Hillary Rodham cattle futures controversy

In 1978 and 1979, lawyer and First Lady of Arkansas Hillary Rodham engaged in a series of trades of cattle futures contracts. Her initial $1,000 investment had generated nearly $100,000 when she stopped trading after ten months. In 1994, after Hillary Rodham Clinton had become First Lady of the United States, the trading became the subject of considerable controversy regarding the likelihood of such a spectacular rate of return, possible conflict of interest, and allegations of disguised bribery,) Starting in October 1978, when Bill Clinton was Attorney General and on the verge of being elected Governor, she was guided by James Blair, a friend, lawyer, outside counsel to Tyson Foods, Arkansas' largest employer, and, since 1977, Blair in turn traded through, and relied upon cattle markets expertise from, broker Robert L. "Red" Bone of Ray E. Friedman and Co. (Refco), a former Tyson executive and World Series of Poker semifinalist.

Rodham later wrote that she educated herself about the market and followed it closely, winning and losing money. By January 1979, she was up $26,000; but later, she would lose $16,000 in a single trade. At one point she owed in excess of $100,000 to Refco as part of covering losses, but no margin calls were made by Refco against her. Near the end of the trading, Blair correctly sold short and gave her a $40,000 gain in one afternoon. In July 1979, once she became pregnant with Chelsea Clinton, "I lost my nerve for gambling [and] walked away from the table $100,000 ahead." She briefly traded sugar futures contracts in October 1979, but more conservatively; once her daughter was born in February 1980, she moved all her commodities gains into U.S. Treasury Bonds.

The profits made during the cattle trading first came to public light in a March 18, 1994 report by The New York Times, which had been reviewing the Clintons' financial records for two months. She also downplayed the dangers of such trading: "I didn't think it was that big a risk. [Blair] and the people he was talking with knew what they were doing." Afterwards she won media praise for the manner in which she conducted herself during this, her first adversarial press conference; Time called her "open, candid, but above all unflappable ... the real message was her attitude and her poise. The confiding tone and relaxed body language ... immediately drew approving reviews." Only four explanations can account for these remarkable results. Blair may have been an exceptionally good trader. Hillary Clinton may have been exceptionally lucky. Blair may have been front-running other orders. Or Blair may have arranged to have a broker fraudulently assign trades to benefit Clinton's account.

Merc and Melamed investigations

Chicago Mercantile Exchange records indicated that $40,000 of her profits came from larger trades initiated by James Blair. According to exchange records, "Red" Bone, the commodities broker that facilitated the trades on behalf of Refco, reportedly because Blair was a good client, allowed Rodham to maintain her positions even though she did not have enough money in her account to cover her activity. For example, she was allowed to order 10 cattle futures contracts, normally a $12,000 investment, in her first commodity trade in 1978 although she had only $1,000 in her account at the time. Refco was fined for violating Chicago Mercantile Exchange rules governing margin trading.

Leo Melamed, a former chairman of the Mercantile Exchange, was brought in by request of the White House to review the trading records. On April 11, 1994, he said that the whole matter was a "a tempest in a teapot" and that while her brokers had not required her to provide typical margin cushions, she had not knowingly benefitted. But as to the question of whether she had been allocated profits from larger block trades, he said of the new accounting, "It doesn't suggest that there was allocation, and it doesn't prove there wasn't,"

Clinton responses

Hillary Clinton's defenders, including White House Counsel Lloyd Cutler, maintained throughout that she had made her own decisions, that her own money was constantly at risk, and that she made both winning and losing trades throughout the ten months.

Clinton's defenders also stressed that Blair and others stayed in the market longer than Rodham and lost a good amount of what they had earlier made later that summer and fall, showing that the risk was real; indeed some reports had Blair losing $15 million altogether and declaring bankruptcy,

Official findings

There never was any official governmental investigation into, or findings about, or charges brought regarding Hillary Rodham's cattle futures trading (as opposed to Refco practices overall); furthermore, by the time her trading results became known, 15 years had passed and statute of limitations issues may have been pertinent. Melamed's statements were sometimes used as a proxy "official" finding by the Merc, although he was a private consultant by then and was brought in by the White House. In practice, the debate over the cattle futures controversy was never resolved, and all four of Marshall Magazine's possible explanations have their adherents to this day.

References

Category:Hillary Rodham Clinton Category:Political controversies in the United States