Jurisprudence

The Insider Trading Investigation of Richard Burr Is in Terrible Hands

Burr walking with his eyes down, face covered by a mask.
Sen. Richard Burr at the U.S. Capitol on Thursday. Alex Wong/Getty Images

This week, we’re learning more about the Department of Justice’s investigation of Sen. Richard Burr’s extremely lucrative stock trading that may have been illegally informed by his early inside knowledge of the extent of the COVID-19 pandemic. On Tuesday, Politico reported that the investigation of Burr’s trading is being handled by the Justice Department’s Public Integrity Section, along with the U.S. Attorney’s Office in the District of Columbia, rather than the U.S. Attorney for the Southern District of New York’s office, which customarily works on high-profile insider trading cases. That news is serious cause for concern for anyone who wants this investigation to be handled competently and independently.

Burr’s legal woes stem from his dumping more than a million dollars in stocks in February, shortly after he reportedly received dire warnings in a COVID-19 intelligence briefing but before life in the United States had been completely upended by the pandemic. Things escalated last week when FBI agents seized Burr’s cellphone as part of a DOJ probe of his trading, which resulted in Burr stepping down from his position as chairman of the Senate Intelligence Committee.

The Public Integrity Section, which is handling that case, is a division of “Main Justice” in Washington—a centralized group of prosecutors who work across the country, bringing cases sometimes by themselves or alongside prosecutors in one of the country’s 93 U.S. Attorneys’ offices. The office’s mandate is to prosecute public corruption cases (like bribery) and election crimes. They are not known, however, for prosecuting insider trading cases. In fact, they are best known by observers as the office that has failed virtually every high-profile assignment that it has taken over the last 15 years. That list includes the failed prosecutions of former Alaska Sen. Ted Stevens, former Virginia Gov. Bob McDonnell, former North Carolina Sen. John Edwards, and current New Jersey Sen. Bob Menendez. The Stevens prosecution was such a disaster that the fallout from the case played a part in the tragic suicide of a young line attorney, while the McDonnell case resulted in the Supreme Court ordering the most significant curtailing of public corruption law in decades. (Another office that may have been a candidate for handling the Burr investigation is the Fraud Section, which specializes in white-collar crime, including insider trading, and is where I used to work. In recent years, however, the Trump-era career officials who manage the office have presided over a remarkably long list of high-profile losses and setbacks.)

Perhaps worse than these failures, though, the Public Integrity Section has proved itself willing in recent years to provide its legal services in support of the president’s personal interests. Last year, career prosecutors from the office were asked to review the memo summarizing U.S. President Donald Trump’s call with Ukrainian President Volodymyr Zelensky in July 2019—the call that eventually resulted in Trump’s impeachment—to determine whether there was any evidence of potential misconduct that warranted the opening of a criminal investigation. According to reports from the New York Times and the Washington Post, they concluded that there were no grounds for a criminal investigation.

It is hard to overstate how absurd that decision was. It was based solely on a review of the memorandum summarizing the call; the prosecutors decided that they did not even need to interview anyone. Equally ridiculous was the fact, according to the Post, that the prosecutors also “looked only at whether Trump might have violated campaign finance laws, not federal corruption statutes, even though some legal analysts said there seemed to be evidence of both.” (Here is a list of some of the criminal offenses legal experts identified as possibly having been committed by the president in his effort to pressure Ukraine to announce an investigation of his 2020 rival Joe Biden).

The U.S. Attorney’s Office for the District of Columbia, meanwhile, has featured prominently in the news in recent months as the result of successful and unprecedented interventions on the part of Attorney General William Barr in favor of the president’s friends in the cases of Roger Stone and Michael Flynn. These actions have resulted in thousands of former DOJ employees signing on to letters questioning whether Barr has corrupted the office for Trump’s personal gain. The office, indeed, has become the most transparently politicized U.S. Attorney’s Office in the country.

Politico’s report on the offices handling the Burr investigation is only the latest reason for worry. The fact that the FBI’s seizure of Burr’s cellphone leaked from the government was itself cause for concern. CBS News attributed it, for instance, to “a U.S. official.” If that leak came from the Justice Department, it was a very clear violation of the department’s policy on the publicity of ongoing investigations (see Section 1-7.400 here) that almost certainly would have had to be sanctioned by the highest levels of the Justice Department.

There are reasons aside from potential politicization to wish for the Burr prosecution to be in better hands. The investigation of Burr is not likely to be easy. The law of insider trading is a notorious morass—a hodgepodge of statutes and judicially crafted rules that has long been in desperate need of some legislative streamlining. Further, any prosecution of Burr would likely have to be done under the auspices of the 2012 STOCK Act—which criminalizes insider trading among members of Congress—in what would be a case without any precedent. The complexities multiply when you factor in other issues that are unique to members of Congress. Randall Eliason, a professor at George Washington University Law School and himself the former chief of the fraud and public corruption unit of the U.S. Attorney’s Office in D.C., has provided a very thoughtful overview of some of these challenges, which include the needs to closely analyze the contents of the briefings that Burr received in Congress, to determine exactly how the information he received differed from the vast quantity of public reports about the potential impact of the pandemic, and to determine exactly how that information may have informed a particular transaction (for instance, if he had received information forecasting a decline in the airline industry—as opposed to a generally dire economic forecast—and then dumped airline stock). If the FBI is able to obtain the contents of incriminating emails or text messages from his cellphone, that could simplify matters, but generally speaking, sophisticated insider traders are careful to avoid those types of communications.

Ordinary insider trading cases are complex enough. The most significant crackdown on the practice took place last decade when Preet Bharara, then the U.S. Attorney for the Southern District of New York, brought dozens of insider trading cases in the wake of the financial crisis. The effort was successful in attracting credulous press coverage, but the conduct that was prosecuted bore no actual relationship to the marketplace issues that had precipitated the widespread economic suffering of the American public. One of the prosecutors later summed up the effort neatly when discussing the cases: “They made our careers, but they don’t change the world.”

Ultimately, insider trading undermines confidence in the financial markets by leading the public to believe that there is not a level playing field—that if you are a member of the elite business class, it’s easier to make money than it is for the rest of us. I find insider trading cases to be generally overrated as a use for limited white-collar resources, but the public interest in pursuing a member of Congress—who may have abused the public trust to enrich himself—presents an unusually compelling enforcement mandate. For that reason, we should all want the investigation to be thorough, aboveboard, and free of improper political influence. The initial signs are not good.

For more coverage of the investigation into Burr, listen to What Next.