Insider Buying

Insider Information and U.S. Senators

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Richard Burr is a prominent U.S. Politician. He is Chairman of the U.S. Senate Select Committee on Intelligence, and part of other committees like Health, Education, Labor, and Pensions Committee (HELP), Senate Finance Committee and Senate Aging Committee. Recently he came into news for being under FBI investigation for allegations of insider trading during the COVID-19 pandemic. As per latest developments, he has stepped down as the FBI seized his phone as part of the investigation. The fact that Mr. Burr is one of only three senators who voted against banning insider trading for Congress back in 2012 could raise some doubts over a series of latest transactions.

Why Are His Trades Important

At 2iQ Research, we specialize in tracking insider trades and our upcoming offering will include U.S. Senators' transactions data. News of Mr Burr provides us with a perfect opportunity to analyse Mr Burr’s recent trades and gain insight to events leading up to sale of shares. In Feb 2020, Mr. Burr reported 38 transactions, 36 of these were sell trades. Every stock sold lost at least 10% and some as much as 60% of its value in the coming weeks. For Example, Park Hotels & Resorts Inc, a company from the hospitality industry lost 60% of its value within one month of his trade. For the last 6 weeks it was maintaining a steady range of $23-25 per share. Currently it is trading at approximately $7 per share.

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Park Hotels & Resorts Inc stock since Richard Burr’s latest trades Source: 2iQ Research

Did Mr Burr Have Any Inside Information To Act Upon?

What makes his transactions of particular interest is that more than half of them are stocks of companies operating in Hospitality, Healthcare and Financial Sector. Not only are these companies directly affected by COVID-19 pandemic, but Mr. Burr is also part of the committees which are directly related to these industries. In his capacity as Chairman of the Intelligence

Committee he was constantly being briefed on the COVID-19 situation. The timing of his trades is more interesting because at that time, the U.S. administration was heavily downplaying the effects of the virus and was aggressively negating any possibility of any form of lockdown.

How Did the Stocks From His Trades Fare

We identified 12 stocks from Hospitality, Healthcare and Financial Services industries from Mr. Burr’s trades. These stocks formed 65% of the value of the total sales. Within one month of his trades, DowJones Industrial Average would experience the worst day in two years on Feb 24th, 2020. And on March 9rh, 2020 the S&P 500 fell 7% in four minutes after the exchange opened, triggering a circuit breaker for the first time since the financial crisis of 2007–08. So we took the one month mark as the first benchmark as a few significant events had kicked in by then. For a second benchmark we took the latest available closing price, which at the time of writing this article was May 19th, 2020.

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An important thing to note here is that senators do not disclose the exact number, amount or value of shares traded. Rather they just mention the range in which the trades were executed. The ranges used by the senator here are $1,001-$15,000, $15,001-$50,000 and $50,001-$100,000. For the sake of simplicity, we have assumed the trade amount to be on the conservative end of the range.

So Does It Mean Mr Burr Indulge In Insider Trading?

While it is for the law enforcement agencies to find out if Mr Burr acted on any insider information, one thing is for certain that senators’ trades are very valuable insights on how a stock is going to perform in the immediate future. Mr. Burr sold somewhere between $628,000 to $1.7 million worth of stocks in a single day. None of the stocks performed well after his transactions.

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In fact, if Mr. Burr had not sold these shares, he would have faced a loss of approximately $150,000 in his portfolio value. And this is as per the low end of the range. But if we take the high end of the estimate, the loss could be as high as $400,000. The latest development on these trades is that Mr. Burr has requested an extension to his annual report filing which was due on May 15th, 2020, something which hasn't happened before.

With the impact of COVID-19, markets are now more uncertain than ever. In order to help its clients stay on top, 2iQ Research is determined more than ever to provide the best and the most valuable insights. We are confident that this latest project will prove to be very beneficial for our clients.