In mid-March, with the American economy in free fall, Jeffrey Sprecher, husband to Sen. Kelly Loeffler (R-Ga.) and chair of the company that owns the New York Stock Exchange, made an unusual change to his stock portfolio: He started buying.
For weeks, the couple had done almost nothing but sell. Loeffler was one of several senators who faced public outrage for unloading millions of dollars in stock before most Americans understood the towering threat posed by the coronavirus pandemic. Then shortly before the CARES Act, a $2 trillion emergency stimulus package, was introduced in the Senate, her husband reversed course and purchased up to $1 million in new shares, a HuffPost investigation has found.
The terms of the CARES Act were still mostly a secret, known primarily to Republican senators while members of their party crafted the legislation. But in the days before the bill’s introduction, Sprecher managed to invest in several industries — insurance and energy — that were poised to take advantage of the bill’s very specific provisions.
Those purchases are just the latest to raise questions about whether Loeffler, the Senate’s richest member, has ever used the insider knowledge she gleans on Capitol Hill to inform her own portfolio. Loeffler is locked in an intense runoff election in Georgia that will help decide which party controls the U.S. Senate when President-elect Joe Biden is sworn into office, and her challenger, Democrat Raphael Warnock, has made accusations that she uses her seat for personal enrichment a constant theme of his attacks.
Trading on nonpublic congressional information is illegal — and the very idea is so corrosive that many lawmakers forgo trading in individual stocks altogether.
“The appearance of conflict is terrible for maintaining the public’s trust in government,” said Kedric Payne, general counsel to the Campaign Legal Center, a nonpartisan government watchdog. “There’s a reason all our ethics rules focus on the appearance of there being conflict of interest: because perception is reality. It’s really difficult to maintain credibility when your constituents don’t know if you’re focused on their interests or your own financial interests.”
Loeffler, though, has not supported calls for reform. In a tense debate with Warnock on Sunday night, she refused to say that senators should be banned from trading individual stocks, instead suggesting that criticism of such trades was “an attack on the American dream.”
Deep inside the CARES Act, which became law in late March, was a tremendous tax break that disproportionately benefited some of the very same industries on which Sprecher had placed a bet. As a way of quickly injecting corporations with billions in ready cash, the CARES Act allowed businesses to “carry back” certain losses to previous tax years and claim a retroactive tax refund.
The carryback provision was one Loeffler could very well have learned about days before the Senate bill went public. In the three days just before its unveiling, Treasury Secretary Steven Mnuchin met twice with Senate Republicans behind closed doors to discuss the bill’s particulars, and Senate Republicans held a private lunch to brief their members on some specific proposals the bill would contain. The day after the Republican luncheon, March 19, the CARES Act was publicly introduced in the Senate, complete with the carryback provision.
“It’s really difficult to maintain credibility when your constituents don’t know if you’re focused on their interests or your own financial interests.”
The terms of the carryback are extraordinarily generous. Corporations can deduct losses they incur this year or even before the pandemic — as far back as 2018 — from a previous tax year and obtain a retroactive refund. For that deduction, companies can select a year as far back as the Obama administration, when corporate tax rates were 67% higher ― which drives their potential refund even higher.
Assurant, a financial behemoth that sells life, catastrophe and property insurance, is a prime example of how much a single corporation could benefit. In May, the company announced that it had used its 2018 tax loss to book a one-time tax savings of $79 million.
Assurant is also one of the companies on which Sprecher placed a lucky bet: On March 18, the day before the CARES Act was introduced, Loeffler’s husband purchased between $250,000 and $500,000 of the company’s stock. Later, when the couple faced pressure to clear their holdings of individual stocks, he appears to have sold those shares at a profit. (Senators report stock sales within dollar ranges, making it impossible to say precisely how much the couple made.)
Corporate tax payments are not publicly reported, meaning investors could not know exactly which companies would benefit from the carryback provision and to what extent.
Still, “it’s a fairly safe bet that if a company had a great loss in 2018 or was anticipating a big loss in 2020 and could suddenly carry those losses back to prior tax rate years, you were looking at the companies that would get some of the most relief” under the CARES Act, said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.
