Investor Files Lawsuit Against Senator Burr for Insider Trading

• Author: Mary Singleton
• Posted: 2024-06-28

COVID-19 has just begun to impact the judicial system. Lawsuits are being filed about everything from cancelled events to even claims against the People's Republic of China for the initial spread of the virus. Now, coronavirus lawsuits are even beginning to venture into the realm of politics. Specifically, Senator Richard Burr (R-NC) is facing a civil lawsuit filed by a shareholder in a company whose stock he sold after attending a classified briefing about the risks posed by the virus. The shareholder claims that Burr engaged in insider trading with his sale of the stock.

Numerous senators have been accused of insider trading for transactions that they made after they were briefed on the possible pandemic. The STOCK Act regulates members of Congress' trading activity. It generally prohibits insider trading based on information that these members learn from their daily jobs.

In total, four senators have disclosed that they traded in stocks after they received on January 24, when the coronavirus was still confined to China. The briefing outlined the possible threat to the U.S. that COVID-19 posed and the possibility that the virus could grow to become a global pandemic. Three of these senators have claimed that their investment management decisions are handled by other people and that they have no knowledge of the specifics of their stock trades. Sen. Burr is the only one of the four who purportedly placed the trades on their own.

Burr Sold Stock When He Was Telling Americans Everything Was Going to Be Alright

What is beyond dispute is that Burr authored an op-ed trying to reassure Americans and downplaying the threat posed by coronavirus. However, in February, Burr engaged in transactions that dumped as much as $1.7 million in stock. This represented most or all of Burr's individual stock holdings. Since members of Congress are required to disclose their stock trading, news of this stock sale eventually reached the public and the reaction has been fierce.

The Department of Justice is investigating and has asked for additional information from Burr. In addition, the Senate Ethics Committee has also launched its own investigation. Now, Burr is also the defendant in a civil lawsuit filed by an investor in one of the companies whose shares Burr sold.

The lawsuit alleges that Burr's sale of his stock constituted securities fraud. Shareholders are able to file a lawsuit against people who have traded on nonpublic material information in stocks that they own. Burr and his wife owned over $150,000 worth of stock in Wyndham Corp., a large hotel company. Travel businesses have gotten obliterated in this public health crisis as people are no longer able to travel. Shares of many of these companies have lost over half of their value since their earnings have evaporated. This particular stock lost over 65 percent of its value at its low point.

The Lawsuit Alleges Securities Fraud

Federal securities laws prohibit fraudulent practices in connection with securities transactions. The STOCK Act specifically states that members of Congress are not exempt from insider trading laws. The law states that Burr, as a senator, owes a duty to the public not to trade on insider information.

Where the violation of the law would occur is that Burr sold the stock at an artificially inflated price to whoever it was that bought the stock from him. The plaintiff does not have to be the exact person who bought the stock that Burr sold. Instead, it can be anyone who bought the stock around that time because Burr's alleged actions would constitute a fraud on the general marketplace for the stock.

Stock purchasers rely on the integrity of the market when they buy or sell a stock. When one person has knowledge that others do not have, it affects the market for everyone else. Here, the allegation is that Burr knew that the overall stock market was about to suffer from the collapse of the economy and transacted on that knowledge when everyone else was still in the dark about the effects of COVID-19.

The plaintiff is seeking compensatory damages for the losses suffered from buying a stock unaware of the future economic catastrophe. In the meantime, Burr's reputation as a senator is effectively destroyed as he has become a symbol of greed and incompetence. There have been numerous calls for him to resign, but the possibility of a criminal indictment makes these the least of his concerns.