In the frenzy of initial media reporting in March, Senators Richard Burr, Kelly Loeffler, Dianne Feinstein, and Jim Inhofe were often grouped together in allegations of insider trading regarding the coronavirus-induced stock market tailspin.
That was not fair to Ms Feinstein or Mr Inhofe, and, perhaps to a lesser degree, Ms Loeffler, multiple insider trading experts have subsequently told The Independent.
The context surrounding each of the four senators’ transactions differs substantially, and so, too, do their individual explanations.
It isn’t just a public relations nightmare for these lawmakers: The 2012 STOCK Act prohibits members of Congress and other federal employees from using non-public information gleaned from government briefings and reports to turn a private profit in the stock market.
The Justice Department, in conjunction with the Securities and Exchange Commission, has begun investigating some lawmakers’ asset transactions, multiple outlets reported last month.
Here is a breakdown of what investigators should be looking for, who they’ll be scrutinising most closely, and what thresholds they must cross to bring indictments.
Mr Burr finds himself in the most precarious position of any of the other senators based on the public information so far, multiple insider trading and financial crimes experts told The Independent.
The North Carolina Republican is the only senator to acknowledge personally executing his own stock transactions during the period in question.
Ms Loeffler, Ms Feinstein, and Mr Inhofe all claim their assets are held either in a blind trust or controlled by third-party advisers with whom they have little to no contact.
Mr Burr’s case has a “clearer set of facts, quite frankly,” said Jim Cox, a professor at the Duke University School of Law who is widely considered one of the pre-eminent scholars on US insider trading law.
“It's not a question about whether your husband traded it. It's not a question about whether you trade a lot or not,” Mr Cox said.
Mr Burr attended the Senate Health Committee’s closed-doors, open-to-all-senators briefing on 24 January where infectious disease expert Anthony Fauci and Centers for Disease Control Director Robert Redfield apprised lawmakers of the latest government reports from the coronavirus outbreak in China’s Wuhan province.
As chairman of the Senate Intelligence Committee, Mr Burr had access to non-public reports about the coronavirus during that time, though it is unclear whether the US intelligence agencies that compiled those reports were providing information that couldn’t be cobbled together from public reporting.
On 13 February, three weeks after the initial 24 January briefing, Mr Burr sold off 33 stocks worth between $628,033 and $1.72m — his largest sell-off of assets in at least 14 months.
That sell-off included $250,000 worth of stocks in hotel companies that have seen their value plummet to more than half their value at points during the economic shutdown.
That context — Mr Burr’s trading history — will matter to investigators, Mr Cox said.
They will want to know how Mr Burr’s stock transactions in February compare to his prior trading: How much does he usually buy or sell? What types of stocks does he usually buy or sell? Does he usually buy or sell incrementally or in one big dump?
Every piece of circumstance matters in insider trading probes, and it’s up to investigators to compile an overwhelming set of circumstantial evidence to show someone had non-public information in their back pocket, and then deviated from their normal behaviour patterns based on that non-public information.
“Insider trading cases are nothing but conjecture. They're all circumstantial,” Mr Cox said.
The first thing investigators will want to look at is the transcripts of any intelligence reports or briefings on the burgeoning health crisis Mr Burr and other senators read or attended during the period they executed their financial transactions.
They’ll then comb those documents to see if they contained information that was not out in the public domain.
“How much information was provided to the [intelligence] committee by the intelligence community that was not in the public domain? That’s key,” Mr Cox said.
Mr Burr has said the briefings provided him no informational advantage, that he relied “solely on public news reports” to guide his decision regarding the sale of his stocks on 13 February.
“Specifically, I closely followed CNBC’s daily health and science reporting out of its Asia bureaus at the time,” he said.
But if the non-public reports were more granular than Mr Burr’s news sources — if they presented a more dire situation of the potential for a global pandemic that would send large swathes of the economy into a tailspin — that could complicate his line of defence.
“Would it increase your assessment that instead of being a 10 per cent chance of a pandemic, it is more likely a chance of one out of three? One out of two?” Mr Cox said. “That magnitude of a probability change would be itself material.”
The Supreme Court has upheld that rule of materiality in at least two Supreme Court cases in the last 40 years.
The day after ProPublica first reported on Mr Burr’s stock sales, he sent a letter to the Senate Ethics Committee asking it to conduct a “full and expedited investigation” into his transactions “to ensure full and complete transparency.”
A spokeswoman for the senator’s office declined to provide an update on whether he has spoken to investigators from the SEC, DOJ or the Senate Ethics Committee.
