The brother-in-law of U.S. Sen. Richard Burr was ordered Wednesday by a federal judge to comply with an investigative subpoena from the Securities and Exchange Commission.
A status report to Judge Andrew Carter Jr. is due Tuesday.
CNN is reporting the interview by Gerald Fauth with the SEC could be held by the end of the month, and that Fauth could be held in contempt for noncompliance.
The SEC launched an investigation on March 25, 2020, to determine whether Burr violated insider trading laws with stock trades, particularly those made along with his wife, Brooke, on Feb. 13, 2020.
According to SEC filings, on Feb. 13, 2020 Burr “possessed material nonpublic information concerning COVID-19 and its potential impact on the U.S. and global economies.”
Burr’s office has not commented publicly on the SEC filings that were submitted beginning Oct. 22 in the federal Southern District of New York, nor on subsequent media reports about the investigation.
The SEC has said Fauth’s testimony “is critical” to its investigation.
Fauth is accused by the SEC of declining to cooperate since May 2020. The agency says that he and his legal counsel “have waged a relentless battle to avoid it.” Fauth’s legal counsel has said it is painful for Fauth to sit for long periods of time.
Fauth failed to comply with an SEC subpoena served in May that would have had him provide at least three hours of testimony June 17.
The SEC said Fauth had no problems attending a confirmation hearing when President Joe Biden appointed him to the National Mediation Board earlier this year — a job he still holds.
The SEC said in a Nov. 5 legal filing that it would limit the testimony meeting to no more than 2½ hours.
“The commission has no intention of conducting the questioning in an adversarial manner, as this is investigative testimony, not a deposition,” said the filing.
“Indeed, the staff has made no determination of whether it should recommend that any charges at all be brought in this matter.
“The commission trusts that Fauth and his counsel will conduct themselves in good faith, and therefore an order from the court that the parties proceed in a non-adversarial manner is unnecessary and impractical.”
The SEC said it is prepared to provide Fauth’s legal counsel “with most of the documents we believe we will want to show Fauth prior to his appearance.”
“There may be documents that only become relevant once Fauth has provided a response that makes them so.”
The SEC’s investigation into Burr’s pre-pandemic stock trading has a sharp focus on Burr’s conversations with Fauth on Feb. 13, 2020.
That was the day the SEC says Burr and his wife, Brooke, both of Winston-Salem, “liquidated virtually all the stock” in their portfolio.
The stock sold was valued at $1.65 million. The publication Roll Call listed Richard Burr’s net worth at $1.7 million as of 2018.
Shortly after a 50-second phone conversation between Burr and Fauth ended on Feb. 13, 2020, the SEC said Fauth called his stockbroker and sold between $97,000 and $280,000 worth of shares in six companies. That amount is according to a federal Public Financial Disclosure Act filing made by Fauth.
ProPublica and other media sources have reported Fauth sold major stock holdings on the same day as Burr.
“But it was previously unknown that Burr and Fauth spoke that day, and that their contact came just before Fauth began the process of dumping stock himself,” ProPublica reported Oct. 28.
The stock Fauth sold involved Mondelez International Inc., a confectionery, food, holding and beverage company; Altria Group Inc., parent of tobacco manufacturer Philip Morris USA; Chevron Corp.; Royal Dutch Shell (B stock); BP (British Petroleum) PLC; and Williams-Sonoma Inc.
There was no overlap of the stocks sold Feb. 13 by the Burrs and Fauth. The Burrs bought stock in Mondelez in 2013 and sold it in 2015.
In May 2020, attorney Alice Fisher of the Washington law firm Latham & Watkins LLP said in a statement that “Senator Burr participated in the stock market based on public information and he did not coordinate his decision to trade on Feb. 13 with Mr. Fauth.”
ProPublica said Fisher did not respond when asked whether Burr discussed anything he learned as a senator with Fauth or other relatives.
Focus of SEC
The SEC probe has been overshadowed by a higher profile U.S. Justice Department investigation.
Burr’s office and his attorney announced Jan. 19 that Justice officials declined to bring charges of insider stock trading. It is not unusual for the political subject of a Justice investigation to be the one announcing a decision.
The SEC narrative for Feb. 13, 2020 said that at “8:54 a.m. Senator Burr placed a call from his cellphone to his broker’s landline … and directed his broker to sell $1.65 million worth of stock — all but one of the equities in his and his wife’s joint individual retirement account portfolio. The call lasted 12 minutes and 52 seconds.”
Following a 50 second phone conversation with Burr at 11:32 a.m., the SEC said, Fauth tried to reach a stockbroker. After he was told that the stockbroker was out of the office, Fauth immediately called another broker to execute the trades.
The SEC said Burr, Fauth and their wives “communicated regularly by phone” during February and that Burr had stayed with the Fauths during the week of Feb. 13, 2020.
Citing an anonymous law-enforcement source, the Los Angeles Times was the first to report in May 2020 that Federal Bureau of Investigation agents came to Burr’s home in the Washington area with a search warrant to seize Burr’s cellphone.
In May 2021, a federal judge denied two requests to unseal records related to the cellphone seizure filed by the L.A. Times.
U.S. senators are required to submit periodic financial disclosures.
Senate financial-disclosure documents show the Burrs sold between $628,000 and $1.72 million of their stock holdings in 33 separate transactions just on Feb. 13 alone.
The sales included shares of three corporations in the hotel and hospitality industry which was hammered economically during the early months of the pandemic.
A central question of the SEC investigation into Burr is whether he violated the STOCK Act.
The STOCK Act, passed by Congress in 2012, prohibits federal lawmakers from using nonpublic information derived from their positions for their personal benefit.
The SEC said Burr’s information was obtained from his leadership roles on Senate committees “and from certain former staffers that were then directing key aspects of the U.S. Government’s preparedness and response to the COVID-19 pandemic.”
Burr has said he will not seek a fourth Senate term and will retire in January 2025.