Obama Responds to Questions About Investments

March 7, 2007 — -- Sen. Barack Obama, D-Ill., faced some probing questions today about his stockholdings. His shares in two stocks in particular have raised some eyebrows in Washington, D.C.

As The New York Times reported on Wednesday, Obama had bought more than $50,000 in stock in Skyterra, a satellite communications business. Among the principal owners of this business were four people who had raised more than $150,000 for Obama. Obama also bought $5,000 in stock in AVI BioPhrama, a biotech company that makes a drug to combat avian flu. Within a couple weeks of that purchase, Obama spoke on the floor of the Senate about the need to increase funding to combat avian flu. He has since sold those stocks.

Obama Unaware of Potential Conflicts

Obama said he didn't know about any of these perceived potential conflicts. "I had no knowledge of any stockholdings with this account at any time," Obama told reporters.

He then told his story, walking everyone through his thought process. "After I got my [$1.9 million] book contract, I had money to invest," he said. "Most of it went into purchasing a home and mutual funds in my cash account." But he also wanted to invest some money "into something more high-risk that could be held for a while."

So he sought "a recommendation for a stockbroker" from his wealthy investor friend George Haywood, who steered him toward an as-yet-unnamed UBS stockbroker who "could then direct those funds based on a more aggressive strategy than mutual funds."

Why Obama Went to Haywood

"[Haywood] is a professional investor, he's a friend of mine," Obama said. "He doesn't appear to have any conflicts, there weren't any issues surrounding his investments in the past. He's been a very successful investor. I thought about going to Warren Buffet and I decided it would be embarrassing with only $100,000 to invest to ask his advice."

Obama said he wanted to set up a blind trust. "I did not want to know what stocks were involved," Obama said. "We were going to initiate a process to set up a blind trust. And he could then direct those funds based on a more aggressive strategy than the normal mutual funds. At no point did I know what stocks were held and at no point did I direct how those stocks were invested."

That is, until one day in the fall of 2005, some months after the creation of the trust, Obama received a prospectus from one of the companies in which he he held stock. "A standard mailer to shareholders of one of the companies, I don't recall which," Obama said.

"I didn't look at the details of it, didn't know what it pertained to, but I had the sense it was something I had a position in since it was addressed to a shareholder," Obama said. "It's at that point that I became concerned that I might not be able to insulate myself from knowledge of my holdings, that this trust instrument wasn't working the way I wanted it to."

"We tried to see if we could re-jigger it but my conclusion was there just wasn't a good way of making this work. And so that was why I liquidated the account, put it in the mutual fund, took a [sic] approximately $15,000 loss."

So the investment in a company principally backed by political contributors was a coincidence?

Obama Says Investment a Coincidence

"I had gotten the recommendation for the broker from one of these donors," Obama said, referring to Haywood. "So it wouldn't be surprising to me that he was recommending stocks similarly to me that he would be recommending to others."

And he had no idea that he held stock in any company principally owned by his supporters or in one that manufactured medicine to combat the avian flu?

"Absolutely," Obama said. "I had no knowledge of any stockholdings with this account at any time."

So he had no idea that he bought Skyterra stock the same day as a favorable FCC ruling on it?

"I had no knowledge of any of the stocks being held," Obama said.

Obama also faced questions as to why he established a qualified blind trust and not a fully blind trust. "I remember discussing this with my lawyer," Obama said, "and the problem was that these, the qualified blind trust is a very complicated mechanism and this wasn't a lot of money relative to some of the holdings of some of my colleagues.

"The way a standard qualified blind trust was set up," Obama said, "we could not indicate to them certain areas we didn't want to invest in -- let's say tobacco companies, for example. And since historically when I was in the Illinois Senate, I would say there are certain companies I don't invest in, or certain companies I don't accept contributions from."

Concern Over Potential Conflict

So, the junior senator said, suggesting he was damned-if-he-did, damned-if-he-didn't, "There was some concern that the prospects for conflict might arise under that form as well." Obama "didn't want to invest in companies that would potentially create conflicts with my work here or not abide by some public statements I had said."

Speaking of conflicts, what's with the fact that one of the principal investors in Skyterra -- and a $10,000 contributor to Obama's political action committee -- is Jared Abbruzzese, a major GOP donor, contributor to the "Swift Boat Veterans for Truth," and a central figure in a federal investigation?

Obama said Abbruzzese's $10,000 contribution apparently came because of John Gorman, who is a big supporter of Obama down in Austin, Texas. "Apparently," Obama said, "that individual had, was a fellow investor with Gorman in something, in some project, and Gorman solicited him. I've never met him, I don't know him, have no knowledge of his background either as a Republican or any of the other things that he had funded."

Obama would not say that any of this was a mistake; he said the blind trust didn't work the way he wanted it to.

"At this point, I'm only invested in mutual funds, or cash, or money market accounts," Obama said. "That's my instruction to my accountant, that we are not going to own individual stocks precisely because it raises potential questions like this."