New York CNN Business  — 

Senator Elizabeth Warren is calling on US financial regulators to investigate whether insider trading laws were violated when elite investors reportedly got wind of private concerns voiced by Trump officials about the pandemic in late February.

“Numerous investors may have used this early and insider information about the looming, tragic economic and public health consequences of the pandemic to extract profits for themselves,” Warren wrote in the letter obtained first by CNN Business.

Warren, a Democrat from Massachusetts, urged the SEC and Commodity Futures Trading Commission to swiftly open an investigation into the episode.

The request follows a report by The New York Times alleging that senior members of President Donald Trump’s economic team privately detailed concerns in late February about the looming pandemic. These warnings, reportedly relayed during private addresses to board members of the conservative Hoover Institution, contrasted sharply with the administration’s public comments.

At the time, Trump was telling the public that the health crisis was “very much under control.” The president even said in a tweet that the stock market was “starting to look very good to me!”

Word of those private concerns held by top US officials reportedly spread to elite investors through a hedge fund consultant, allowing these traders to make bets that stocks would drop.

According to the Times, the president’s aides “appeared to be giving wealthy party donors an early warning of a potentially impactful contagion at a time when Mr. Trump was publicly insisting that the threat was nonexistent.”

“Short everything” was the reaction of one major investor briefed on the memo from the hedge fund consultant, the Times said.

That proved to be a lucrative trade.

By March 11, the S&P 500 had plunged into the fastest bear market in US history. Retirement accounts and investment portfolios were crushed. Trillions of dollars of market value vanished.

Doubts about legal case

In the letter, Warren said the incident “appears to be a textbook case of insider trading.”

Some legal experts, however, told CNN Business that may not be the case.

Harvey Pitt, former chairman of the SEC, told CNN Business in an email that the conduct most likely does not violate securities law in part because the information provided was broad and generic, rather than stock or sector-specific.

“The optics are bad, but not everything that looks bad is criminal,” Charles Whitehead, a professor at Cornell Law School, said in an email. “It’s unclear whether trading based on the White House’s private release of factual information, that was otherwise publicly obtainable, would constitute insider trading, even if the White House was publicly contesting that information.”

Elizabeth Nowicki, a former SEC attorney, agrees that the conduct described in the article likely does not run afoul of insider trading laws.

“The facts regarding the private disclosure and later trading are disturbing, unfair, and unseemly,” she said. “But they are unlikely to be found by a court or the SEC to constitute unlawful insider trading.”

Pitt, who led the SEC during the 9/11 terror attacks, described that same conduct as “morally repugnant” — for both those providing the information and those acting on it.

The former SEC chief said that while government officials frequently give behind-the-scenes briefings, they should strive not to give information that contradicts public statements.

“It always catches up with you, and it isn’t proper conduct for any government official,” Pitt said. “If something really is terrible, and you can’t state that publicly, you have no business stating it privately for a privileged few.”

‘Appalling abdication of duty’

Treasury Secretary Steven Mnuchin dismissed the Times report on Thursday as “another exaggeration” by the paper.

“I can’t imagine this occurred,” Mnuchin told CNBC. “By the way, there were plenty of investors who had their own views of what was going on at the time and were very concerned rightfully.”

And the Times reported that legal experts say it is not apparent that any communications about these briefings violated securities laws.

But at least one billionaire investor expressed concern about the incident.

“But the problem is — and what crystalized that story — the feeling that the public was getting one set of briefings from White House spokesmen, ‘Not to worry — it’s mostly contained, or all contained’ and then donors and insiders were getting a different set of more worrisome briefings inside the White House,” hedge fund manager Jim Chanos told Hedgeye Risk Management on Thursday.

Warren urged the SEC and CFTC to review the material nonpublic information provided to investors and any trading that occurred as a result.

Specifically, Warren asked the regulators to determine which Trump administration officials provided the information, how that information differed from the public comments by the administration, who received the information and whether those individuals made trades of securities, futures, swaps or commodities.

“If this report is accurate, it represents an appalling abdication of duty by President Trump and top officials in his administration,” Warren wrote.