Senators Accused Of Insider Trading, Dumping Stocks After Coronavirus Briefing
Our elected officials in Congress are supposed to look out for our best interests. In a shocking revelation, it’s been reported that a number of senators sold their stock holdings after being briefed about the coronavirus and the massive impact it will have upon the economy, jobs and the stock market. While telling the American public that there wasn’t much to worry about, they bailed out of their stock holdings to avoid large losses.
In a bizzare quirk, we’ve permitted our politicians to do things that we can’t. Prior to 2012, Congress members were not prohibited from insider trading. Senator Richard Burr from North Carolina was a fierce opponent of a bill that ultimately banned this practice. In an interview at the time, Burr said about the potential new law, “It’s ludicrous.” He voted against the Stop Trading on Congressional Knowledge (STOCK) Act and said, “I mean, it’s insane.”
The STOCK Act passed into law in 2012. It states that members of Congress, other government employees, congressional staffers, members of the executive branch and judiciary are not permitted to engage in insider trading gleaned from information ascertained through their jobs.
Burr’s vehement opposition to the STOCK Act is now coming back to haunt him. Burr, the chairman of the Senate Intelligence Committee, sold 33 stocks held by both him and his spouse. The value of the sales is estimated at between $628,033 and $1.72 million. Some of the stocks were in sectors hit hard by the outbreak.
In a prepared statement from Burr, he claimed:
Georgia Senator Kelly Loeffler was also at the meeting with Burr. Loeffler sold stocks valued at around $1.275 million to $3.1 million in an apparent effort to avoid potential losses. She also purchased stocks in two companies that were deemed to benefit from the coronavirus, including one in a company that offers teleconferencing software, which would help people who are working remotely from home.
Shockingly, Loeffler is a former executive at Intercontinental Exchange and married to Jeffrey Sprecher, the chairman of the New York Stock Exchange. Clearly, they should have been aware of how inappropriate this looks. It also opens them both up to regulatory—and possible criminal—investigations.
Loeffler’s office issued a statement early on Friday. “Sen. Loeffler does not make investment decisions for her portfolio,” the statement said. “Investment decisions are made by multiple third-party advisers without her or her husband’s knowledge or involvement.”
The Democratic senator from California, Diane Feinstein, who’s a ranking member of the Senate Judiciary Committee, sold stock owned by herself and her husband valued at $1.5 million and $6 million between Jan. 31 and Feb. 18.
Tom Mentzer, a spokesperson for Feinstein, said, “All of Senator Feinstein’s assets are in a blind trust.” Mentzer added, “She has no involvement in her husband’s financial decisions.”
Oklahoma Republican Senator Jim Inhofe sold stocks on January 27 that amounted to about $400,000, according to his disclosure report. Inhofe said, in response to the accusations, that he didn’t attend the briefing and doesn’t have “any involvement” in making his investment decisions.
It is possible that the senators have their money in blind trusts and give full trading discretion to their financial advisors. Many wealthy people hire professional money managers to make buy and sell decisions for them. Even if this is the case, how can such high-profile elected officials allow their wealth managers to make these types of investment decisions? At face value, they look like they are flouting the law and taking advantage of private information only available to them. It’s frightening how arrogant or clueless they are to be unaware of how the public views this perceived breach of trust. At a time when we are depending upon our leaders in Congress, the appearance is that they are looking out for themselves.
Insider trading is a serious matter and can lead to investigations that result in possible civil and criminal indictments. People are now calling for probes into the senators’ financial dealings and demanding that they resign.
This scandal may be a tipping point. When he campaigned for the presidency in 2016, President Donald Trump was emphatic in his belief that regulations hold back businesses. One of his campaign promises was to limit the reach of regulatory agencies. By declawing the regulators, Trump believed that businesses would flourish, as they’re unencumbered by red tape and bureaucracy.
If the heinous actions of the senators prove to be true, it will place great pressure on Trump’s administration to reconsider its rollback of regulations. Regulators will become empowered. It would be reasonable to believe that investigations will be launched into other matters as well.
For example, regulators and the Department of Justice may decide to look into the companies that engaged in massive stock buybacks. When companies buy back their shares, the stock prices usually rise. Executives who receive stock and stock options greatly benefit from the appreciation in value of the company stock.
There are questions if this strategy played a part in over-leveraging the stock market—aiding its current collapse. Boeing, the large aircraft manufacturer that had several of its planes crash with accompanying allegations of faulty software and inadequate pilot training, is now asking the government for a bailout. The American public is now being asked to give the company money when it may have arguably engaged in a massive pump-and-dump-type scheme.
Amazon, Apple, Facebook, Google and a handful of other companies have become incredibly powerful. The coronavirus outbreak may make these companies even larger, asserting even greater control over the economy. Their growth harms their thousands of small and midsize competitors. Antitrust reviews may be initiated to determine if they are abusing their monopolistic grip over their respective sectors to ensure that we don’t end up with a handful of dominant companies controlling our economy.
Accusations over privacy violations have been continually raised, but nothing really has changed. We’ve become resigned to the fact that everything we do will be surveilled and all of our information will be sold off to the highest bidder. This may be looked into as well.
If this administration—or whichever one comes into power after the presidential election—recognized the need to stop the deregulatory environment and ramp up investigations, reviews and examinations of these and other important matters, there will be a huge need for compliance, legal, audit, privacy and regulatory professionals.