Following complaints filed by Common Cause, U.S. Sen. Richard Burr (R-N.C.) is under investigation for possible violations of the STOCK Act, a bill that prohibits members and employees of Congress from using private information derived from their official positions for personal benefit. The U.S. Department of Justice, in cooperation with the Securities and Exchange Commission, recently began a probe of stock sales made by Burr and other senators following confidential briefings on COVID-19.
Staff writer David Richman spoke with Thomas Hazen, a UNC law professor who has written extensively on the topics of securities law and insider trading law, to get more information on the STOCK Act and how this investigation may affect Burr.
The Daily Tar Heel: What is the significance of Burr’s actions?
Thomas Hazen: Well, if he had information that was material and if he made the investment decisions, then he would be in violation of the STOCK Act. And those are two pretty big ifs in terms of the facts, I’m not commenting or trying to speculate on what he did or did not know.
So even if he had information, if he could show that, number one, he did not make investment decisions for his own stock, and two, the person making those investment decisions did not know and did not communicate with Burr about that information, then he would probably be okay.
DTH: What does the STOCK Act say?
TH: Basically what the STOCK Act says is that the normal rules against insider trading that apply to corporations and corporate executives also apply to members of Congress and to their staff. And basically what the law is, is that if someone in a special position, in this case it would be a member of Congress, which includes the Senate of course, knows material, nonpublic information about a company, then he or she is precluded from trading on that information to their advantage.
So translated to this case, what that would mean is if the information that was discussed at the meeting was, number one, nonpublic — it’s possible the information would have been publicly known anyway — if it was nonpublic, and more importantly, was the information material. A fact is material if it is the type of fact that a reasonable investor would consider important or significant in deciding whether or not to buy or sell stock.
And one other thing just to add on that: whether or not information is material depends not simply on that particular information itself, but whether the information would alter or change the totality of the public information available.