Multiple attempts to contact the ethics panel were not successful.
Ms Loeffler’s legal situation is much less problematic than Mr Burr’s, if her claims that her investment portfolio is managed by third-party advisers without her consultation are to be trusted.
Her political situation is a different story.
Ms Loeffler is up for election this November after she was appointed in January by Governor Brian Kemp to replace former Georgia GOP Senator Johnny Isakson, who resigned over health issues.
Her Republican challenger for the all-party special election, Congressman Doug Collins, has seized on the allegations of insider trading and the fact Ms Loeffler does not hold her assets in a blind trust.
Ms Loeffler, who sold millions of dollars in stocks between attending the 24 January briefing and when markets began to falter in mid-March, has argued that her portfolio is "managed independently by third-party advisers” who don’t apprise her of transactions until after they occur.
In a subsequent interview with CNBC, Ms Loeffler appeared to go even further, indicating she had no knowledge of the contents of her portfolio.
“I have no involvement in these decisions. I don’t have conversations with them about any of this,” the senator said.
Notably, Ms Loeffler has not used the term “blind trust” to describe her portfolio management either before or after the revelations about her stocks sales.
A request to her office for comment clarifying whether her assets are now in a blind trust was not returned.
Mr Cox said blind trusts are breached all the time in cases involving insider trading, where the owner of an asset portfolio will call their trustee and make a “selective disclosure of material nonpublic information with a high degree awareness that [the trustee] is going to trade on it.”
Investigators probing Ms Loeffler’s case would be keen to look at the senator’s phone records from January, February and March to see if she made any calls to the financial advisers at Morgan Stanley, Goldman Sachs and other financial institutions who manage her accounts.
“I would be surprised if they can’t get that information,” Mr Cox said.
Feinstein and Inhofe
Though they were widely reported alongside the stock sales of Mr Burr and Ms Loeffler, the transactions reported on Ms Feinstein’s and Mr Inhofe’s financial disclosures do not, on the surface, appear as sticky.
And both Ms Feinstein, a California Democrat, and Inhofe, an Oklahoma Republican, have provided sound explanations for their activities, insider trading experts told The Independent.
Neither Ms Feinstein nor Mr Inhofe attended the 24 January Health Committee briefing with Mr Fauci and Mr Redfield.
In fact, Ms Feinstein did not attend any non-public briefing about the coronavirus until 12 March, a spokesman told The Independent.
Ms Feinstein’s most recent financial disclosure reports that her husband, investment banker Richard Blum, sold between $1.5m and $6m in stock in Allogene Therapeutics, a cancer technology company, on 13 January and 18 February.
Mr Blum manages his own assets, which are separate from Ms Feinstein’s, but the senator must report both their transactions on her financial disclosure forms.
Ms Feinstein has held her own assets in a blind trust throughout her 28-year Senate career, she tweeted in March.
“These were not her stocks — inside or outside the blind trust. They were her husband’s, to which she has no connection,” Ms Feinstein’s spokesman told The Independent. “Their assets are entirely separate — she has no knowledge of, role in or relation to his finances (aside from having to report them to the Senate).”
Mr Inhofe sold up to $750,000 of stocks on 13 and 27 January — before he ever received a non-public briefing about coronavirus.
Additionally, while Mr Inhofe’s assets are not held in a true blind trust, he has said he had no prior knowledge of the transactions, which were executed by his financial advisers based in Tulsa, Oklahoma.
The senator said his stock sales were part of an incremental process to transition his portfolio from individual stocks to mutual funds to avoid conflicts of interest after he became a chairman of the Senate Armed Services Committee in January 2019.
"When I became chairman of the Senate Armed Services Committee, I went ahead and instructed the broker with Capital Investors to go ahead and divest me of all stocks. And that was a year and three months ago," Inhofe told a local ABC News affiliate in March.
His financial disclosure forms over the last year show he has steadily sold off individual stocks and invested that money in mutual funds.
In 2018, all of the senator’s assets were in individual stocks.
Now, roughly three-fifths of his portfolio is mutual funds, with 40 per cent still remaining in stocks.
Brown’s moribund bill
At least one senator, Ohio Democrat Sherrod Brown, foresaw the controversy that has exploded over lawmakers’ ownership of individual stocks.
For the past two Congresses, Mr Brown has filed a bill making it illegal for lawmakers to own stocks in individual companies.
“We have the privilege of holding these jobs and we are here to serve, not to bloat our bank accounts,” Mr Brown said in a statement to The Independent.
The bill has gone nowhere in both Republican and Democratic controlled Senates.