One could predict that boom-and-bust sectors would profit more, he added. The energy sector, in particular, benefited because the price of oil tanked in 2019. In the days before the terms of the CARES Act became public, Loeffler’s husband bought up to $250,000 in Chevron stock. The insurance sector also tends to benefit from the opportunity to carry back losses because its profits are so volatile — susceptible as they are to unpredictable disasters. On the same days as those closed-door Senate meetings, Loeffler’s husband purchased up to $650,000 worth of stock in insurance companies like AIG, Prudential Financial and Assurant.
Prudential said in a May financial filing that it was calculating whether it could profit from the carryback provision.
A company spokesman stressed this week that Prudential has had no contact with Loeffler’s office about the CARES Act or other policies. An Assurant spokeswoman said the same.
In April, facing public pressure about their pre-pandemic selling spree, Loeffler and Sprecher announced they would liquidate all of their individual stock holdings.
Loeffler said this spring that before she and her husband divested from individual stocks, any individual trades were made by a third party who informed them afterward. An FBI inquiry into her pre-pandemic selloff ended without criminal charges. “I’ve been completely exonerated,” she said in Sunday’s debate. Her campaign did not respond to multiple requests for comment.
Loeffler’s runoff election will take place Jan. 5. In Georgia, where winners are required to capture 50% of the vote, the November election left both Senate seats undecided. Democrats can effectively retake the Senate if they win Loeffler’s seat and that of her fellow GOP senator, David Perdue. Both parties are flooding the state with election cash and advertising.
“There is no way that the public can’t sense, can’t absolutely smell, that this is corrupt, that you have it in the back of your mind when you vote.”
Loeffler’s are not the only stock trades to raise questions about whether senators have been exploiting their insider knowledge. Sens. James Inhofe (R-Okla.), Dianne Feinstein (D-Calif.) and Richard Burr (R-N.C.) also went on stock selling sprees well before the public and the stock market understood the coronavirus threat, allowing them to escape massive losses when the market nosedived in mid-March.
Some of the most eyebrow-raising trades this year came from Perdue, the other Georgia senator facing a runoff election. Over the course of 2020, he has traded vastly more in stocks than any other senator, including shares in companies that received lucrative government contracts thanks to committees on which Perdue serves.
After the Daily Beast revealed the extent of Loeffler’s pre-pandemic selloff, investigators for the FBI contacted her for evidence related to her trades. Soon after, Loeffler said she provided records to the Justice Department, the Securities and Exchange Commission and the Senate Ethics Committee that showed her lack of day-to-day involvement in her and her husband’s investment accounts. In May, The Wall Street Journal reported that the Justice Department had closed investigations into Loeffler, Inhofe and Feinstein, citing a lack of proof they had violated the law, but that the inquiry into Burr remained open.
Federal law ― including the Stop Trading On Congressional Knowledge Act of 2012 ― prohibits members of Congress from trading on the private knowledge they glean as lawmakers. But it is not illegal for them to buy and sell stocks or even to vote on legislation that may enrich them.
Prosecutions against members of Congress for insider trading are also rare, said Payne, the ethics expert, because they require a mountain of evidence. In a recent successful case against then-Rep. Chris Collins (R-N.Y.), federal prosecutors had emails, phone records, bank records and video footage that allowed them to reconstruct his crime beat-by-beat. In the minutes after Collins, who sat on the board of a drug company, got an email with bad news about a drug trial, he phoned his son, who unloaded his shares in the company, the records show.
“It’s very difficult to show that magical moment when the information is passed on,” Payne said. In relation to Loeffler, he added, “It’s definitely not clear there is insider training here, but one thing for certain is the senator owes the public an explanation of these suspiciously timed trades.”
In contrast to congressional lawmakers, executive branch officials are discouraged from holding individual stocks and rarely do.
Sen. Jeff Merkley (D-Ore.) has sponsored a bill to ban individual stock trading by members of Congress altogether.
“There is no way that the public can’t sense, can’t absolutely smell, that this is corrupt, that you have it in the back of your mind when you vote,” Merkley recently told The New York Times. “You may have the public interest in your mind, but you also have in your mind how that decision might impact the value of your portfolio.”