Hillary Rodham cattle futures controversy
Encyclopedia
In 1978 and 1979, lawyer
and First Lady of Arkansas Hillary Rodham engaged in a series of trades of cattle
futures contract
s. 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
, allegations that Clinton strongly denied. There were no official investigations of the trading and Clinton was never charged with any wrongdoing.
Rodham had no experience in such financial instruments. Bill Clinton
's salary as Arkansas Attorney General
and then Governor of Arkansas was modest and Rodham was interested in building a financial cushion for the future (the ill-fated Whitewater Development Corporation
would be another such effort from this time.) 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, a futures trader who was doing so well he encouraged friends and family to enter the commodity markets as well. 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 call
s 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. It immediately gained considerable press attention, and coincided with the beginning of congressional hearings over the Whitewater
controversy. Media pressure continued to build, and on April 22, 1994, Hillary Clinton gave an unusual press conference under a portrait of Abraham Lincoln
in the State Dining Room of the White House, to address questions on both matters; it was broadcast live by CBS
, NBC
, ABC, and CNN
. In it she said she had done the trading, but often relying upon the advice of Blair, and having him place orders for her; she said she did not believe she had received preferential treatment in the process. 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."
' s May 1994 analysis, "while Clinton's account was wildly successful to an outsider, it was small compared to what others were making in the cattle futures market in the 1978-79 period." However, the Posts comparison was of absolute profits, not necessarily percentage rate of return.
In a Fall 1994 paper for the Journal of Economics and Finance, economists from the University of North Florida
and Auburn University
investigated the odds of gaining a hundred-fold return in the cattle futures market during the period in question. Using a model that was stated to give the hypothetical investor the benefit of the doubt, they concluded that the odds of such a return happening were at best 1 in 31 trillion.
Financial writer Edward Chancellor noted in 1999 that Clinton made her money by betting "on the short side at a time when cattle prices doubled." Bloomberg News columnist Caroline Baum
and hedge fund manager Victor Niederhoffer
published a detailed 1995 analysis in National Review
that found typical patterns and behaviors in commodities trading not met and that concluded her explanations for her results were highly implausible.
In a 1998 article, Marshall Magazine, a publication of the Marshall School of Business
, sought to frame the trading, the nature of the results, and possible explanations for them:
(The last possibility refers to situations where a broker sets up a long straddle, then assigns the winning position to a favored client and either assumes the losing position himself or assigns it to unknowing clients of the same firm.)
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. On May 26, 1994, after the new records concerning the larger Blair trades came to light, he said "I have no reason to change my original assessment. Mrs. Clinton violated no rules in the course of her transactions." 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," an assessment of uncertainty shared by Merton Miller
, a Nobel Prize
-winning economist at the University of Chicago Graduate School of Business.
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. Regarding suggestions that Blair had favored Clinton so that Tyson Foods
could gain influence with Governor Clinton, they pointed out that Tyson had, in fact, later opposed Clinton during his 1980 re-election bid, an observation the First Lady had also made at her news conference.
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, and in October 1979 Blair would file suit against both Bone and Refco for manipulation of markets and other charges.
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.
Lawyer
A lawyer, according to Black's Law Dictionary, is "a person learned in the law; as an attorney, counsel or solicitor; a person who is practicing law." Law is the system of rules of conduct established by the sovereign government of a society to correct wrongs, maintain the stability of political...
and First Lady of Arkansas Hillary Rodham engaged in a series of trades of cattle
Cattle
Cattle are the most common type of large domesticated ungulates. They are a prominent modern member of the subfamily Bovinae, are the most widespread species of the genus Bos, and are most commonly classified collectively as Bos primigenius...
futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s. 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
First Lady of the United States
First Lady of the United States is the title of the hostess of the White House. Because this position is traditionally filled by the wife of the president of the United States, the title is most often applied to the wife of a sitting president. The current first lady is Michelle Obama.-Current:The...
, the trading became the subject of considerable controversy regarding the likelihood of such a spectacular rate of return, possible conflict of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
, and allegations of disguised bribery
Bribery
Bribery, a form of corruption, is an act implying money or gift giving that alters the behavior of the recipient. Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or...
, allegations that Clinton strongly denied. There were no official investigations of the trading and Clinton was never charged with any wrongdoing.
