A look at his recent investment record reveals that, like his supporters, Obama has a taste for betting on long shots. But two such bets placed in 2005 raise questions about the senator's judgment when it comes to buying stock in companies that are in line for federal funding.
Obama's lean portfolio from 2005 -- the most recent data available to the public -- reflects his status as a newcomer and an outsider to the establishment of beltway presidential politics. The more conventional candidates, such as the early Democratic frontrunner, Sen. Hillary Clinton, and her Republican counterpart, Sen. John McCain, boast vast networks of investments that are typical of a public figure heading up a well-oiled political machine. Obama's investments, meanwhile, are mostly tied up in a short list of conservative mutual funds.
A closer look, however, shows that in 2005 he dabbled in two obscure stocks -- Skyterra Communications (SKYT Quote - Cramer on SKYT - Stock Picks) and AVI Biopharma (AVII Quote - Cramer on AVII - Stock Picks) -- that happened to get large amounts of revenue from a source with which Obama has some familiarity: the federal government.
Aside from sharing the same deep-pocketed benefactor, the two have one more thing in common. They both provide services in an area that has become a hot-button issue on Capitol Hill and with the electorate: homeland security.
To be sure, it's not uncommon to find elected officials in Congress who hold investments in companies that receive federal funding or provide testimony to their legislative committees. In fact, it's hard to find any politicians with money in the stock market who aren't at least indirectly invested in a major government contractor, such as General Electric(GE Quote - Cramer on GE - Stock Picks) or Boeing (BA Quote - Cramer on BA - Stock Picks).
But Obama's 2005 trades raise questions in that Skyterra Communications and AVI Biopharma are far more speculative and uncommon stocks than those blue-chip staples. They both have much smaller market caps -- less than $700 million -- and lower trading volumes.
While there's no evidence that Obama had a role in the contracts for the companies, given his other investments, it seems an unlikely coincidence that the senator would be familiar with either company except through his work as a legislator.
In 2005, Skyterra was viewed by Wall Street as a way to speculate in the public markets on the fortunes of MSV, which provides testimony and white papers to Congress about the value of satellite communications to the U.S. military and the Department of Homeland Security.
Obama's purchase came right around the time that MSV received approval from the Federal Communications Commission to construct a nationwide wireless network with both satellite and terrestrial components. That ruling raised the prospect that MSV would form an alliance with a major terrestrial phone carrier, such as Verizon (VZ Quote - Cramer on VZ - Stock Picks) or AT&T (T Quote - Cramer on T - Stock Picks).
Like other investors, Obama may have purchased the stock in February based on the company's new prospects, but MSV also got a huge influx of public money that year.
According to OMB Watch, which tracks the spending habits of the federal government, MSV received $167,064 in federal funds in 2004, and 28% of that money came from so-called no-bid contracts.
In 2005, the year Obama traded Skyterra stock, the amount of federal funds MSV received swelled to more than $250 million, and 76.4% of that came from no-bid contracts.
Obama sold his Skyterra holdings on Nov. 1, 2005, when the stock closed at $31. Based on the stock's closing price of $39.10 on Feb. 10, the day he bought the shares, he recorded a loss of about 21% on the investment.
Burton says Obama lost $15,000 on his Skyterra trade.
Still, the sale was timely because Skyterra shares then dropped off precipitously in early 2006 after a partnership with a major phone carrier never materialized.
Some of the senator's losses in Skyterra were mitigated by his investment in AVI Biopharma. That company makes drugs that can be used to treat a number of infectious diseases, some of which are listed on the Department of Homeland Security list of bioterrorism viruses, including West Nile, bird flu, Dengue, SARS and Ebola.
AVI spokeswoman Jenny Moede says the company, based in Portland, Ore., has collaborated with various agencies of the federal government to test its technology on animals. It has not yet been used on humans, and the government has yet to stockpile any of its drugs.
OMB Watch reports that AVI received $164,078 in 2004 for research grants. In the first three quarters of 2005, the year that Obama made his trades in the stock, that amount increased nearly three times to $471,696.
According to public filings, Obama purchased between $1,000 and $15,000 worth of shares in AVI on Feb. 22, 2005, when the stock was trading at just above $2. He then sold his stake on Oct. 28 of that year, when the stock closed at $3.47 that day, suggesting Obama had roughly a 73% gain.
While Obama ultimately lost money on his stock trades,
these two moves do raise the question of whether there are ethical issues that should have restrained the senator from investing in shares of such unusual companies at a time when they were benefiting from federal funding.
Alex Knott, political editor for the Center for Public Integrity, says that, despite the rules in place,
conflicts of interest for elected officials in Congress arise all the time.
"
Wall Street and Pennsylvania Avenue connect in so many ways, and lawmakers constantly have the ability to drop earmarks or amendments into legislation that could make a stock on the Nasdaq rise or fall dramatically," says Knott.
Insider Trading: Illegal For You, But Not For Congress! HR 682
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Originally Posted by Swordsmyth
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