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The moral questions about how traders may have profited off the pandemic

In late February, when the pandemic was beginning to take hold in the U.S., President Trump and his team downplayed the risk to the American public. But a new report finds that key advisers to the president were conveying a very different message to other audiences -- and some financial traders may have profited as a result. Amna Nawaz talks to author and former investment banker William Cohan.

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  • Judy Woodruff:

    Back in late February, when the pandemic was beginning to take hold in the U.S., the president and his team downplayed the risk to the American public.

    But a new report finds that key advisers to the president were conveying a very different message to other audiences. And some financial traders may have been able to profit in the stock market because of it.

    Amna Nawaz has more of those details.

  • Amna Nawaz:

    Judy, The New York Times reported that, in late February, two White House advisers, Larry Kudlow and Tomas Philipson, privately told board members of the conservative Hoover Institution there was uncertainty about the virus and how it could upend life in the U.S.

    That would later prove true, but neither the president, nor his administration were saying that publicly. And the message delivered privately made its way a number of elite traders, who, in turn, reportedly bet the economy would slow down. That would also prove true.

    William Cohan is an author and former investment banker who worked on Wall Street for 17 years. And he joins me now.

    William Cohan, welcome to the "NewsHour."

    That memo from the briefings, we should mention, someone who was in the briefings typed up some notes, sent them out to a bunch of contacts, made its way through staff, additional contacts, basically made its way to a number of money management firms within a day.

    If you are in the business of making money, you are an investor who sees that kind of memo coming from White House officials, what do you do? How does that inform your trading, and why?

  • William Cohan:

    So, the question is, what is your moral compass? What is your ethical compass?

    If you get a memo like that and you know that, publicly, these officials are saying one thing, i.e., the virus is not going to be that bad, 15 cases are going to go to one, it is going to disappear like a miracle, if you are saying things like that publicly, and you receive a memo privately that constitutes a briefing from those same officials who are much more worried, and your instinct as a trader probably is to trade on that information, and make as much money as you possibly can, which is clearly what happened, and what the implication is of The New York Times article.

    But the question is, should you be doing that? And that, unfortunately, is something that you — only you and your moral code and ethical code can decide.

    As a legal matter, it's much more complex, because you're dealing with information that can move markets, but not necessarily non-public confidential information of private companies or public companies that obviously constitutes insider trading.

  • Amna Nawaz:

    I just want to remind people about some of the public messages that were happening at the time, because this is what's catching everyone's attention.

    So, those meetings we just talked about, the private meetings, unfolded in late February, the 24th, 25th, and 26th. Publicly, President Trump tweeted this on February 24. He said: "The coronavirus is very much under control in the USA. Stock market starting to look very good to me."

    Larry Kudlow, who we know was one of the advisers who conducted those private briefings, went on CNBC on February 25. He was asked about public warnings from CDC officials the virus could spread. And this is what he had to say to that.

  • Larry Kudlow:

    We have contained this, I won't say airtight, but pretty close to airtight.

  • Amna Nawaz:

    William, those are two very different messages, the private ones delivered, as The New York Times reported, and these public messages.

    Why would an administration do that?

  • William Cohan:

    As you know, as we know, Amna, from what Bob Woodward revealed in his book, Donald Trump said that he was doing that to not get people all riled up, to keep the panic level low.

    But, frankly, if you're a trader, if you're a hedge fund manager, and you're getting a hold of that kind of information, your first instinct is to — as they said, to bet against the market, to go short, go short everything, to essentially bet that the market will fall. And that is, of course, what happened.

    And if you do that, you make a lot of money. Why, on the one hand, they'd be saying privately that they're very worried and publicly that it's all under control? Well, frankly, it's extremely disingenuous. It's, frankly, damaging. It probably resulted in tens of thousands of more deaths than were necessary.

    And it's reprehensible.

  • Amna Nawaz:

    You mentioned this a little bit earlier, but this is the question on everyone's mind.

    At the end of the day, what is the accountability? Is there a legal issue, an ethical issue? Because we should remind people, this was all happening and unfolding right before millions of Americans plummeted into a recession?

  • William Cohan:

    Look, there should definitely be accountability for this.

    A working Securities and Exchange Commission, a well-working Securities and Exchange Commission, would be all over this, trying to figure out got ahold of those memos, who traded on it, what they got out of that, how much money they made.

    But I'm afraid, in this administration, all the people who — many of the people who run these agencies are beholden to Donald Trump, and they don't investigate things like this.

    I have been writing since last year, last July, and then again in October and again in January, about suspicious trading that was going on at the Chicago Board of Options in something called E-minis, future options, when people got a hold of this information that was moving markets before other people, and then traded on it.

    And they made tens of millions, if not hundreds of millions of dollars. But there's never been any investigation. And, unfortunately, this is just another one of those examples. It's big news for a day, but nothing ever happens about it. And the people who've made money are happy as clams.

    And it's not right. And it's unfair to the rest of the people who don't have that information and, frankly, who are suffering from this COVID virus that was not fully explicated, and the damaging nature of it was not fully shared by the people in high posts in the government who knew about it.

  • Amna Nawaz:

    Some important reporting from The New York Times that absolutely begs more questions.

    That is William Cohan, author and former investment banker, joining us tonight.

    Thank you for your time.

  • William Cohan:

    Thank you.

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