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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 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.^[1] allegations that Clinton strongly denied. There were no official investigations of the trading and Clinton was never charged with any wrongdoing.

Contents

Trades and first exposure

Likelihood of results

Merc and Melamed investigations

Clinton responses

Official findings

References

Trades and first exposure

Rodham had no experience in such financial instruments. Bill Clinton's salary as Attorney General and then Governor of Arkansas was modest and Rodham was interested in building a financial cushion for the future^[2] (the ill-fated Whitewater Development Corporation would be another such effort from this time.) Starting in October 1978, when Bill Clinton was Attorney General of Arkansas and on the verge of being elected Governor, she was guided by James Blair, a friend, laywer, outside counsel to Tyson Foods, Arkansas' largest employer, and an experienced futures trader who was doing so well he encouraged friends and family to enter the commodities markets as well. She later wrote that she educated herself about the market and followed it closely, winning and losing money; in July 1979, once she became pregant with Chelsea Clinton, "I lost my nerve for gambling [and] walked away from the table $100,000 ahead."
The profits made during the 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.^[3] It immediately gained considerable press attention, and coincided with the beginning of congressional hearings over the Whitewater controversy.^[4] 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.^[5] 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 preferencial treatment in the process. 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."^[6]

Likelihood of results

Various publications sought to analyze the likelihood of Rodham's successful results. According to ''The Washington Post'', "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 ''Post's comparison was of absolute profits, not necessarily percentage rate of return.^[7] In 1995, economists from Auburn University and University of North Florida ran a statistical computer model against a record of Rodham's trades, factoring in ''Wall Street Journal'' market data from the time, and concluded in an article published in the ''Journal of Economics and Statistics'' that there was only a 1 in 250 million chance that Rodham could have made the profits she did legitimately.^[8] Financial writer Edward Chancellor noted that Clinton made her money by betting "on the short side at a time when cattle prices doubled."^[9] ''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.^[10]
''Marshall Magazine'', a publication of the Marshall School of Business, also sought to analyze the trading.^[11] It framed 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.

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, Robert L. "Red" Bone, the commodities broker that facilitated the trades on behalf of Ray E. Friedman and Co. (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.^[12] 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,"^[13] an assessment of uncertainty shared by Merton Miller, a Nobel Prize-winning economist at the University of Chicago Graduate School of Business.

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.^[14] 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.

Official findings

Regardless of the controversy's explanation, cattle themselves usually do not have much future.

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

1. Claudia Rosett, "Hillary's Bull Market", ''The Wall Street Journal'', October 26, 2000. Accessed July 14, 2007.
2. Clinton, Hillary Rodham. ''Living History''. Simon & Schuster, 2003. ISBN 0-7432-2224-5. pp. 86-87.
3. " Top Arkansas Lawyer Helped Hillary Clinton Turn Big Profit", ''The New York Times'', March 18, 1994. Accessed July 14, 2007.
4. Bob Herbert, "The Circus That Is Whitewater", ''The New York Times'', March 20, 1994. Accessed July 14, 2007.
5. Gwen Ifill, "Hillary Clinton Takes Questions on Whitewater", April 23, 1994. Accessed July 15, 2007.
6. Michael Duffy, "Open and Unflappable", ''Time magazine'', April 1994. Accessed July 16, 2007.
7. Charles R. Babcock, "Hillary Clinton Futures Trades Detailed", ''The Washington Post'', May 27, 1994. Accessed July 14, 2007.
8. Roger Morris, ''Partners in Power: The Clintons and Their America''. Henry Holt, 1996. ISBN 0-8050-2804-8, p. 233.
9. Edward Chancellor, ''Devil Take The Hindmost : A History Of Financial Speculation''. Farrar Straus & Giroux, 1999.
10. Caroline Baum, Victor Niederhoffer, "Herd Instincts: Hillary's Investment Profits", ''National Review'', February 20, 1995.
11. "Hillary Clinton's Cattle Futures Trading Profits", ''Marshall Magazine'', Winter 1998.
12. Gwen Ifill, " Hillary Clinton Didn't Report ,498 Profit In Commodities Account, White House Says", ''The New York Times'', April 12, 1994. Accessed July 15, 2007.
13. Stephen Engelberg, " New Records Outline Favor for Hillary Clinton on Trades", May 27, 1994. Accessed July 15, 2007.
14. " No One Bribed Anyone in Clinton Trading", Lloyd Cutler letter to the editor, ''The New York Times'', June 3, 1994. Accessed July 15, 2007.