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Two U.S. Senators are facing intense criticism — and accusations of potential insider trading — on reports that they sold stocks while allegedly having early access to information on the threats posed by the coronavirus.
Sen. Richard Burr, a Republican from North Carolina, chair of the Senate Intelligence Committee, reportedly sold between $500,000 and $1.5 million in stock during February, according to reports from news sites Pro Publica and the Center for Responsive Politics. Ahead of the sales he co-wrote an opinion piece saying the country was “better prepared than ever before” for the virus.
Sen. Kelly Loeffler, a Republican from Georgia, also allegedly sold off stock and made eye-raising purchases too, according to the Daily Beast. In mid-February, Loeffler bought between $100,000 and $250,000 on shares in Citrix CTXS, -2.15%, a company involved in remote work capabilities. Shares increased more than 12% year to date, while the Dow Jones Industrial Average DJIA, -3.02% is down 30% in the same time.
The pair insist they’ve done nothing wrong, but that hasn’t stopped the calls for their resignation, as well as ethics investigations and even more.
Fox News host Tucker Carlson tore into Burr on Thursday.
“Maybe there’s an honest explanation for what he did. If there is, he should share it with the rest of use immediately. Otherwise, he must resign from the Senate and face prosecution for insider trading,” he said.
The STOCK Act of 2012 forbids lawmakers from using non-public, material information for their financial gain. There can be criminal and civil penalties for violating the act.
The acronym stands for “Stop Trading on Congressional Knowledge” and Burr was one of three senators voting against it, reports pointed out Thursday.
The STOCK act’s fiduciary duty applies to all congress members, staffers and government employees, according to Columbia Law School Professor John Coffee.
‘Insider trading is only illegal when the information is ‘material,’ meaning that it would have caused a significant change in stock price. It is also only illegal when the information is known by the trader and is not public.’
The law “duplicates” the legal standards already in place barring corporate executives from using material, non-public information for their financial gain, said Coffee, an expert in securities law.
In other words, prosecutors filing a criminal case under the STOCK act would have to show the same evidence under a corporate insider-trading case, Coffee said. But they could bring a case against government employees trading on inside information in other ways too, like invoking mail and wire fraud.
The body of insider-trading case law has built up a couple key takeaways. First of all, don’t trade on non-public information about listed companies, don’t tell someone else to trade on it and don’t lie if authorities have questions on trades and investments.
Insider trading cases can get “complicated,” according to former federal prosecutor Renato Mariotti. The Democrat who once ran for Illinois’s Attorney General said on Twitter TWTR, +1.33%. “Insider trading is only illegal when the information is ‘material,’ meaning that it would have caused a significant change in stock price. It is also only illegal when the information is known by the trader and is not public.”
If the accused can show someone else made the trading and investment decisions, they can beat the case, Coffee said. It doesn’t count, however, if the government official told their broker or adviser what to do.
Burr, for his part, denied all allegations of wrongdoing, and said Friday he “relied solely on public news reports to guide [his] decision regarding the sale of stocks.”
Loeffler was once an executive at Intercontinental Exchange ICE, -4.19%, which owns the New York Stock Exchange. Her husband, Jeffrey Sprecher, is the company’s CEO.
Loeffler also denied all allegations of wrongdoing, and said neither she nor her husband made their investment decisions.
In a statement, Intercontinental Exchange said the couple “have made clear that those transactions were executed by their financial advisers without Mr. Sprecher’s or Senator Loeffler’s input or direction.” The transactions were not in ICE securities and complied with the company’s procedures.
The SEC can also bring cases against government officials
The SEC can also sue government official if the regulator thinks a government official or employee violated the STOCK act.
That would be civil case with a lower standard of proof, Coffee said. Regulators would have to convince a judge or jury that the accused official was “recklessly and consciously indifferent” to their fiduciary duties. The legal burden is a shown “by the preponderance of the evidence,” Coffee said. Without the legalese, that means “more likely than not,” he explained.
The case against former Rep. Chris Collins was ‘old fashioned corporate insider trading.’
Former Rep. Chris Collins of New York is serving a 26-month sentence in an insider-trading case where he pleaded guilty to conspiracy to commit securities fraud. Collins was a board member of an Australian biotech company, and told his son about a clinical failure on a multiple sclerosis drug in development, prosecutors said.
The STOCK act didn’t apply, Coffee said, calling that case “old fashioned corporate insider trading.”
The questions about the Senators’ trading activities come at a point when the Justice Department is prosecuting very few white-collar cases, according to a Syracuse University report.
Even without criminal or civil charges though, Congress could still launch ethics investigations. In fact, Burr said he was requesting exactly that in the name of “full transparency.”
Coffee said the whole thing looked bad, even putting aside any legal liability. “We’ve got this coronavirus national crisis. It’s had everything except a classic Hollywood villain.” Federal lawmakers trading on information “are going to look like the worse villain we seen in this story,” he said.
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