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Here's a question I don't know the answer to regarding David Perdue's Cardlytics stock. But it's worth someone looking into. The stock has been at the center of a swirling controversy because he sold it before it tanked and bought some back after it rose. /1
He first purchased the $1M-$5M stock at issue on 7/18/18 by exercising stock options. He had received the options as a director on Cardlytics' board before the company went public. The company went public with an initial public offering (IPO) in February 2018. /2
The STOCK Act of 2012 provides that members of Congress may not "purchase securities that are the subject of an initial public offering . . . in any manner other than is available to members of the public generally." So the question is: Did Perdue do that? /3
Cardlytics filed an SEC form in connection with the IPO that identified individuals who would be able to purchase or receive the newly public stock based on existing agreements not generally available to the public. They listed Perdue's stock options. /4 https://www.sec.gov/Archives/edgar/data/1666071/000119312518010003/d338035ds1.htm
This makes me think that the stocks Perdue purchased qualify as "securities that are the subject of an initial public offering." In addition, he "purchased" them. This isn't just semantics because he purchased them at a previously established strike price. /5
The prohibition applies to executive branch officials, too. So the Office of Government Ethics, which oversees the executive branch, asked the Securities and Exchange Commission for guidance. The two agencies agreed on answers to two hypotheticals. /6 https://www.oge.gov/web/oge.nsf/News+Releases/E3826710209769F4852585BA005BEC76/$FILE/29e20ef2652d455e9242bd382b0acd882.pdf
In each of the hypotheticals, OGE emphasized that the critical factor in determining that the employee had not violated the STOCK Act prohibition against participation in an IPO was that the employee paid no additional money to acquire the now public stock in the hypothetical. /7
But that's not the case for Sen. Perdue. He paid consideration to purchase the now public stocks by exercising stock options on terms not generally available to the public. This raises a question as to whether he violated the STOCK Act of 2012. /8
Again, I don't know the answer. But there is a question here that needs answering, and the OGE/SEC guidance suggests the answer could be problematic for Sen. Perdue. /9
(Incidentally, the one time I'm aware of that Congress found a violation, the member had to disgorge the profits. Given how low Perdue's strike price seems to have been, that could be painful if a violation is found.) /10
p.s. For the benefit of anyone researching this, the STOCK Act of 2012 provision at issue has been codified at 15 u.s.c. §78u-1(i).
https://www.law.cornell.edu/uscode/text/15/78u-1
https://www.law.cornell.edu/uscode/text/15/78u-1
