State CFO defends his stock trading

Published: Wednesday, February 1, 2006 at 6:01 a.m.
Last Modified: Tuesday, January 31, 2006 at 11:54 p.m.
TALLAHASSEE - Chief Financial Officer Tom Gallagher said Tuesday that his day trading of stocks from his Capitol office was legal and had no impact on his decision making.
The Republican gubernatorial candidate defended his investments in insurance businesses while he was the state's insurance commissioner in 2002, as well as his 2004 Cabinet vote in favor of a company in which he owned stock.
"I disclosed all of those" investments, he said Tuesday, saying they "made no significant difference either way" in his decisions.
Gallagher's penchant for day trading is reflected in his tax returns that detail more than 700 trades in 2002 and 2003 with millions of dollars involved via an Ameritrade online account. Gallagher had a net loss of about $30,000 before he quit playing the market last year.
Among those trades were a number involving AES Corp., a Virginia-based company that was granted approval from the Florida Cabinet in early 2004 to build a natural gas pipeline between Florida and the Bahamas. Gallagher traded AES stock both before and after the vote, in which he supported the pipeline plan.
Gallagher also traded stock in AirTran, an airline that had a contract with the state at the time of his investments in 2002 and 2003.
And Gallagher's tax returns show investments in insurance companies when he was the state's insurance commissioner in 2002.
Gallagher's tax returns have been public for years - he's filed them with the Florida Commission of Ethics to fulfill requirements to disclose financial interests and possible conflicts. But news of his investments didn't arise until Tuesday with a story in the St. Petersburg Times.
Gallagher said he divested himself of all stock investments last year and has asked his agency's general counsel to review his actions.
Gallagher said he only owned about 1,000 shares of AES stock on the day he voted to approve the pipeline. His campaign spokesman, Albert Martinez, said that was a "minuscule" investment and didn't affect his vote.
But a 1991 ethics commission opinion said a Cabinet official's ownership of stock in a business his agency regulated was illegal since it violated a statute barring such a "contractual relationship."
And the opinion said the practice is illegal, even if the amount of stock "is small compared to the amount of outstanding stock."
Martinez said other ethics commission rulings contradict that 1991 opinion, calling the ethical rulings "murky."
Day trading, the practice of buying and selling stocks online, has been derided as a risky hobby since it became popular in the late 1990s. In 1999, former Securities and Exchange Commission Chairman Arthur Levitt called the practice "gambling" after Ameritrade touted quick profits in advertising.
Gallagher said he did not use state computers for the transactions. His investing included the high-risk strategy of buying and selling short, the practice of purchasing stock at a hypothetical price in the future in hopes that the price will fall.
But Gallagher said he did complete online stock transactions in his first-floor Capitol office.
Martinez said Gallagher's investing did not affect his decisions as a Cabinet official.
"He's only acted with Floridians' best interest in mind," Martinez said, dismissing the dust-up over Gallagher's investments on Tuesday as "stuff that has been hashed and rehashed."
Gov. Jeb Bush said he doubted Gallagher had done anything "nefarious."
"The fact that he disclosed it clearly showed he had nothing to hide," Bush said Tuesday.
None of the other gubernatorial candidates commented on Gallagher's investments Tuesday.
All three said they had never day traded nor did they own stock in which they had a conflict.
Attorney General Charlie Crist, Gallagher's GOP primary opponent, said his investments were in mutual funds and that he's never day traded.
Asked to comment on the practice, Crist said, "I think that's for others to judge."
Democratic candidate Rod Smith, a state senator from Alachua, said day trading was "not something that's ever appealed to me.
"I bought and sold cows and that was enough of a lesson for me," he said.
Lloyd Dunkelberger of the Tallahassee Bureau contributed to this report.

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