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Opinion | Why Burr’s Stock Sales Are Easier to Condemn than Prosecute

On the same day Burr made those statements, President Donald Trump publicly downplayed the threat posed by the virus, stating that “like a miracle, it will disappear.” Burr did not contradict the president’s remarks publicly. But two weeks earlier, on Feb. 13, he had sold between $628,000 and $1.72 million of his stock holdings in 33 separate transactions, including holdings in two major hotel chains. As ProPublica noted when it broke the story, Burr was receiving daily coronavirus briefings around this time, and U.S. intelligence reports from that period warned about a likely pandemic. Eleven days after Burr sold the stocks, the market began an extremely sharp decline and by Friday had lost approximately a third of its value.

Even Trump allies Tucker Carlson and Charlie Kirk have joined Democrats to call for Burr to resign. That reaction was justified, because regardless of whether Burr’s actions meet the technical legal requirements of insider trading, his obligation was to warn the public rather than protect his own portfolio. But calls for Burr’s prosecution for insider trading are premature, because it won’t be an easy case to prove. The law governing it is relatively new and untested, and long experience shows that it’s very difficult to separate the kind of knowledge you might get in a Congressional hearing from info that any close reader could get from the news.

Insider trading is when someone learns of “material, nonpublic information” and uses that to trade stock. That means that the trader knew something the public didn’t know, which can sometimes give the trader a big advantage over the public. It sounds shocking but insider trading by senators and members of Congress was legal until the passage of the STOCK Act of 2012, which was enacted to prohibit members of Congress from “using nonpublic information derived from their official positions for personal benefit.” Ironically, Burr was one of only three Senators to vote against the STOCK Act. It was passed after public reports that members of Congress profited off the Great Recession. For example, a day after receiving a private briefing on the collapsing economy and financial system from Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson, then-Rep. Spencer Bachus (R-AL) shorted the market by buying options that would rise if the market tanked. A few days later, after the market plunged, he sold his position and nearly doubled his money. Burr also panicked during that period. In 2008, after hearing the then-Treasury secretary speak, Burr reportedly told his wife to “go to the A.T.M.” and “draw out everything it will let you take.”

Burr’s stock sales last month look like the sort of activity that the STOCK Act was intended to prohibit. But the statute is very new. It has been enforced only once, and only then in a case that involved a member of Congress acting on information specific to an individual company. Prior insider trading cases were against corporate insiders, not governmental “insiders” under the STOCK Act, so you could expect Burr, if he were prosecuted, to argue that the law should be struck down or narrowed.

But even if the law held up, there would be challenges for any investigator probing Burr’s conduct. To prove Burr engaged in insider trading, the government would have to prove that he had information that—if the public knew it as well—would have caused a significant change in the price of stocks that he sold. That will involve an investigator closely looking at the details of the private briefings Burr received to find some piece of information that was not known by the public that was so important that it would have changed stock prices.

It’s worth noting that despite Trump’s attempt to mislead the public, there was a lot of public information available at that time about the general threat of the coronavirus. It’s no surprise Burr now claims he “closely followed CNBC’s daily health and science reporting out of its Asia bureaus at that time,” and relied “solely on public news reports.”

Burr may also ultimately argue that the private information he had was not “material” because there was no way he would have known it would have caused a significant change in price in the particular stocks that he sold. Burr could make a plausible argument that he couldn’t have predicted that a recession would send the stock market tumbling.

Nevertheless, there is more than enough here to warrant a full investigation by the SEC. Burr has self-reported to the Senate Ethics Committee, presumably to fend off an investigation by the SEC or Department of Justice. But an ethics committee probe should not be a substitute for an investigation by professionals at the SEC.

Some have called for a criminal investigation by the Justice Department, which would face a higher bar because it would need to prove Burr’s guilt beyond a reasonable doubt. Often, the SEC and DOJ work in parallel to investigate conduct as both a civil and criminal matter. When I investigated financial crimes like insider trading as a federal prosecutor, we frequently followed after the SEC began its own investigation. Given the hurdles faced by investigators, the SEC is a reasonable place to start.

Since the report of Burr’s stock sales, Senators Kelly Loeffler (R-GA), Dianne Feinstein (D-CA) and James Inhofe (R-OK) have come under scrutiny for reportedly selling stock during the same period. Each of them have offered a better public explanation than Burr did. For example, Loeffler, a former executive at a major U.S. exchange, claims that her investments decisions were made by third parties without her knowledge or involvement.

Given the intense public outcry over these stock sales, it is in the public interest for the SEC to look at all of this, including the trades by the other three senators. But unless the public statements by the other senators are false, the only senator who merits a serious, long-term investigation is Burr. Obstacles exist to holding Burr accountable legally, but his disturbing actions warrant more than an ethics committee review.

Source: politico.com
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