WASHINGTON -- White House hopeful Barack Obama was on the defensive Wednesday over stock purchases from companies whose investors included his political donors.
And Obama revealed that he terminated a "quasi-blind" trust he created for the stock purchases -- called the "Freedom Trust" -- after realizing that it wasn't blind after all.
Obama's campaign team ramped up a rapid reaction defense after a story about his portfolio hit the front page of Wednesday's New York Times and was the subject of scrutiny Monday on thestreet.com.
The political damage potential is high because one of the firms Obama bought stock in was developing medicine to treat avian flu -- with the purchase coming as Obama started to champion more federal funding to fight the disease. Obama, who has made ethics one of his signature issues, took questions at a news conference in the Capitol called originally to tout an immigration bill. He denied any connection between his investments and legislation.
Meanwhile, Obama's research team -- aware that every part of his life is under a microscope -- turned up unpaid parking tickets from his days as a Harvard law student. In January, an Obama representative paid $400 in fines and penalties, according to the Somerville News.
Here's the situation:
Investing the book windfall: "This was not a lot of money," Obama said.
Obama had about $100,000 he wanted to invest in 2005. The money was a portion of the $1.2 million he got from a book contract. He said Wednesday he decided the $100,000 could be put into something "more high risk" and asked a friend to recommend a stock broker. That friend was donor George W. Haywood, who held what the New York Times called "major" positions in the two stocks Obama ended up owning, Skyterra and AVI BioPharma.
Another Obama donor who invested in the same stocks -- which were characterized as "obscure" in thestreet.com story -- was Jared Abbruzzese. He was also a donor to the anti-John Kerry Swift Boat Veterans for Truth and is being investigated by the FBI in New York for public corruption. Obama declined to name the UBS broker. Net loss on the investments: $13,000.
"I thought about going to Warren Buffett, but I decided it would be embarrassing with only $100,000 to invest to ask for his advice," Obama quipped.
The 'quasi-blind' trust: "Now obviously the thing didn't work the way I wanted it to," Obama said.
The Senate Ethics manual has detailed rules about blind trusts and qualified blind trusts. Obama did not want to sign on to either of those options because he did not want to wash his hands of the responsibility of investments made in his name, attorney Robert Bauer said.
Because the off-the-shelf trusts were not satisfactory, "We tried to see if we could jigger it to make it work better," Obama said. He signed papers on May 31, 2005, for the custom trust designed to shield him from knowing how his money was invested -- but let him respond to media inquiries about potential conflicts. Obama realized his system was not working when he received some sort of shareholder letter in fall 2005.
Katten Muchin Rosenman attorney Michael Hartz in Chicago drew up the papers for and was the trustee of the "Freedom Trust." Bauer said this particular kind of trust did not require any clearance from the Senate Ethics Committee because he did not ask to be relieved from any reporting rule. Bill Allison, a senior fellow at the Sunlight Foundation, said that if any kind of blind trust was created, "you should have the Ethics Committee sign off on it."
The trust was revoked on Dec. 31, 2005. Obama put his money in cash and mutual funds.