Many Happy Returns

Lazio Took a Smart Pill, His Tax Records Show

Who is Rick Lazio's broker? If you're day-trading, don't press that execute key until we tell you.

The Long Island congressman who's now running for the U.S. Senate piddled along in the stock market for several years with mostly poor results, until 1997, when he suddenly got the golden touch.

Forget about questions raised by watchdog groups about the propriety of members of congress pinning their financial futures to the stock of companies over which they have authority to make rules and pass laws. Lazio already has been questioned during his race against Hillary Rodham Clinton about his miraculous turnover of stock options during 1997, when he made a quick profit off Quick & Reilly, a discount brokerage run by people who ardently support his campaigns for office. Lazio made his brilliant maneuvers while Quick & Reilly officials were in supposedly secret negotiations to have their huge company purchased by the Boston-area banking giant Fleet.


In 1997, Lazio made 12 acquisitions and sales of usually risky stock option calls in eight different companies and made a profit in every deal.


Two weeks ago, the Securities and Exchange Commission ended its inquiry into Lazio's 1997 Quick & Reilly stock deals with no recommendation for action. But the identity of his broker has never made it into print.

Just after the SEC dropped its probe of Lazio, his campaign staff finally released the candidate's federal and state tax returns for the past 10 years. Reporters weren't allowed to make copies. Instead, they were herded into a room, supplied with doughnuts, and allowed to take notes on copies of the returns.

Campaign officials sat in another room, behind a closed door, summoned by staff to answer the befuddled reporters' queries. Circulating to fend off questions was campaign spokesman Dan McLagan. But McLagan didn't even start working for Lazio until a couple of months ago. What could he know about the congressman's tax history of the past 10 years? Who would believe McLagan anyway? Back in '94, when he was Ollie North's spokesman during the press-hating ex-marine's unsuccessful Senate campaign in Virginia, McLagan told the Los Angeles Times that North was the "most honest, believable, trustworthy candidate I've ever seen."

So the returns had to speak for themselves. The subsequent stories about last week's release of the records were ho-hum, but the returns raise more questions than they answer. They show that Lazio, who certainly wasn't born with a silver foot in his mouth and didn't marry into money, owns little property and started with a minuscule stock portfolio. Maybe his luck changed along with everyone else's when the market soared. But much of his profit during 1997 was due to his or somebody's skill at manipulating stock options. The tax returns show that he wasn't particularly skilled at those maneuvers until his golden year of '97.

The analysis of Lazio's performance is based on his tax returns' reports of capital gains and losses. Losses can come in handy on tax returns, but as a gauge of his market acumen, the returns don't reveal the congressman to have been very clever either in the short term or long term.

1987-1990 He was prescient about technology stocks, it seems, but he still took a bath. In August 1987, according to the records, Lazio (at the time a Suffolk County assistant district attorney) bought an undisclosed number of shares in Miniscribe Corp., then a hot Colorado company that manufactured disk drives. The stock cost him $2418. But Miniscribe wasn't one of the survivors. Lazio wound up selling his shares on October 3, 1990, for $2. He also took losses of $126, $704, and $296 in three other stock sales that year. His long-term capital losses in 1990 totaled $3908.

1991 Lazio stayed out of short-term transactions. But the toxic-waste removal company Texcel International, based on Long Island, proved toxic to Lazio. He had bought 400 shares of the company in August 1989, but they had cost him only $945. A good thing, because he sold them for zero on December 31, 1991. Two other stock transactions in December 1991—the sales of McDonald's and Sterling Software stock that he had purchased in the 1980s—brought him gains of $857 and $898, respectively.

1992 A much more exciting year. He challenged and defeated nine-term Democratic congressman Tom Downey. And he reported a net profit of $18,247 from his share of his law partnership. And he got to write off his partnership as a loss elsewhere on his tax return. And he made his first foray into stock option calls: a purchase of Boeing calls on January 6, 1992, and a profit of $156 four months later.

1993-1994 Hardly the big time. He dabbled in the market, selling two more Boeing call options in 1993 for a total reported capital gain of $332. He also listed "investment expenses" to Paine Webber of $170. In 1994, he reported no activity in short-term capital investing, like the trading of stock options or a turnaround of stock shares within that calendar year. His only stock activity, according to his 1994 tax return, was the sale of 100 shares of Boeing that he had bought in 1991. The result of that sale? A loss of $700.

1995-1996 He didn't even file a Schedule D return for capital gains and losses for 1995. And in 1996, he sold stock that he had held since at least 1989. He took a loss in all three separate deals, reporting a grand total of $5931 in losses in long-term capital gains (including a net long-term loss of $3 from his former law partnership).

1997-1998 Going into 1997, Lazio must have been a little rusty when it came to the market. He had made no short-term trades for at least the previous three years. But in 1997, he made 12 acquisitions and sales of usually risky stock option calls in eight different companies and made a profit in every deal. Among those were the Quick & Reilly deals, which in seven months earned him more than $14,000 at a cost of only about $2300. (He made nearly $7500 more off Q&R in January 1998 when he sold his remaining shares.) He also sold 1100 shares of stock in four different companies and made a small profit in every one of those deals.

In 1998, he pumped more than $100,000 into the stock market, which he helps regulate as a powerful Republican on the House Banking Committee.

By this time, he was master of his domain, and he has continued to play the market. Lazio and his aides have already denied that he spoke with Q&R officials or otherwise procured inside information. He definitely has friends in high market places. Longtime supporter and current Lazio finance chairman Lewie Ranieri is a Wall Street legend for practically inventing the multibillion-dollar market in mortgage securities. That's not to suggest that Ranieri was picking losers or winners for Lazio.

The congressman has said that he consulted with his own broker. So while the reporters were jammed into that conference room last week at Lazio headquarters, trying to figure out the congressman's tax returns, the Voice asked spokesman McLagan: Who's the congressman's broker? McLagan said, "First Albany, I think."

A company? The whole company? Like in the old E.F. Hutton commercials? Hillary Clinton's extremely lucrative and even more suspicious foray into stocks (in her case, cattle futures) a few years ago was steered by a broker named "Red" Bone. Maybe Lazio had an equally colorful guide to steer him to stock market wealth. But when the Voice asked McLagan a second time for the name of Lazio's broker, McLagan replied, "I don't have to tell you." Why not? "Because I don't have to," he replied. "Because it's going to piss you off. And that makes me happy."

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