Sen. Elizabeth Warren (D-Mass.) has asked the two U.S. financial market regulators to investigate whether the Trump administration’s private February warnings to a conservative think tank about the potential economic harm of the coronavirus pandemic spurred insider trading.
In a Thursday letter to Securities and Exchange Commission (SEC) Chairman Jay Clayton and Commodity Futures Trading Commission (CFTC) Chairman Heath Tarbert, Warren asked the agencies to probe if administration officials privately shared information that was later used to preempt the March financial meltdown during late February briefings with the Hoover Institution.
The New York Times reported Wednesday that members of President Trump’s economic team gave grave warnings about the looming pandemic to members of the right-leaning think tank despite publicly downplaying the coronavirus and its potential impact. That information was later circulated among Wall Street investors through a memo written by William Callanan, a member of the Hoover board, the Times reported.
The stock market began a rapid selloff in late February as the spread of COVID-19 within the U.S. became inevitable and then crashed in March as financial markets nearly seized amid rippling lockdowns through the U.S.
Stocks have since rallied back toward — and in many cases, above — their pre-pandemic heights, thanks in part to generous support from the Federal Reserve.
Warren called the conduct outlined in the Times report “an appalling abdication of duty by President Trump and top officials in his administration.”
“While publicly claiming to be optimistic about the coronavirus and its impact on the economy, they were privately informing donors and conservative allies that conditions were much more dire using information that was likely nonpublic,” she wrote.
“It also indicates that numerous investors may have used this early and inside information about the looming, tragic economic and public health consequences of the pandemic to extract profits for themselves,” she added.
Federal law bans making financial trades based on nonpublic information that could drastically affect the price of a financial asset. The Times reported that the reaction of one investor who was briefed on the memo was to “short everything,” referring to the practice of ‘shorting’ a financial asset by making a bet that its price will decline.
Investors that “shorted” stocks before the coronavirus selloff would have likely made staggering profits as the market declined from record highs at an unprecedented rate.
Warren asked the SEC and CFTC to probe which administration officials provided material nonpublic information risks of the coronavirus in the Hoover briefings and to which members, how those meetings differed from the White House’s public warnings, and whether any trades were conducted based on that information.
This article was corrected on Oct. 19 at 10:20 a.m. to accurately describe William Callanan’s memo.