Trades and first exposure
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
's salary as Arkansas Attorney General
Arkansas Attorney General
The Arkansas Attorney General is an executive position and constitutional officer within the Arkansas government. The Attorney General is the chief law enforcement/legal officer and lawyer for Arkansas. The position is elected every four years, e.g...
and then Governor of Arkansas was modest and Rodham was interested in building a financial cushion for the future (the ill-fated Whitewater Development Corporation
Whitewater Development Corporation
The Whitewater Development Corporation was a failed business venture of James and Susan McDougal with Bill and Hillary Clinton. The business was incorporated on June 18, 1979, with the purpose of developing vacation properties on 230 acres of land along the White River near Flippin, Arkansas.-...
would be another such effort from this time.) 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
Tyson Foods
Tyson Foods, Inc. is a multinational corporation based in Springdale, Arkansas, that operates in the food industry. The company is the world's second largest processor and marketer of chicken, beef, and pork only behind Brazilian JBS S.A., and annually exports the largest percentage of beef out of...
, Arkansas' largest employer, and, since 1977, a futures trader who was doing so well he encouraged friends and family to enter the commodity markets as well. 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
World Series of Poker
The World Series of Poker is a world-renowned series of poker tournaments held annually in Las Vegas and, since 2005, sponsored by Harrah's Entertainment...
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 call
Margin Call
Margin Call is a 2011 American independent drama film, written and directed by J.C. Chandor. The film has an ensemble cast that includes Kevin Spacey, Demi Moore, Paul Bettany, Jeremy Irons, Zachary Quinto, Stanley Tucci, Simon Baker, and Penn Badgley...
s 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
Chelsea Clinton
Chelsea Victoria Clinton is a television journalist, currently serving as Special Correspondent for NBC News, and philanthropist, working through the Clinton Global Initiative. She is the only child of former U.S...
, "I lost my nerve for gambling [and] walked away from the table $100,000 ahead." She briefly traded sugar
Sugar
Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...
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
The New York Times
The New York Times is an American daily newspaper founded and continuously published in New York City since 1851. The New York Times has won 106 Pulitzer Prizes, the most of any news organization...
, which had been reviewing the Clintons' financial records for two months. It immediately gained considerable press attention, and coincided with the beginning of congressional hearings over the Whitewater
Whitewater (controversy)
The Whitewater controversy was an American politics controversy that began with the real estate investments of Bill and Hillary Clinton and their associates, Jim and Susan McDougal in the Whitewater Development Corporation, a failed business venture in the 1970s and 1980s.A New York...
controversy. Media pressure continued to build, and on April 22, 1994, Hillary Clinton gave an unusual press conference under a portrait of Abraham Lincoln
Abraham Lincoln
Abraham Lincoln was the 16th President of the United States, serving from March 1861 until his assassination in April 1865. He successfully led his country through a great constitutional, military and moral crisis – the American Civil War – preserving the Union, while ending slavery, and...
in the State Dining Room of the White House, to address questions on both matters; it was broadcast live by CBS
CBS
CBS Broadcasting Inc. is a major US commercial broadcasting television network, which started as a radio network. The name is derived from the initials of the network's former name, Columbia Broadcasting System. The network is sometimes referred to as the "Eye Network" in reference to the shape of...
, NBC
NBC
The National Broadcasting Company is an American commercial broadcasting television network and former radio network headquartered in the GE Building in New York City's Rockefeller Center with additional major offices near Los Angeles and in Chicago...
, ABC, and CNN
CNN
Cable News Network is a U.S. cable news channel founded in 1980 by Ted Turner. Upon its launch, CNN was the first channel to provide 24-hour television news coverage, and the first all-news television channel in the United States...
. In it she said she had done the trading, but often relying upon the advice of Blair, and having him place orders for her; she said she did not believe she had received preferential treatment in the process. 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."
Likelihood of results
Various publications sought to analyze the likelihood of Rodham's successful results. The editor of the Journal of Futures Markets said in April 1994, "This is like buying ice skates one day and entering the Olympics a day later. She took some extraordinary risks." According to The Washington PostThe Washington Post
The Washington Post is Washington, D.C.'s largest newspaper and its oldest still-existing paper, founded in 1877. Located in the capital of the United States, The Post has a particular emphasis on national politics. D.C., Maryland, and Virginia editions are printed for daily circulation...
In a Fall 1994 paper for the Journal of Economics and Finance, economists from the University of North Florida
University of North Florida
The University of North Florida is a public university located in Jacksonville, Florida. A member institution of the State University System of Florida, the university is accredited by the Commission on Colleges of the Southern Association of Colleges and Schools to award baccalaureate, master’s...
and Auburn University
Auburn University
Auburn University is a public university located in Auburn, Alabama, United States. With more than 25,000 students and 1,200 faculty members, it is one of the largest universities in the state. Auburn was chartered on February 7, 1856, as the East Alabama Male College, a private liberal arts...
investigated the odds of gaining a hundred-fold return in the cattle futures market during the period in question. Using a model that was stated to give the hypothetical investor the benefit of the doubt, they concluded that the odds of such a return happening were at best 1 in 31 trillion.
