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After Amazon HQ2, Uproar in New York Over Real Estate ‘Insider Trading’

After Amazon HQ2, Uproar in New York Over Real Estate ‘Insider Trading’

New York State Sen. Michael Gianaris joins residents of Long Island City, Queens, New York, on Nov. 14 protesting Amazon's move there.

Office of State Sen. Michael Gianaris

Amazon.com Inc.’s deal for a second headquarters in Long Island City, N.Y., has prompted a state senator to draft legislation that would prohibit the buying or selling of real estate based on any nonpublic government action.

Sen. Michael Gianaris, a Democrat who represents Long Island City, is drafting the proposed law. It would make such real-estate transactions a felony punishable by up to four years in prison.

The proposal follows a Wall Street Journal article about Amazon employees who went shopping for condos in Long Island City shortly before the giant retailer announced plans to open a new headquarters there, which immediately drove up residential demand and prices. The employees are now under contract to buy, brokers said.

The new New York law would be similar to federal securities law that bars an individual from purchasing stock in a company based on nonpublic information.

“Insider trading is illegal in the stock market but in real estate it is not only legal, but celebrated with champagne,” said real-estate attorney Adam Leitman Bailey.

A new law could raise caution for buyers and sellers whenever government officials make decisions, such as zoning changes or road construction, that could move the market.

Terms of Amazon’s move to New York, announced on Nov. 13, were negotiated with city officials who signed nondisclosure agreements during the long selection process. Officials in other cities made similar agreements.

Soon after word of Amazon’s decision became public, a sluggish condominium market in Long Island City came back to life as buyers rushed to make deals.

At the Galerie, a new 11-story condo building due to open next year, brokers said buyers included two Amazon employees who looked for condos before press accounts of the decision in the first week of November.

Brendan Aguayo, a senior managing director at Halstead Property Development Marketing, said the two buyers who said they were Amazon employees signed contracts after the deal was announced. He declined to identify them.

An Amazon spokesman said in a statement: “We announced the locations to employees at the same time as it was announced publicly. We employ more than 4,000 in NYC that live and work in the tri-state area. Amazon has no evidence that any employee who may have made a property purchase in the locations before the announcement had any advance knowledge of the location selections.”

In recent weeks, buyers made deals on 30 apartments at the Galerie, Mr. Aguayo said, while 25 other potential buyers are on a waiting list for apartments that were pulled from the market while the developer raises prices. The building has 182 apartments.

Mr. Gianaris said the final language of the bill was still being drafted in Albany, and he would introduce it at the start of the new legislative session in January.

He said he expects many colleagues to co-sponsor the bill, as Democrats regain control of the state senate for the first time in a decade.

“There is no reason that trading on inside information on stocks is illegal, but allowing it for a commodity like real estate is allowed,” he said. “We need a change in law to clarify that this is not OK.”

Mr. Gianaris is among a number of local officials in Queens who weren’t part of the negotiations bring Amazon to Long Island City. They have opposed the deal since it was announced. But the senator said the proposed law wouldn’t be applied retroactively and reflects lessons learned from the Amazon negotiations.

“This Amazon process has pulled a curtain back on a number of unsavory practices,” he said. “We need to improve the process.”

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