Deep Dive on Sen. Perdue and Cardlytics (CDLX)




by Jack Hemphill and Jake Jacobs

(updated 1/3/21 with 12/31/20 data)


OVERVIEW

Senator David Perdue (GA) has been widely criticized for both stock trades during the early stages of the pandemic and possible insider-trading with Cardlytics (CDLX) - a company for whom he served on the board before joining the Senate. In response, Perdue pledged that he would no longer trade in individual stocks while arguing that all the controversial stock trades were initiated by his financial advisors.


Perdue’s decision is notable because he has historically been one of the Senate’s most active stock traders. In each of the last several years Perdue has traded approximately 30% of his portfolio per year, based on our estimates from his annual disclosures since 2016. In April, Perdue sold almost all of his 127 individual stocks and, according to his office, redirected those investments to exchange-traded funds, which, as diversified investment vehicles, are not subject to ongoing disclosure requirements.


However, Perdue still owns a significant number of shares in Cardlytics (CDLX), a company he was on the board of from 2010 to 2014. In addition to having served on its board, Perdue actively regulates Cardlytics in his capacity as a member of (wait for it) the Senate Banking Committee.


FinePrint Data estimates that Perdue still owns 65,000 shares of Cardlytics, worth around $9.3 million as of December 31th and representing approximately 35% of his reported net worth. In addition, Perdue continues to hold an estimated $750,000 of stock in both Alliant Energy Corporation (LNT) and Graphic Packaging Holding Company (GPK) - companies for whom he also served as a board member. Perdue does not report holding shares in other companies where he served as an executive - including Reebok, Dollar General, Sara Lee, and Haggar Clothing.


In a move to similar to that of by Georgia’s other senator, Kelly Loeffler, Perdue promised in April to divest from individual stocks to allay accusations of self-dealing around his trading behavior. Though both Loeffler and Perdue were have been cleared by a Senate ethics committee investigation, their Senate runoff opponents, Jon Ossoff and Rev. Raphael Warnock, have hammered them in attack ads about their trading.


Much like Kelly Loeffler’s massive conflict of interest in Intercontinental Exchange, Perdue’s holdings in Cardlytics have attracted scrutiny. Much of his compensation as a board member came in the form of company stock options which gave him an unusual degree of financial flexibility, allowing him to profit greatly from the firm’s initial public offering.


Cardlytics is an Atlanta-based data marketing firm that creates targeted ads for banks and credit card websites. As a digital banking dependent company, it is heavily influenced by bank regulations that Perdue directly oversees as a member of the Senate Banking Committee. Interestingly, Perdue’s Wikipedia page gives no mention of Cardlytics’ work with banks.


Perdue’s defense when asked about his hefty stake in Cardlytics centered around the nature of the account it was held in, which he claimed to have no direct control over. However, recent reporting by the New York Times indicates that Perdue retained the ability to directly control that account. Indeed, he directed his asset manager to sell $1 million to $5 million in Cardlytics stock at $86 a share early this year after a conversation with the firm’s then chief executive Scott Grimes in which he warned Perdue of upcoming changes to the company. After the sale, Cardlytics stock dropped dramatically, bottoming out at $29 per share in March. Perdue then repurchased much of the stock weeks later at $30 a share, investing between $200,000 and $500,000, a savvy decision given the stock’s dramatic recovery. Since then, Cardlytics shares have more than quadrupled in value, trading today above $140.


By cross referencing Perdue’s public statements with his annual financial disclosures, periodic transaction reports, and Cardlytics’ SEC filings we have been able to create new estimates for Perdue’s investment transactions and gains for the year. These estimates are displayed in the graphic above and methodological notes follow.


