Today, Congressmen Gottheimer (NJ-5) and Himes (CT-4) led a letter with 17 members of the Financial Services Committee calling for Chairman Hensarling to host a separate consumer protection hearing investigating Equifax insider trading allegations. Members are concerned of the sale of nearly $2 million worth of company shares by three high-level Equifax executives and suspicious stock option trades– potentially affecting investors and the integrity and confidence in the financial markets.
In the letter, the Members wrote, “We insist on a complete investigation of the facts regarding these trades. There is also interest in examining the extent to which this conduct and other recent high-profile judicial decisions highlight the need for reforms in insider trading laws generally. Insider trading is a crime against the American public and our financial markets—striking at the heart of their integrity and fairness. It is the responsibility of this Committee to call attention to these activities and to ensure that securities laws appropriately protect the American investor and consumer.”
The full text of the letter and list of signers can be found below:
Dear Chairman Hensarling:
As you know, Equifax—one of the nation’s largest credit reporting agencies—announced on September 7th, 2017, that it was the target of a cyber-hack affecting 143 million U.S. consumers. The breach at Equifax took place between March and July and was discovered on July 29th, though an announcement to the public did not come for an additional 40 days. The magnitude of the security lapse and the delay between discovery and announcement to consumers and investors are of great concern to us. This breach will have direct and lingering impacts to consumers for years, including identity theft, higher credit costs, and even complete loss of access to credit.
We are also deeply concerned by the sale of securities by several members of management during this time. It is now well known that three high-level Equifax executives sold nearly $2 million worth of company shares on August 1st and 2nd that were not part of a prescheduled trading regime. These trades took place mere days after internal discovery of the cyber-hack but well in advance of the public disclosure.
Security and Exchange Commission (SEC) regulatory filings show that on August 1st, Equifax’s Chief Financial Officer sold $946,374 worth of shares and the company’s President of U.S. Information Solutions sold $584,099 worth of shares. On August 2nd, Equifax’s President of Workforce Solutions sold $250,458 worth of shares. The public announcement of the breach on September 7th resulted in an immediate 13 percent drop in Equifax stock, the largest single day decline for the company since 2014.
At best, the execution of these transactions after the internal discovery of the breach illustrates a failure of internal controls and compliance programs that should be standard at any company with publicly traded securities. At worst, these executives were trading on the basis of material, non-public information in violation of federal securities laws and subject to civil and criminal penalties for both the individuals involved and the company itself. In either event, the activity undermines confidence in the securities markets.
It is also notable that while Equifax options trade infrequently, on August 21st, 2,600 put option contracts were bought for 60 to 70 cents each, giving the owner the right to sell 260,000 shares of Equifax stock at $135. By comparison, in the entire month of July, Equifax put options traded just under 260 contracts. With the stock price trading as low as $92 in recent days, the August contracts may have resulted in millions in profit.
We support your recent decision to hold a hearing on the Equifax cyber-attack and the implications for consumers. We believe it is also imperative that the Financial Services Committee hold a hearing on Equifax insider trading allegations— specifically to (1) investigate the sale of Equifax stock by several of the company’s executives just days after internally discovering the data breach, but weeks prior to alerting the public; (2) examine the unusual option trading prior to the public announcement. Fairness and integrity in the securities market has been a bedrock principle that has engendered confidence in our markets and institutions, ultimately benefiting capital formation. It is essential that Congress, regulators and law enforcement act to protect these qualities.
All relevant actors in the Equifax case must now be called on to testify before the Committee to determine precisely what material, non-public information was in the possession of individuals at the time each entered into irrevocable instructions to trade shares or other securities of Equifax. The Committee should also investigate the highly unusual trading activity in options on Equifax shares. We must examine Equifax’s compliance practices with regard to securities law and the handling of confidential, market moving information.
We insist on a complete investigation of the facts regarding these trades. There is also interest in examining the extent to which this conduct and other recent high-profile judicial decisions highlight the need for reforms in insider trading laws generally. Insider trading is a crime against the American public and our financial markets—striking at the heart of their integrity and fairness. It is the responsibility of this Committee to call attention to these activities and to ensure that securities laws appropriately protect the American investor and consumer.
James A. Himes
John K. Delaney
Michael E. Capuano
Daniel T. Kildee
Gregory W. Meeks
Ruben J. Kihuen