Back in February we noted how You Can Take The AIG Out Of Paulson & Co., But You Can’t Take John Paulson Out Of AIG

">strangely fortuitous it was that in the last months of 2016, Paulson & Co. dumped about half of its stock in AIG, where John Paulson happens to have a board seat, at the same time that the insurer was plunging into a gaping $3 billion quarterly loss. This all came to light in February, when on the same day that AIG reported its godawful earnings – and watched its stock drop 9 percent – Paulson's hedge fund filed its 13F, showing a sale of $300 million in AIG shares in the previous quarter.

Again, the timing was strangely fortuitous – even more so since the day of AIG's earnings report was also the last day Paulson & Co. could legally file its 13F.

Now the story gets curiouser and curiouser:

When a board member of a publicly traded U.S. company sells even a small personal holding, the director typically has just two business days to disclose the transaction, under securities rules to promote transparency. But when John Paulson’s hedge fund firm reduced its American International Group Inc. stake by more than 4 million shares in the fourth quarter, there was no filing on the trades for weeks, even though the billionaire is on the insurer’s board.

Form 4 filings are generally how we, the investing public, learn of the stock trades of corporate insiders in a manner timely enough to be somewhat informative. It's also how regulators keep tabs on executives and board members to ensure they're not exploiting their information advantages too egregiously.

But before you cast any aspersions at Paulson, who has made a career out of driving Mack trucks through narrow regulatory loopholes, hear him out:

“We are not required to file Form 4s for the funds, only for John’s individual holdings in AIG,” a representative for Paulson & Co. said by email.

So: John Paulson in his capacity as president, director and portfolio manager of Paulson & Co. can buy and sell AIG stock willy-nilly and only report the moves quarterly, while John Paulson in his capacity as director of AIG must respect blackout periods and report any stock trades to the SEC within two days.

Whether this amounts to a mockery of securities law or a perfectly valid legal distinction depends on your own personal ethics, and, perhaps, on the extent of your connections within the White House. But let's just assume, for the sake of purely hypothetical argument, that Jay Clayton gets confirmed at the SEC and decides to go after Paulson. By our back-of-the-envelope calculations, any hypothetical fine for hypothetical shenanigans would have to be in excess of $17 million to make the ballsy maneuver a mistake.

Then again, let's say the SEC deems all this kosher. What's to stop corporate directors all over from just setting up their own “family office” hedge funds in order to trade their company stock at will, free from the regulatory encumbrances of the dreaded Form 4? They don't even have to be creative about the name; “[Last Name] & Co.” will do. Who knows, they might even end up attracting outside investors and beating some benchmark indices.

Paulson Said as Little as Possible When His Fund Sold AIG Stock (BBG)