Peter Schweizer - Throw Them All Out

President Obama's stimulus for alternative energy companies and for developing a smart grid for utilities was also an area where Soros traded aggressively. He snapped up Constellation Energy Group stock (300,000 shares), which received $200 million in federal stimulus money through a natural gas utility subsidiary. He also bought a stake in Covanta (4.6 million shares), a clean-energy company and federal grant recipient. Covanta also received money through earmarks from members of Congress.

Again, to be clear, it is not necessarily the case that Soros had specific insider tips about any government grants. You might argue that any smart investor would have guessed that economic stimulus funds would be used to promote infrastructure improvements, green energy, and certain high-tech ventures. Yet the list of specific investment decisions by Soros is closely aligned with the list of grant recipients. In addition to the examples above:

In the first quarter of 2009, Soros made an initial purchase of more than 1.5 million shares in American Electric Power, a utility that had invested heavily in an energy project called FutureGen. FutureGen was a government-backed zero-emissions electric power project launched by the Bush administration in 2003, which at first focused on a coal-fueled electric plant in Illinois, but had been subsequently canceled before the 2008 election. President Obama revived the project in June 2009 and poured $1 billion of taxpayer money into it. Soros bought his shares just in time for the revival. 25Months later, the company received another grant, this one for a coal plant in West Virginia.

Soros scooped up shares in Ameren, a Midwest utility company that was given a $540 million clean-energy grant from the Department of Energy in conjunction with NextGen.

Soros for the first time bought shares in Entergy, an energy utility company, to the tune of almost one million shares. Entergy would go on to get numerous grants from the Department of Energy, for smart grids, smart meters, and other federal stimulus programs.

He also bought NRG Energy, more than half a million shares' worth. The company owns power-generating facilities and was a recipient of Department of Energy grants, including one for $154 million, announced by Energy Secretary Steven Chu. 26

Soros bought a quarter of a million shares of Public Service Enterprise Group, another recipient of Department of Energy federal stimulus grants. 27

Soros held a stake in Allegheny Energy (250,000 shares) and PPL (175,000 shares), which also won lucrative grants from the Department of Energy. He bought shares in Edison International, yet another utility company that cashed in on DOE grants.

Soros also invested in a small ethanol-producing company called BioFuel Energy, which had created a new gasoline containing 15% ethanol. At the time, the EPA had approved a limit of 10% ethanol in gasoline. BioFuel Energy owns and operates two of the largest dry-mill ethanol production facilities in the United States. Getting approval for an increase in the limit, to 15%, would obviously benefit the company. As the EPA debated the idea, stock in the company jumped from about $1.50 to $2.94 a share. The EPA eventually approved the mandate.

Soros invested in Powerspan, a clean-energy technology company, in April 2009. His timing was perfect. Weeks later, on July 1, Powerspan was awarded a $100 million grant from the Department of Energy for smart-grid work.

How did these investments perform for Soros? It is very difficult to tell. He is not required to disclose the price he paid or the price at which he sold his shares. We don't know the dates of the transactions, only that they occurred during a particular three-month period. What we do know is that his investment decisions aligned remarkably closely with government grants and transfers. It would appear that one of the world's smartest investors chose a strategy based on political decisions—whether he knew about the decisions in advance or just guessed extremely well.

Soros undoubtedly viewed this the way that General Electric CEO Jeffrey Immelt did when he predicted in early 2009, "The global economy, and capitalism, will be 'reset' in several important ways. The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner." 28

Soros recognizes and understands that good politics can lead to good profits as the government plays an increasingly central role in the economy. When he decided recently to launch a new green-tech fund, called Silver Lake Kraftwerk, to invest over $1 billion, Soros selected as its chief none other than Cathy Zoi, the former assistant secretary of energy efficiency and renewable energy. Political access has become the key to financial success.

America's financiers have learned their lesson: profits are better in Washington, among insiders, than on the open market. Far from being the purveyors of pure free market capitalism, as we imagine, they are all too often riding in the wake of government money. Wouldn't it be better if they focused exclusively on financial and business matters? Crony capitalism favors the politically active, and the manipulative. It does not favor one party over the other. It does not care about policy. It just knows how to make money off any policy—your tax dollars, leveraged to the rich.

If this spirit is ever corrupted to the point that it will tolerate a law which does not apply to both the legislature and the people, then the people will be prepared to tolerate anything but liberty.

—FEDERALIST

NO. 57

Nearly all men can stand adversity, but if you want to test a man's character, give him power.

—ABRAHAM LINCOLN 1

THERE IS SOMETHING inherently wrong with a professional athlete gambling on his own game. It's unethical because he can influence the outcome of the game and profit from his manipulation. Such gambling is banned in every major sport since it threatens the integrity of the game and runs against our sense of justice.

Very few of us are professional athletes—I have enough problems on the treadmill—but all of us are governed by laws, codes, and rules concerning conflicts of interest.

In the financial world these regulations are everywhere. If you are an investment adviser, for example, you are required to disclose not just actual conflicts of interest, but also potential conflicts of interest. It you own stock in a company and you recommend that stock to others, you had better tell them that you stand to gain if they take your advice. Failure to do so can land you in a lot of legal trouble. If you are a bank regulator, you are not allowed to conduct so much as a simple bank examination if you happen to own any stock in that particular bank.

If you are a federal judge, the law requires that you recuse yourself from cases involving any company in which you own more than $30 worth of stock. If you don't, it's a felony.

On the U.S. Supreme Court, justices recuse themselves all the time for this very reason. Sometimes there is no direct conflict, yet propriety causes members of the court to be extra-careful. In May 2008, for example, four justices recused themselves from considering a case that involved compensation on behalf of citizens of South Africa from more than fifty American companies that were doing business in the country. Apparently the justices believed even the appearance of a remote link with any of the companies might raise concerns. When a case involving Disney World was brought for review before the Supreme Court in March 2008, Justice Samuel Alito recused himself because he owned Disney stock. 2