Financial writer Edward Chancellor noted in 1999 that Clinton made her money by betting "on the short side at a time when cattle prices doubled." Bloomberg News columnist Caroline Baum
Caroline Baum
Caroline Baum is an Australian journalist and radio and television broadcaster.Born in London on 27 November 1958 to Jewish migrant parents, , Baum attended secondary school in Paris at Lycée Charles de Gaulle, returning to the UK to attend the University of York...
and hedge fund manager Victor Niederhoffer
Victor Niederhoffer
Victor Niederhoffer is a hedge fund manager, champion squash player, bestselling author and statistician.Victor Niderhoffer was born in Brooklyn to a Jewish family. His father, Arthur, graduated from Brooklyn Law School but went to work in the police. Victor’s mother, Elaine was a teacher....
published a detailed 1995 analysis in National Review
National Review
National Review is a biweekly magazine founded by the late author William F. Buckley, Jr., in 1955 and based in New York City. It describes itself as "America's most widely read and influential magazine and web site for conservative news, commentary, and opinion."Although the print version of the...
that found typical patterns and behaviors in commodities trading not met and that concluded her explanations for her results were highly implausible.
In a 1998 article, Marshall Magazine, a publication of the Marshall School of Business
Marshall School of Business
The USC Marshall School of Business is a private research and academic institution at the University of Southern California. It is the largest of USC's 17 professional schools. The current Dean is James G. Ellis. In 1997 the school was renamed following a US$35 million donation from alumnus Gordon S...
, sought to frame the trading, the nature of the results, and possible explanations for them:
These results are quite remarkable. Two-thirds of her trades showed a profit by the end of the day she made them and 80 percent were ultimately profitable. Many of her trades took place at or near the best prices of the day.
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.
(The last possibility refers to situations where a broker sets up a long straddle, then assigns the winning position to a favored client and either assumes the losing position himself or assigns it to unknowing clients of the same firm.)
Merc and Melamed investigations
Chicago Mercantile ExchangeChicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
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
Refco
Refco was a New York-based financial services company, primarily known as a broker of commodities and futures contracts. It was founded in 1969 as "Ray E. Friedman and Co." Prior to its collapse in October, 2005, the firm had over $4 billion in approximately 200,000 customer accounts, and it was...
was fined for violating Chicago Mercantile Exchange rules governing margin
Margin (finance)
In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty...
trading.
Leo Melamed
Leo Melamed
Leo Melamed is a former chairman of the Chicago Mercantile Exchange , current board member of CME Group and chairman of the CME Group Foundation. He is a longtime executive in the field of global derivatives....
, 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. On May 26, 1994, after the new records concerning the larger Blair trades came to light, he said "I have no reason to change my original assessment. Mrs. Clinton violated no rules in the course of her transactions." 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," an assessment of uncertainty shared by Merton Miller
Merton Miller
Merton Howard Miller was the co-author of the Modigliani-Miller theorem which proposed the irrelevance of debt-equity structure. He shared the Nobel Memorial Prize in Economic Sciences in 1990, along with Harry Markowitz and William Sharpe...
, a Nobel Prize
Nobel Prize
The Nobel Prizes are annual international awards bestowed by Scandinavian committees in recognition of cultural and scientific advances. The will of the Swedish chemist Alfred Nobel, the inventor of dynamite, established the prizes in 1895...
-winning economist at the University of Chicago Graduate School of Business.
Clinton responses
Hillary Clinton's defenders, including White House CounselWhite House Counsel
The White House Counsel is a staff appointee of the President of the United States.-Role:The Counsel's role is to advise the President on all legal issues concerning the President and the White House...
Lloyd Cutler
Lloyd Cutler
Lloyd Norton Cutler was an American attorney, who served as White House Counsel during the Democratic administrations of Presidents Carter and Clinton. He was also the trainer of the former Vice President of the European Parliament and current Minister of Foreign Affairs of Greece, M.P...
, 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. Regarding suggestions that Blair had favored Clinton so that Tyson Foods
Tyson Foods
Tyson Foods, Inc. is a multinational corporation based in Springdale, Arkansas, that operates in the food industry. The company is the world's second largest processor and marketer of chicken, beef, and pork only behind Brazilian JBS S.A., and annually exports the largest percentage of beef out of...
could gain influence with Governor Clinton, they pointed out that Tyson had, in fact, later opposed Clinton during his 1980 re-election bid, an observation the First Lady had also made at her news conference.
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, and in October 1979 Blair would file suit against both Bone and Refco for manipulation of markets and other charges.
Official findings
Statute of limitations
A statute of limitations is an enactment in a common law legal system that sets the maximum time after an event that legal proceedings based on that event may be initiated...
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