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Under Trump, SEC Enforcement Of Insider Trading Dropped To Lowest Point In Decades

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SEC Brought Fewest Insider Trading Enforcement Cases In Decades In 2019 Kodak and Sen. Richard Burr, R-N.C., are facing high-profile insider trading investigations, but data show the Securities and Exchange Commission pursued far fewer insider trading cases last year.Heard onToggle more optionsThe government agency responsible for policing Wall Street brought the fewest number of insider trading cases in decades, according to the most recent available data. That decline came just before the COVID-19 pandemic hit. The Securities and Exchange Commission now warns that the pandemic has created wild swings in the market and more opportunities for insider trading. NPR reviewed data from the 1980s through last year and found that under the Trump administration, the SEC brought just 32 insider trading enforcement actions in 2019, the lowest number since 1996. The SEC charged 46 defendants as part of those cases. That was the lowest number of defendants in insider trading cases since Ronald Reagan was president, and about half of the annual average over the last three decades. The decline has alarmed experts and advocates, who worry that flagrant illegal trading may go unchecked.Loading...In a statement, a spokesperson for the SEC called insider trading enforcement a "core component" of the commission's work, saying, "We continue to vigorously pursue insider trading cases against individuals and companies." Despite a 35-day government shutdown, the overall number of SEC enforcement actions increased in 2019, largely due to a crackdown on other wrongdoing, including alleged abuses by investment advisers. But as other enforcement areas grew, insider trading made up less than 4% of the commission's enforcement work that year, another decades-long low. The SEC has still brought high-profile insider trading cases in the Trump era. In 2018, for example, the commission then-U.S. Rep. Chris Collins, R-N.Y. Collins served on the board of an Australian biotech company and tipped off his son, so they could unload stock before a bad announcement led to a sell-off. Overall, 2017 and 2018 were much closer to historic averages of insider trading enforcement. But the SEC spokesperson did not address why enforcement appeared to drop so dramatically in 2019.U.S. Sen. Richard Burr, R-N.C., is under and has faced bipartisan for making major stock trades at the same time he was getting private government briefings on COVID-19. Eastman Kodak is also under SEC investigation and has its own "internal review" after an unusual amount of trading activity the day before it announced it would be receiving $765 million in government loans. That loan is now on hold, as the government agency making the loan "allegations of wrongdoing raise serious concerns." Burr and Kodak have denied any wrongdoing. Despite those recent cases, the overall numbers are clearly down. "You can't do every case," said Doug Davison, a former SEC enforcement supervisor. But a lack of resources doesn't explain the drop: Adjusted for inflation, the SEC's budget has roughly in the last three decades. And while insider trading can be difficult to detect, there's no evidence that 2019 was simply a more honest year on Wall Street. "That seems extremely unlikely," said Brandon Cline, a finance professor at Mississippi State University. "I don't think that human behavior has shifted." Instead, experts and former SEC attorneys said, the drop in insider trading enforcement likely reflects the choices of its leadership. Under Chairman Jay Clayton, the SEC has largely focused on protecting individual investors from shady advisers, Ponzi schemers or con artists. Clayton he advocates on behalf of Main Street investors and "Mr. and Mrs. 401(k)."Loading..."They've been focused on more black-and-white wrongdoing," Davison said. The SEC has also added more resources to look into cyber-related misconduct, such as hackers stealing and trading based off of company secrets, or issues with cryptocurrency. Those areas are important, as underscored by a of the SEC's own systems in 2016. But the shift in priorities has some experts and advocates worried. Research by Cline and his colleague, Valeriya Posylnaya of the University of Minnesota Duluth, that when the SEC aggressively polices insider trading, it does deter illegal activity. If executives see a major figure such as Martha Stewart get hauled to court, as she did when she faced a criminal indictment and SEC for insider trading in 2003, they tend to think twice before acting on inside information. And the reverse is true, Cline said: If enforcement drops, "we should then observe more insider trading in years to come." The shift in priorities and the significant drop in insider trading investigations in 2019 send a terrible message to Wall Street, advocates said."That means they're not trying," said Bartlett Naylor, a financial policy advocate with the left-leaning watchdog group Public Citizen. "That means they told the cops to go play canasta instead of doing their job." Critics inside and outside government see plenty of work to do. The SEC's investigation into Kodak has already attracted scrutiny from , who have launched their own investigation. Previously, Sen. Elizabeth Warren, D-Mass., also called for an SEC into trades of defense stocks before the of Iranian Gen. Qassem Soleimani, and whether President Trump may have alerted members of his Mar-a-Lago club in advance of the strike.The pandemic and the government's financial rescue packages have also created additional opportunities for illegal trading activity. "The pharmaceutical industry generally is very susceptible to insider trading," said Eric Chaffee, a law professor at the University of Toledo and editor of the . "Getting approval from the [Food and Drug Administration] can be very determinative to whether a company's fortunes rise or fall," Chaffee said, and announcements related to COVID-19 vaccine development can dramatically affect the market. In March, the co-directors of the SEC's enforcement division issued a warning that "in these dynamic circumstances, corporate insiders are regularly learning new material nonpublic information that may hold an even greater value than under normal circumstances." Members of Congress have been closely scrutinizing Clayton's record. Trump recently tapped Clayton to take over as the top federal prosecutor in New York. In the process, the administration pushed out the U.S. attorney for the Southern District of New York, Geoffrey S. Berman, who allies of the president. And unchecked insider trading can dramatically undermine people's confidence in the financial system, said Urska Velikonja, a Georgetown University law professor who has closely the SEC's enforcement data. When company executives and politicians appear to engage in flagrant insider trading, Velikonja said, "that's where you start entering the very dangerous terrain, and people look at this and say, 'This is all rigged.' " If left to run rampant, she said, "it does have the potential to unsettle political systems."Sponsor Message

SEC Brought Fewest Insider Trading Enforcement Cases In Decades In 2019 Kodak and Sen. Richard Burr, R-N.C., are facing high-profile insider trading investigations, but data show the Securities and Exchange Commission pursued far fewer insider trading cases last year.Heard onToggle more optionsThe government agency responsible for policing Wall Street brought the fewest number of insider trading cases in decades, according to the most recent available data. That decline came just before the COVID-19 pandemic hit. The Securities and Exchange Commission now warns that the pandemic has created...

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Tom Dreisbach is a correspondent on NPR's Investigations team focusing on breaking news stories. His reporting on issues like COVID-19 scams and immigration detention has sparked federal investigations and has been cited by members of congress. Earlier, Dreisbach was a producer and editor for NPR's Embedded, where his work examined how opioids helped cause an HIV outbreak in Indiana, the role of video evidence in police shootings and the controversial development of Donald Trump's Southern California golf club. In 2018, he was awarded a national Edward R. Murrow Award from RTDNA. Prior to Embedded, Dreisbach was an editor for All Things Considered, NPR's flagship afternoon news show.

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Under Trump, SEC Enforcement Of Insider Trading Dropped To Lowest Point In Decades

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