TIMELINE OF CDLX EVENTS

  • Jan 1: CDLX opens at $63. Purdue’s 75,000 shares are worth $4.7million. He’d received options for serving on the board

  • Jan 21: CEO Scott Grimes sends accidental email to the “Wrong David” and mentions “upcoming changes”

  • Jan 23: Perdue sells ~15,000 shares to “balance his holdings” - his first sale since the stock opened at $12 in 2018

  • Mar 3: Grimes departs CDLX suddenly after 12 years as CEO; the stock drops 37%

  • Mar 18: Perdue re-purchases ~5,000 shares in CDLX at $30 per share



NOTES ON METHODOLOGY

Of his $7.4 million in estimated gains, at least $5.6 million is from Cardlytics.

Our basic method to track Cardlytics and model returns has been as follows:


  1. We know from SEC filings that Perdue was awarded options on 300,000 shares in Cardlytics before it went public in two batches at strike prices of $0.59 and $1.11.

  2. We also know that, before going public, Cardlytics underwent a 1-for-4 reverse stock split, decreasing his number of options by a factor of 4 to 75,000 and causing a corresponding increase in the strike price.

  3. It has been reported that Perdue exercised all of his options for approximate $300,000.

  4. Since joining the Senate in 2014, according to his personal disclosures, Perdue has not engaged in any transactions in these shares - despite being overall one of the most active traders in Congress.

  5. We have estimated his disclosures about his holdings of Cardlytics on of year-end 2019 and statements by his offices estimating his portfolio value in mid-April against the stock price of Cardlytics at those points. He has also filed amendments to his initial disclosures that give ranges for both his sale and subsequent repurchase of Cardlytics in January and March. Instructions for annual disclosures tell filers to use year-end values for assets that are carried over from one year to the next. Making the assumption that stock trades are generally made in nice, even numbers (called round lots), and given the following restrictions, we can map the transactions as follows.

  6. 12/31/19 | 75k shares owned | reported as $1m-$5m in his 2019 annual disclosure. 12/31/19 CDLX price: $62.86 * 75k = $4,714,500

  7. 1/23/20 | 15k shares sold (our estimate) | reported variously as approximately 20% of his holdings or a little more than $1m. Also disclosed in his transaction reports as a trade between $1m-5m. 1/23/20 CDLX price: $87.30 * 15k = $1,309,500

  8. 3/18/20 | 5k shares purchased (our estimate) | reported variously as a purchase at $30/share and disclosed as being between $200k-$500k, which provides a range of 6.7k-16k shares purchased. However CDLX was particularly volatile that day, trading from a low of $27.33 to a high of $42.95. This expands the shares repurchased range to 4.6k-18.3k shares. If anything, at 5k, we are underestimating how much stock Perdue re-purchased and therefore understating his investment gains for CDLX on the year.

  9. 5/13/20 Reporting | 65k shares (our estimate) The AJC reported via Perdue’s office that after all transactions cleared he still owned $3.3m in CDLX “in May”. Perdue’s office also noted that, after all transactions, he was holding onto ~$4m in stocks in 3 companies he was retaining, and we estimate each of the other two holdings at ~$700k. Given CDLX trading ranges in May as of that statement (May 13) of $42 to $52, we reach a range of 63k to 78k of shares.


We believe that a conservative estimate of 65k shares remaining matches up with a conservative estimate of 5k shares repurchased in March - which allows us to report the $5.6m in gains on the year. To model other asset returns we use the AGG bond index to model Perdue's bond holdings as a whole, the S&P500 to model his stock holdings below $500k, the individual stock's returns to model larger holdings, and inflation as our return for money market and real estate investments. By default asset values are reported as the median of the disclosed range, unless more specific reporting can be made.


It should be noted that it is entirely within the range of disclosed events that Perdue repurchased the all of his 1/23 selloff of 15k shares on 3/18. Had he done so, his investment gains on the year for CDLX would be higher - approximately $6.5m (although our estimate for his gains on other stocks would decrease).


Thus we believe our modelling assumptions are conservative given the information at hand. Since Perdue is a Republican, we hope he appreciates our efforts in that regard.