Several members of the U.S. Senate have allegedly been caught selling their stock prior to COVID-19 taking hold of the country. Senators Richard Burr (R-N.C.), Kelly Loefler (R-G.A.), and Dianne Feinstein (D.-C.A.), among others, were purportedly privy to government meetings that discussed COVID-19’s trajectory across the globe as well as its potential health and economic impact. While the public was still largely in the dark to the mortal danger of COVID-19—and before the stock market crashed—these senators sold millions of dollars in stock, averting the significant monetary losses that many other Americans have suffered. People are now calling for, inter alia, the resignations of these senators as a result of their trading on material nonpublic COVID-19 information.
By way of background, Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful to purchase or sell a security “on the basis of material nonpublic information about that security or issuer, in breach of a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information.” 17 C.F.R. § 240.10b5-1(a).
In 2012, Congress passed the “Stop Trading on Congressional Knowledge Act of 2012” (the “STOCK Act”), which, inter alia, states that “[m]embers of Congress . . . are not exempt from the insider trading prohibitions arising under the securities laws, including section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.” See STOCK Act, Pub. L. No. 112–105, 126 Stat. 291 (2012). The STOCK Act has codified Congress’ duty to the public by providing that “each Member of Congress . . . owes a duty arising from a relationship of trust and confidence to the Congress, the United States Government, and the citizens of the United States with respect to material, nonpublic information derived from such person’s position as a Member of Congress . . . or gained from the performance of such person’s official responsibilities.” 15 U.S.C. § 78u-1(g).
If these senators violated their duty of trust to the American public by trading on non-public information regarding COVID-19, then they may have violated the securities laws for insider trading. However, will they face actual consequences? That remains to be seen.
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About Sherief Morsy
Sherief Morsy's practice is focused on securities litigation. Sherief is a Senior Associate in the firm's New York office.