Technology firm Nvidia (NASDAQ:NVDA) – a company well known for developing graphics processing units, or GPUs – received a significant bump on Wednesday afternoon following Senate approval of the CHIPS and Science Act. Designed to subsidize U.S.-made semiconductor chips, the bill bolstered sentiment for NVDA stock and its ilk. However, that arguably wasn’t the main talking point.
Rather, the CHIPS Act will now move to the House of Representatives, where a drama within the drama may unfold. Speaker of the House Nancy Pelosi stated the bill has enough support for passage, which would justify bullishness in NVDA stock. However, the matter of contention is that the Speaker’s husband, venture capitalist Paul Pelosi, unloaded his entire stake in Nvidia on Tuesday just before the critical vote on the CHIPS-plus bill, per Business Insider.
On July 26, Speaker Pelosi filed a mandatory congressional financial disclosure noting her husband sold between $1 million and $5 million worth of NVDA stock – or 25,000 shares – at an average price of $165.05. According to Insider, members of Congress are only required to report the values of their trades in broad ranges.
In total, the filing notes Paul Pelosi experienced a “total loss of $341,365.” While the red ink is a drop in the bucket for a man of his financial stature, it fuels an already raging debate about the scope of insider dealings.
Why Pelosi’s NVDA Stock Trade Is Controversial
Although the political ecosystem has been downright vitriolic since the runup to the 2020 presidential election, Washington occasionally engenders agreements across the aisle. The CHIPS-plus bill is a notable example. Providing $52 billion in subsidies for domestic semiconductor manufacturers as well as significant investments in science and technology, the billed passed with a 64-33 vote.
A clear positive for NVDA stock and similar investments, the peripheral dynamics associated with the CHIPS Act raise uncomfortable concerns. While the Stop Trading on Congressional Knowledge Act passed in 2012 theoretically prevents lawmakers and their spouses from trading stocks on nonpublic information extracted from their official positions, Politico reports that enforcement has been “spotty at best, and the penalties for failing to disclose trades are puny, starting at $200.”
Speaker Pelosi has denied her husband trades stocks using information that she gives him. Interestingly, though, Pelosi initially opposed proposals to ban Congressional members and their spouses from buying, selling and holding individual stocks at all. However, she backtracked after fierce criticism from both sides of the aisle, a rare moment of bipartisanship specifically directing fire at a high-profile politician.
Paul Pelosi acquired NVDA stock in July 2021 on the open market and exercised options to buy even more shares last June in the derivatives market. That he even had the stock to begin with ahead of the major Congressional vote heightens the underlying debate about the degree of leverage that comes with political power.
Why It Matters
The controversy surrounding this trade of NVDA stock puts a spotlight on not just insider trading issues, but also problems Democrats in Congress are currently facing. Ahead of a critical midterm election cycle, the party cannot afford to lose sight of the bigger picture — particularly as embattled President Joe Biden struggles with low approval ratings.
Amid soaring inflation and brewing recession fears, controversies over privileged insider dealings could deal further harm to Democratic candidates during a contentious midterm season.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
