Investors briefed by Trump administration should face insider trading probe: Warren

October 16, 2020.

Investors briefed by Trump administration officials on the coronavirus pandemic should be investigated over potential insider trading, U.S. Sen. Elizabeth Warren said in letters to federal securities regulators.

The Democratic lawmaker from Massachusetts requested that the and the U.S. launch probes into the matter, referencing a report in the New York Times that linked private briefings to a market sell-off.

The Times reported that U.S. National Economic Council Director Larry Kudlow and Senior Economic Advisor Tomas J. Philipson privately expressed worries about the virus in February to board members of the conservative Hoover Institution while the administration publicly expressed confidence that the disease would have little impact on the U.S. economy. 

Some investors with knowledge of the officials’ comments then profited off the crisis by selling and shorting assets, according to the Times. 

“If this report is accurate, it represents an appalling abdication of duty by President Trump and top officials in his administration,” Warren said, adding that the alleged incident “appears to be a textbook case of insider trading.” 

“High-level administration officials’ dire views of the economic risks from the coronavirus that were in stark contrast to the public statements of the president and other top officials,” Warren added. 

Although the Times report does not name all of the investment managers involved, it centers on a memo written by Hoover board member William Callanan, a veteran of Soros Fund Management and Fortress Investment Group who currently runs the London-based hedge fund Syzygy Investment Advisory, according to Institutional Investor. 

Callanan reportedly detailed the Trump administration officials’ coronavirus concerns in a memo that he then sent to David Tepper, founder of hedge fund Appaloosa Management. Callanan’s memo then circulated among Appaloosa employees, and the memo’s more concerning points made their way to at least seven investors from at least four money-management firms, according to the Times. 

While some investors were making decisions based on Trump administration officials' private concerns, Donald Trump was voicing optimism in the market.  

“The coronavirus is very much under control in the USA,” Trump said on Twitter on Feb. 24, hours after Philipson reportedly voiced concern about the virus to the Hoover board. “We are in contact with everyone and all relevant countries. CDC & World Health have been working hard and very smart. Stock market starting to look very good to me!” 

The worst of the coronavirus’ effect on the U.S. stock market did not occur until March, as U.S. communities began to impose lockdowns to contain the virus.

Federal insider trading laws bar individuals from “purchasing or selling a security while in possession of material nonpublic information.” Those who violate that law may face up to 20 years in prison, civil penalties “three times the amount of the profit gained or loss avoided” and criminal penalties up to $5 million. 

Warren said she wants the SEC and CFTC to determine whether Trump administration officials provided “likely material nonpublic information” about coronavirus risks to investors, how such information differed from information the Trump administration was providing to the public and which individuals were made aware of the private information. 

The senator also asked that the agencies to identify any trades of securities, swaps, futures or commodities made by individuals with knowledge of nonpublic information and to determine whether those trades broke the law.