Excerpted from Whitewater: A Journal Briefing (from the editorial pages of the Wall Street Journal).  Edited by Robert L. Bartley. ©1994


Sleazy Trades?

(Wall Street Journal, April 1, 1994)


I defy you to find any other account in the country where such a tiny amount of cash was allowed to risk such massive amounts of money

The Clintons have provided some commodity-brokerage printouts, thank you. But they are not, as widely believed, trading records. After spending two days with these incomplete numbers, we find that they answer fewer questions than they raise.

That is, the printouts don’t put to rest the suspicion that someone cut a lot of corners to steer Bill and

Inauguration day, 1993

Inauguration day, 1993

Hillary nearly $100,000 in com­modities gains. These suspicions lurk because amateur commodities players simply don’t make such money, because of what the whole Whitewater affair tells us about the way business and government mixed in Arkansas, because a powerful friend of Bill and Hillary loomed in the background, and because the trades were handled by a broker who was repeatedly sanctioned. The White House will have to go a lot further to demonstrate that Mrs. Clinton did indeed trade commodities as she says she did and not with undue assistance from Tyson Foods lawyer Jim Blair and/or his (and her) broker Robert Lee (Red) Bone.

What the Clintons released Tuesday were two types of monthly statements for the first eight months of activity. One showed the gains or losses being posted to her account as positions were closed; they don’t reveal the types, the durations or the prices of the deals. The other statement showed open futures contracts at the end of each month. Except on the open positions, we can’t tell a cattle trade from one in soybeans, for instance. Presumably these records were obtained from the Refco brokerage house or from the family files.

Either way, people in the business tell us, we should expect a third type of statement to be part of the package: a record of daily trade confirmations, with amounts and prices.

Once upon a time there would have been time-stamped trading slips that would allow checking the trades against exchange records of prices, but these are typically discarded after a few years. But con­firmation slips would tell us what exactly she was trading, what her price in and out was, and where there were intra-day or adjusted trades – both of which would flag attention to possible misallocations by the broker.

The issue of intra-day trades is particularly relevant because of Mr. Bone’s history. One of his disciplinary proceedings, according to sources quoted by Securities Week, “largely related to trade alloca­tions, whereby customers of Bone’s choosing would be given the good, i.e. profitable, trades at the close of the trading day and other accounts would get the bad trades.” Allocations are easy on intra-day trades, and very difficult to do on longer trades without raising “as of” red flags. Mr. Bone was found to be playing with margin require­ments, which also reflects on the Hillary matter.

To appreciate the essence of this, you don’t have to go beyond the two first days of Mrs. Clinton’s monthly statements. On Oct. 11, 1978, she made a cash deposit of $1,000. This is a curious figure for a prospective cattle trader, since the margin requirement for a single cattle contract was $1,200. The next day she closed out positions net­ting a profit of $5,300. Margins apply to overnight accounts, and since Hillary didn’t meet the margin for a single contract, until we see the actual records, we have to presume her Oct. 12 profits came from day trades.

We and others have been asking around for explanations of how one makes 530% in one day, given the fact that, by exchange limits, the most a cattle contract (40,000 pounds) could move during that day was 1.5 cents up or down per pound. As best we can determine, the actual movement of the most volatile cattle contract on Oct. 12 was 0.8 cents. In other words, to make $5,300, one would have needed to own about 17 contracts.

A contract was worth about $22,000. Even if not all of them were held at once, if broker Bone were carrying off a string of amazing buys and sells as the day proceeded (with Hillary at his side, of course), we’re talking about a position at any one time that dwarfed the worth of a couple who had a $42,000 income the previous year and didn’t even own a home. The exposure to simply one day’s swing would be many times the $1,000 Mrs. Clinton had put down. At the least, any broker actually making these trades had to assume there was a lot more behind the Clintons than what they showed on paper.

Or maybe they weren’t her trades at all. That day’s gains in Mrs. Clinton’s account, says John Damgard, president of the Futures Industry Association, “very well may apply to trades that were on for some time and were liquidated that day.” Indeed, the Washington Post quoted a White House official to the effect that Hillary believed her gains accumulated over several days. But if so, according to the records, they had to belong to somebody else, somebody who was will­ingly or unwillingly giving up his gain to her.

If Mrs. Clinton’s account was cleared that first day, she survived the heavy exposure to loss. But if the records released so far are accu­rate, on that first day she was able to show profitable intra-day trades that seem wholly out of line with her financial resources. This raises a question about the rest of her trades, since the released records are ambiguous on which were day trades. Some trades, those held over the end of the month, are clearly of longer duration. But with the bulk of trades, and the bulk of the profits, the positions were closed with­in the month, and perhaps within the day.

It is true that Mrs. Clinton sustained losses, sometimes sizable ones, such as $17,400 on Nov. 22, but each time the debit was made up with gains on what may have been more of those easily manipulable day trades. It looks as if the intermonth positions were net losers and the intramonth trades net winners. Confirmation records would address what the intramonth deals were.

And, of course, if the balance of the trades were indeed overnight, it again raises the issue of margins. “Significant undermargining” at the outset, Mr. Damgard says, “raises the question of whether some­one was arranging her trades.” Trader Morris Markovitz, quoted yes­terday in USA Today, calculated that at one point her account was $90,000 short of margin, and commented, “I defy you to find any other account in the country where such a tiny amount of cash was allowed to risk such massive amounts of money.”

While true trading records would tell much of the story, it would also be helpful to hear soon from Mr.

Weary from scandals ...

Weary from scandals …

Bone under oath. Especially so since he has told the New York Times, more than once, that he did not confer with Hillary over her trades, as the White House says he did, and in fact doesn’t even recall doing them. Perhaps others in the Refco operation, past and present, could shed some light on whether it was standard procedure for a broker to permit an amateur with $1,000 to control perhaps 400,000 pounds of cattle. Refco itself was dis­ciplined by the Merc in 1979 and fined $250,000 for record-keeping neg­ligence. Any such testimony would require congressional hearings, not yet set for Whitewater. Robert Fiske’s inquiry into possible crimes would appear to be irrelevant here, since the statute of limi­tations has long since lapsed.

When confronted with the messy circumstances of deals by which Mr. and Mrs. Clinton sought to “get theirs” earlier in life, this Administration’s habit is first to brush off the questions as an imper­tinence, then to dribble out documents that purport to put matters to rest but (slyly?) don’t, and finally to act victimized when the inquiries don’t cease.

The President and his wife are not the first to have suspicions about their personal finances follow them into the White House. We remember a guy whose California “slush fund” hung over him for 20 years, until he clumsily gave the press something really to write home about. We’re not suggesting this episode is pointed toward another Watergate, and for the sake of an unstable world and shaky markets we surely trust not. But at the very least, we have to note that the cover-up of the Clintons’ 1978 and 1979 tax returns got them past not only the statute of limitations but some important political deadlines.

If the commodities trading had come out during the 1992 campaign, for instance, or 1993 tax debate, the Clintons’ effective rhetoric about greed in the 1980s would have been exposed as the hyp­ocritical blather that it was.

Now, we’re drawing conclusions from two days with incomplete records, and while our inquiries at the White House yesterday were unavailing, further explanations may dispel our suspicions. But by now the administration has welcomed to Washington nearly every Arkansas ally this side of Red Bone and Jim McDougal. So with the record so suggestive of sleazy trading, surely it is time for the Clintons to start doing some real explaining.


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