“Many investors may have used this early and inside information about the imminent and tragic economic and health consequences of the pandemic to profit from it,” Warren wrote in the letter first obtained by CNN Business.
The request follows a New York Times report alleging that senior members of President Donald Trump’s economics team privately detailed their concerns in late February about the impending pandemic. These warnings, which were reportedly echoed in private speeches to members of the board of directors of the conservative Hoover Institution, contrasted sharply with the administration’s public comments.
The rumor of these private concerns being held by senior US officials is said to have spread to elite investors through a hedge fund consultant, allowing these traders to bet on the stock’s decline.
According to the Times, the president’s aides “appeared to be giving wealthy party donors an early warning of potentially impacting contagion at a time when Mr. Trump publicly insisted the threat was non-existent.”
“In short,” was the reaction of a major investor who was informed of the hedge fund consultant’s note, the Times reported.
It turned out to be a lucrative business.
On March 11, the S&P 500 plunged into the fastest bear market in US history. Retirement accounts and investment portfolios have been overwritten. Billions of dollars in market value are gone.
In the letter, Warren said the incident “appears to be a classic case of insider trading.”
Some legal experts, however, told CNN Business that this may not be the case.
“The optics are bad, but not everything that looks bad is criminal,” Charles Whitehead, professor at Cornell Law School, said in an email. “It is not clear whether trading based on the private disclosure by the White House of factual information, which was otherwise available to the public, would constitute insider trading, even if the White House publicly disputes this information. ”
Whitehead said it would be an entirely different question if investors learned what the Trump administration might and might not do with the pandemic.
This type of information “can be extremely valuable to investors, and its private publication is coming close and could very well cross the line,” he said.
“Frightful abdication of duty”
Treasury Secretary Steven Mnuchin on Thursday dismissed the Times report as “another hype” by the newspaper.
“I can’t imagine that happened,” Mnuchin told CNBC. “By the way, there were a lot of investors who had their own take on what was going on at the time and were rightly very concerned. ”
And the Times reported that legal experts say it’s not clear that communications about these briefings violated securities laws.
But at least one billionaire investor has expressed concern about the incident.
“But the problem is – and what crystallized this story – the feeling that the public was receiving a series of briefings from White House spokespersons, ‘Don’t worry – it’s mostly content, or all. content, ‘and then donors and insiders got a series of more disturbing briefings inside the White House, ”hedge fund manager Jim Chanos told Hedgeye Risk Management on Thursday.
Warren urged the SEC and CFTC to review material non-public information provided to investors and any resulting transactions.
Specifically, Warren asked regulators to determine which Trump administration officials provided the information, how that information differed from the administration’s public comments, who received the information, and whether these people were trading in securities, futures, swaps or commodities.
“If this report is correct, it represents a gruesome abdication of duty on the part of President Trump and senior officials in his administration,” Warren wrote.