Two days ago, North Carolina Senator Richard Burr was sued by a shareholder in Wyndham Hotels and Resorts in the United States District Court for the District of Columbia. In the complaint, the plaintiff alleged that Senator Burr decided to sell his stock portfolio based on non-public “insider” information. According to news reports, in late February 2020, Burr, who is chairman of the Senate Intelligence Committee, warned wealthy constituents about the potential for major disruptions to the economy due to continued spread of the covid-19 virus.
On February 27, 2020, Burr spoke at a luncheon organized by the Tar Heal Circle. Membership to join the club costs between $500 and $10,000 and promises that members could participate in events with the members of the North Carolina congressional delegation, executive branch officials, and North Carolina elected officials and business leaders, according to the group’s membership form on its website. The remarks made by Senator Burr to the Tar Heel Circle members were more cautionary than those he had delivered in public settings. At the same time, President Trump was allaying the public’s concerns with predictions that the virus would be soon disappear.
Burr’s statement to the Tar Heel Circle members, according to secret recordings quoted in an NPR story, included the following:
“There’s one thing that I can tell you about this: It is much more aggressive in its transmission than anything that we have seen in recent history. . . . It is probably more akin to the 1918 pandemic.”
The lawsuit alleges that Burr owed a duty to the public not to use material non-public information that he learned through his duties as a senator in connection with the sale or purchase of a security. The plaintiff further alleged that he suffered harm because he continued to own his shares while they were trading at artificially inflated prices due to the lack of public knowledge of the coming economic devastation from the coronavirus.
The plaintiff alleged violations of the Stop Trading on Congressional Knowledge (STOCK ) Act, Section 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10b-5. The STOCK Act specifically prohibits members of Congress from using nonpublic information for private profit and affirms that members are not exempt from federal securities laws that prohibit insider trading.
© Andrew Whiteman 2020
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