The FBI has reportedly begun an investigation into the stock sales of Sen. Richard Burr before the crisis over the coronavirus. As I discussed in my recent column, such prosecutions are exceptionally difficult to bring by design. Like ethics investigations, these investigations often serve to simply “clear” a politician who is allowed under lax ethical rules to trade in areas of their legislative and committee work. The only real reform is not investigations but either a ban on stock ownership or, more appropriately, a requirement of a blind trust (with criminal penalties for steering trades). Moreover, if he were to be charged, I would likely be the first to object to a prosecution for trades that Congress has kept lawful for decades despite some of our calls for reform. [This article was updated]
ProPublica did a study showing that Burr sold off as much as $1.7 million in stocks in the days before the coronavirus wreaked havoc on the economy. It found that this was done before the great selloff that tanked the market. This reportedly occurred on Feb. 13 in 33 separate transactions. However, there was already considerable media attention to the possible pandemic and Burr had already made public comments about how the government would respond.
As a criminal defense attorney, I fail to see how such a trade could be the basis for prosecution. As I noted in the earlier column, the Stop Trading On Congressional Knowledge Act, also known as the Stock Act, applies the same insider trading rules to members and staff that are applied to company executives. While fines are possible, they are unlikely. Insider trading cases are hard for prosecutors to make against members of Congress because the law was designed to punish corporate officials who trade stocks by using proprietary information. Members of Congress do not deal with proprietary information held by company executives and, even with the broader definitions applied by the courts, it would be very difficult to use the legal language to fit legislative profiteering.
Consider Burr’s situation. When he made these trades, there was already ample media on the rising danger of the virus. In other words, Burr could have made the decision to trade entirely on publicly available information. Members are not required to freeze trades when others are trading. Leading investors have bragged recently of making such trades and beating the crash.
The investigation therefore is more likely to succeed in giving political cover and deterring future trades. The solution has always been obvious: require blind trusts with supporting criminal penalties. Every time these trading scandals hit, members pretend that they are shocked by the news, call for ethics investigations, and then shelter in place until the ethics outbreak has subsided.
FBI visits are simply shiny objects for the public. The only real solution is as obvious as it is unpleasant for members of Congress.