Lawmakers could face legal scrutiny for stock selloffs before virus-driven market crash, analysts say
WASHINGTON – A handful of U.S. senators who face mounting criticism for selling off personal stocks before a coronavirus-driven market crash could draw legal scrutiny beyond an Ethics Committee review requested by a Republican lawmaker swept up in the controversy, analysts said Friday.
While the four lawmakers have denied misconduct, former federal prosecutors and legal analysts said the Securities and Exchange Commission, along with federal prosecutors could end up examining the transactions – some of them involving millions of dollars.
Recent financial disclosure statements indicate that Sens. Richard Burr, R-N.C.; Jim Inhofe, R-Okla.; Kelly Loeffler, R-Ga.; and Dianne Feinstein, D-Calif.; their spouses or advisers sold large chunks of stock around the time senators were receiving behind-the-scenes briefings about the severity of the coronavirus. In recent weeks, the virus has infected more than 10,000 people and killed more than 200 in the United States, while devastating the national economy.
Burr and his wife sold anywhere between about $598,000 and $1.62 million in stocks in February, according to disclosure statements, first reported by ProPublica. Lawmakers are not required to disclose exact transaction values, and instead report ranges for the transaction whenever it exceeds $1,000.
According to disclosure statements, Loeffler and her husband, New York Stock Exchange Chairman Jeffrey Sprecher, sold between $1 million and $2.49 million in February, according to disclosure statements first reported by the Daily Beast.
Inhofe sold between sold between $50,000 and $100,000 in stock Feb. 20, while Feinstein's disclosure report shows sales of between $1 million and $5 million in stocks.
Distance from criticism:Trump uses China as a foil when talking coronavirus
What laws might apply to these transactions?
The 2012 Stock Act specifically prevented members of Congress from trading stocks based on non-public information they “gleaned on Capitol Hill,” according to the White House signing statement.
At the time, the White House called the law “a good first step … to help fight the destructive influence of money in politics and rebuild the trust between Washington and the American people.”
The law was prompted in the wake of a 2011 expose by CBS' "60 Minutes" showing how members of Congress were not prohibited from using non-public information to make financial transactions.
David Weinstein, a former federal prosecutor in Miami, said criminal investigators would have to prove that the lawmakers used the information that they obtained as government officials for their personal benefit.
“It not only would be unethical, it is abhorrent to me that a government official might use information, especially at this time, to profit personally,” Weinstein said.
Industry suffers:Service industry workers face tough decisions
Patrick Cotter, a former federal prosecutor in Chicago, said that, under the law, the senators have an obligation to keep a close hold on such sensitive information.
"If they received confidential briefings knowing that they had a duty, as senators, to keep that information confidential and they, instead, used it to make stock moves, they could be said to have breached their duty of confidentiality and have committed insider trading," he said.
At the time the Stock Act was considered in the Senate, Burr was one of three senators who voted against it.
What do the senators say?
Loeffler, Inhofe and Feinstein have said that their financial transactions were handled by third-party advisers, or in Feinstein's case, as part of blind trust and that they made no personal decisions on the moves.
Loeffler said the suggestion that she may have acted on insider information is a "ridiculous and baseless attack."
"I don't have any involvement in my investment decisions," Inhofe said.
Feinstein maintained that she asserts "no control" over the blind trust that has managed her assets throughout her Senate career.
Burr, meanwhile, said he made the Feb. 13 sales decisions based on "public news reports," including reporting by CNBC.
COVID-19 on the Hill:Congress considers voting remotely as coronavirus hits home
What can Congress do?
On Friday, Burr, chairman of the powerful Senate Intelligence Committee, called for the Senate to review his actions as part of an ethics investigation.
"Understanding the assumptions many could make in hindsight, I spoke this morning with the chairman of the Senate Ethics Committee and asked him to open a complete review of the matter with full transparency," the North Carolina senator said.
Burr already is facing calls for his resignation or, at the least, a more complete explanation of his actions from some of his own Senate colleagues.
"Given the circumstances, Senator Burr owes North Carolinans an explanation," said fellow North Carolina Republican Sen. Thom Tillis. "His self-referral to the Ethics Committee is appropriate; there needs to be a professional bipartisan inquiry into this matter, which the Ethics Committee can provide."
What is the likelihood that they could be held criminally liable?
It’s possible the senators could still skirt insider trading laws even if their actions were deemed unethical. One reason: The laws are typically focused on a breach of nonpublic information of individual securities, not on the general state of the economy, according to Jerome Selvers, an attorney at Sonnenblick, Parker & Selvers and a former SEC division and enforcement trial attorney.
“If any of these individual senators had financial professionals that initiated trades, then it’s hard to imagine under any circumstances that they’re culpable,” Selvers says. “It remains to be seen if they initiated the transactions themselves. But if they knew we were headed toward a national crisis, the likes of which we haven’t seen in a century, and took advantage of that information, I would think at minimum it’s immoral and unethical.”
Columbia University law professor John Coffee said that the Stock Act, an acronym for "Stop Trading on Congressional Knowledge," was specifically named to highlight the potential for lawmakers to take advantage of their positions.
Coffee, however, said there is a "defense" that at least three of the senators have cited to explain the transactions: that the investment decisions were made by a trustee or broker.
Thomas Gorman, a partner at the law firm Dorsey & Whitney who previously worked at the Securities and Exchange Commission, said that if lawmakers are entrusted with sensitive information because of their position, they are prohibited from using it for their own purpose.
“Members of Congress get a lot of insider information that they're supposed to use for legislative purposes," Gorman said. "If they don’t use it for that, they are at least violating the ethical rules and it could be in violation of insider trading rules.”
But Cotter, the former federal prosecutor, said that lawmakers could easily argue that "anyone following the news closely might have made the exact same moves."
"If so, it might be tough to prosecute," Cotter said.