One of the nation’s leading experts in insider trading, James D. Cox, believes that Carl Icahn’s sale of more than 1 million shares of a steel-related stock just days before President Trump announced plans to impose steep tariffs on steel imports was “awfully suspicious” and “unquestionably” warrants a federal investigation.
Cox, a professor at Duke Law, has been teaching and writing about insider trading law for nearly 50 years. He has testified as an expert on on the subject before the U.S. House and Senate. Cox literally wrote the book on corporate governance, co-authoring the multi-volume treatise Cox and Hazen on Corporations, which includes a section on insider trading law.
Last week, ThinkProgress broke the news that Icahn systematically sold off nearly 1 million shares of Manitowoc Company Inc between February 12 and February 22. Manitowoc, a leading manufacturer of cranes and other heavy-duty lifting equipment, is highly-dependent on steel. Just seven days later, Trump disclosed at a White House event that he was planning a 25 percent tariff on steel imports.
Manitowoc stock, along with other steel-dependent companies, plunged. The stock is down nearly 9 percent in the two trading days since Trump’s announcement.
Icahn, a billionaire investor, is a long-time friend of Trump, who repeatedly invoked his name as a trusted adviser on the campaign trail. After Trump took office, Icahn was named as a “special adviser” to the president but was forced to resign his position a few months later, ahead of a New Yorker article that detailed several potential conflicts of interest and alleged that Icahn was using his position and access to protect the value of his investments.
Icahn and Trump are still in touch, though Icahn said last week that they have not had “much” interaction in the last four months.
Cox told ThinkProgress that Icahn could have violated insider trading law if he had a conversation with Trump or someone else at the White House, even if that conversation stopped short of revealing a definite plan or intention to impose steel tariffs.
Icahn would have material information even if Trump never had made up his mind he was going to impose the tariffs. There are cases out there that say, you know, look, if your privileged access gives you information that makes you a better person to judge the likelihood of an uncertain event, then that’s inside trading… So if Trump had some long conversation, or even a short conversation, with Icahn or in Icahn’s presence, talking about what are the upsides and downsides of this, that’s something that most people don’t know about, and Icahn would then be able to have a better insight of the possibility, if not likelihood, that Trump would impose these tariffs.
The White House has not responded to inquires about Icahn’s suspicious trade from ThinkProgress or numerous other outlets that picked up the story. An unnamed White House spokesman, however, talked to NPR and seemed to suggest that, if Icahn and Trump had spoken about tariffs before the public announcement it would not be insider trading.
On Friday, a White House spokesman dismissed the idea that the president would have fed Icahn any insider information, pointing to the fact that Trump has long said both publicly and privately that he wanted to impose tariffs.
Notably, the White House statement does not deny that Trump and Icahn spoke about the tariffs prior to the public announcement. Cox was not impressed with the White House argument.
“It’s been in the atmosphere, but if there was a conversation or a bit of information that made the uncertainty less uncertain,” Cox said, “[W]hat’s important here, is did [Icahn] have privileged information that allowed him to better evaluate the likelihood that Trump would actually do something.”
Cox explained that the legal standard for Icahn’s liability is whether it was “more likely or not [he] traded on material nonpublic information.”
One key factor would be the timing of the sale. The sale came in close proximity to Trump’s announcement on tariffs after a multi-year period of inactivity where Icahn was not actively trading Manitowoc stock.
There was a February 8 earnings call where Manitowoc revealed that it had missed its projections on earnings. But Cox noted that Icahn did not begin selling his stock after the call, instead waiting several additional days. Cox called the delay “an interesting factor.”
A federal investigation into Icahn could be initiated by the SEC or the FBI. Cox said that, in his experience, the known facts “unquestionably” warrant a federal investigation by one of those entities.
One complicating factor is that Icahn was reportedly involved in selecting Trump’s SEC chairman, Jay Clayton. During his confirmation hearing, Clayton acknowledged that he spoke to Icahn after he was nominated to the position even though there were ongoing SEC investigations into Icahn at the time.
At that hearing, Sen. Elizabeth Warren (D-MA) asked Clayton a prescient question: “Mr. Clayton, if Mr. Icahn had inside information about federal regulatory policy effecting Bristol-Myers and he chose to purchase shares in the company based on that information is that potentially a violation of securities laws?”
“The question of the scope of securities laws around insider trading is a very facts and circumstances analysis,” Clayton replied.
Cox called Clayton’s connection to Icahn “an embarrassment” and, at a minimum, “creates a disclosure problem” about the nature of their communications.