock price and a sharp increase in volume.  The key is to buy in when volume is low and sell on the news.  Profits can be made by buying low and selling high or going short--selling first and then buying stock to deliver to the buyer after prices drop.  After the insider transaction there is some public event that moves the stock and creates the profit.

Some observations about the chart:

• The graph is logorithmic, giving a better perspective of relative price fluctuations.
• The black represents the daily trading of Owens Corning, the principal US company that manufactured asbestos, the company most effected by any federal legislation that would reduce the liability of the asbestos manufacturers if Congress were to approve public monies to subsidize the asbestos lawsuits.
• The red represent W.R. Grace and Co. one of seven other firms that has a keen interest in the outcome of the asbestos lawsuits.
• The price of the two companies track in a similar pattern.  Grace is more diversified than Owens Corning  (OC) and so its movement is not as volatile as the OC price movement
• Sharp price fluctuations in OC is accompanied by sharp fluctuations in volume.
• The highest volume was reached on April 12, 2005 when OC gapped up higher from the previous close at $2.53 to $3.46.
• With high volumes it is easy to make 25% and more on day trading this stock.

Conclusions with this information: Owens-Corning was subject to significant volatility on high volume on isolated days since November, 2004.  There is no indication of foul play though the pattern of trading actvitiy is what one would expect when looking for insider trading.

The follwing chart shows some of the more dramatic shifts in price and volume since November, 2004.

DATE	OPEN	HIGH	LOW	CLOSE	VOLUME	Gain/loss
11/5/2004	0.7	1.19	0.7	1.07	7515800	0.4
11/8/2004	0.91	1.78	0.9	1.77	8359900	0.7
11/9/2004	1.89	2.28	1.82	2.25	10219800	0.48
11/18/2004	2.23	2.81	2.13	2.79	4587500	0.48
11/23/2004	2.3	2.87	2.27	2.73	4541900	0.38
11/29/2004	2.86	3.98	2.83	3.9	8708900	0.97
11/30/2004	3.78	5.71	3.77	4.85	10910400	0.95
12/2/2004	4.43	4.84	3.92	4.13	6007800	-0.42
12/6/2004	3.72	3.84	3.4	3.5	4122000	-0.39
2/8/2005	2.8	2.81	2	2.52	4145800	-0.38
4/12/2005	3.46	4.72	3.46	4.68	11747900	2.15
4/28/2005	5.44	5.7	3.89	3.91	5758200	-0.99
1/17/2006	4.18	5.14	4.05	4.88	5212100	0.63

Observations:

• I took the 21 days with the greatest volume and then looked for the days with the greatest price swing.  On the busiest trading day, April 12, 2005, the stock closed at $4.68, up $2.15 from the previous day, on an incredible volume of 11,747,900 shares.
• There is still no evidence of insider trading, though we have more carefully documented the volatility of the stock and its vulnerability to shenanighans.

There was significant news about the stock in this period.

On April 26 through April 28, 2005 the Asbestos Bill went through markup at the Senate Judiciary Committee hearing. (For the best history and documentation go to PUBLIC CITIZEN: Federal Asbestos Legislation...The Winners Are, May, 2005.) Things did not go well and Owens Corning fell $0.99 the afternoon of April 28, 2005, losing 20% of its value from the previous close.

In the meantime, back on April 3 and April 5, 2005, days Owens Corning was dropping to $1.81 from the March close of $2.42, volume was three and four times the normal 1.03M shares a day. By April 12, the stock had doubled before peaking at $5.19 on April 18th.

The stock stayed in a narrow band for the next few months, finally dipping below $3 a share during July 6, 2005.  The chart is uneventful except for some accumulations of stock during its lows last November, until we get to Friday, January 13 and Tuesday January 17, 2006.

We have no proof of insider trading.  What we do have are suspicious patterns that ought to be investigated. Anyone who traded in and around these dates, and normally does not specultate in other stocks, and did not buy and sell Owens Corning at other times of the year, and worked in a Congressional office ought to come under scrutiny.  (There are other dates that should be checked, but my resources are limited.)

The events of April 1-April 28 could just be the public trading the stock in anticipation of a favorable outcome for the company as the bill was marked up.  Some won, some lost.

But mixed among the public speculators there could be insider trading. As a former SEC registered representative, nothing makes me madder than profit made using non-public, privileged corporate information. And as a former public official, nothing makes me madder than profit gained from a privileged public position. Insider trading is theft.

On January 14, 2006, I posted Underworld Overworld II: Abramoff, DeLay and Bush:

I doubt that Bush took money.  The 'fronts' or the 'beards' were always kept clean.  In Chicago and Las Vegas, The Outfit always made sure that the operators who sat in the chair were never tainted or touched by those who bagged the money.

Bush got what he needed and delivered in return.  But there are no paper trails, money changing hands; no tapes; no videos.

The cash came from Abramoff to DeLay and the Congress was elected, and owned. Then the casino licenses were issued or revoked, the no bid contracts were awarded or rescinded.

Somewhere there is a smoking gun.

Insider trading and tips for friends and relatives is one of the best ways of making a payoff. Enough said.