Identification of Potential COVID-Related Insider Trading by US Senators Based on Financial Disclosures (preprint)

ABSTRACT

The economic impact of the COVID-19 pandemic has been felt around the world. In the United States, the severity and speed of the spread of the virus led to the fastest recession in US market history, going from a historical peak to the recession's (current) low point in less than a month. A vast majority of the public were caught off-guard by this, but a key few knew of the severity of the virus well before the masses. In particular, the US Senate was informed of the severity of COVID-19 in a private briefing on January 24th, 2020. Less than two months later, the SEC issued a warning to four senators on placing trades with nonpublic information, as it is essentially insider trading and a violation of the STOCK Act. Three of the four senators in-question were cleared of any wrongdoing after an astonishingly brief probe by the SEC.Fortunately, the public has access to stock transactions of US Senators thanks to the United States Senate Financial Disclosures database. Using this data via Quiver Quantitative, Novatero Investments carried out three analyses on US Senator stock transactions looking for signs of insider trading centered around the private COVID-19 briefing alterations in transactional volume, significant changes in strategy relative to the US market, and a market timing advantage relative to two baselines. Based on the results from these analyses, there are suggestions that three senators took advantage of the information obtained in that January briefing to alter their investment strategy Senators Richard Burr, Kelly Loeffler, and David Perdue. Interestingly, each senator enacted their informational advantage in a different way, making it difficult to detect some of them with a topline glance. While there are strong suggestions of insider trading within these results, the data provided can only go so far in terms of solid evidence, and we hope to see a deeper analysis and investigation by those who have access to a more-complete picture of these transactions.