Second highest rate of cases in the world and supply of protective gear was uncertain. Some estimated supply would run out in a matter of days. Use the defense protection act to leverage the equipment to keep fighting the pandemic. Using the dpa is crucial in our fight against covid. However, i was just as surprised as many of us when the International Development finance corporation announced they would issue their first dpa loan to kodak to produce pharmaceutical components. The dpa is finally being utilized but to a company that only just recently left bankruptcy with no proof of success of pharmaceuticals, being trusted with such an important task. Frankly its not a joke. Kodak ceo purchased shares of the company, leading up to the announcement and received 1. 75 billion Stock Options from the kodak board the day before the announcement was made. These Stock Options may have been worth as much 50 million just a few days later. A letter from the committee to the s. E. C. Urging invest gaugss around the transactions and pleased to hear the s. E. C. Has opened investigation. Mr. Frankel, knowing the circumstances around the loan, the purchases by the stocks by corporate insiders, you would would you say theres potential here for unlawful Insider Trading . Id go beyond that. I think in terms of potential violations, i think there is the potential that the s. E. C. Could find a range of violations, including in a disclosure in terms of trading, in terms of possibly even individuals involved in manipulation. We dont know. And i think the fundamental issue from my perspective is we have to give deference to the s. E. C. To allow it to conduct its investigation. I also think that we are to be mindful of other one other thing which is that when we talk about the specific securities laws violations, if we go back to Insider Trading enforcement in the 1980s and 1990s, those cases were brought out by the Southern District of new york. So, theres a broad range of criminal statutes that could apply even if there may not be a specific s. E. C. Law or regulation. So, in terms of the potential scope of the investigation, i think its real. I think that the as i mentioned earlier. If you look at the questions that were posed by the internal investigation by outside counsel, theyre very narrowly framed. I think to the committees point, there still is plenty for the s. E. C. To look at and there is the potential for the commission for the Enforcement Division to find and recommend enforcement action. But only time will tell. Thank you, sir. Thank you. I appreciate that response. Would you discuss a little more the harm this causes shareholders and potential harm here, shareholders and Capital Markets and the taxpayers . If you direct that to me yes, sir. The core issue, one, is credibility. Interestingly, i go back to the language of the 33 act. You look at the preamble of the 33 act, its full and fair disclosure of the character securities in the commerce through the mail to prevent the sell thereof. I think everything this committee is doing on a bipartisan level is very much directed towards and i support it fully is directed towards enhancing disz closure to ensure there is that level of the ability for the public for participants to have confidence in our markets. And i think that continues to be really the core issue, credibility, transparency and confidence. Thank you. Our country clearly, you know, on the cusp here of many questions that we need to get answers to. And where i live, we are home to so Many Life Sciences companies that are have decades of experience and success. Now is not the time, clearly to place bets on during a Public Health crisis on unproven entities that are unprepared to help our nation with this pandemic. I strongly agree that our corporate insiders shouldnt profit from the misguided allocations of resources. I look forward to continued oversight. Thank you very much for being here, sir. Thank you. I now recognize the gentleman who brings extensive experience and service to this committee, mr. Gavin. Mr. Casten, youre recognized for five minutes. I apologize, sir, i didnt realize i had that much experience. I didnt realize you were talking about myself. Thank you so much, mr. Chairman, and thank you to our witnesses for being here. I want to start by making three statements that i think are factual and should be fairly nonobjectionable. Capital markets are not moral. Capital markets are not immoral. Capital markets are amoral. They amorally rationally allocate capital to places where we think there will be future cash flows. Number two, statement of fact, rushing a vaccine to market too early is massively dangerous to Public Health. Its not tested on populations, risks the future certainty about vaccines, all vaccines. And number three statement of fact, operation warp speed has distributed i think about 9 billion to developers of vaccines, and the president of the United States is openly touting that there will be a vaccine available by election day. Those are facts. Given that amorality, question for you, mr. Claypool. Is it rational to assume that a company receiving cash from operation warp speed, when the president of the United States is saying there will be a vaccine by the election, is it rational for a amorally rational investor to assume the cash flows . I think its perfectly rational to think that, you know, as a result of good news that the companys value is going to go up. What as i said, theres not a place for in the greater context of this crisis and seeing the idea that i mean, its i guess one could also argue that its rational for an insider to exploit Insider Information if they believe they could get away with it. Im not trying to ask you a gotcha question. Im glad you agree with the first part. Is it not also rational to assume that if a company did see a surge in cash flows from that good news and tha surge in thei equity value, but the vaccine was subsequently proven to be dangerous, that that Company Might face longerterm liabilities, legal or otherwise, from bringing that to market too soon . Okay. So, is it then not rational for a informed amoral insider looking at that information to say, it is in my amoral interest to participate in those markets, buy now and cash out quickly before that future liability comes on the roost . I can see there is a logic to that sort of hedge. It strikes me as, i guess, more cynical than we would hope the companies that were relying on to develop vaccines for all of us will be acting in this crisis. I think we expect good faith development, doing the work of the core business purpose. Im in no way i dont mean my comments in any way to question the morale toif companies. Im just making a comment about the nature of companies that theyre not amoral. Theyre not moral either. Theyre just making judgments. I have concerns about the Public Health risks of rushing a vaccine to market. When we have insiders trading on this information and should the chickens come home to roost, what concerns do you have about what that does to capital in our market . I think its very dangerous. I also would add that to the concern of spring loading and those kind of issues, also its worth being concerned that good news could be withheld until after those Stock Options are issued in a way that executives are most able to exploit. Well, thank you. You know, i dont know what we would do with this other than back in the days when i was the ceo of the company, the power depends on the peoples access to information. I used to find when i raised money on wall street that wall street is a place where information is power. Sadly its also true of the current job i have. I think we need to keep our vigilance up in Industries Like that, where withholding information from other people is a way to get in power. Thank you, and i yield back. The gentle lady from new york, ms. Ocasiocortez is recognized for five minutes. Thank you, mr. Chair, and thank you for hosting this incredibly important hearing. I had a quick question. You know, so much of what we are kiss cussing today h discussing today has to do with prospects of Insider Trading and tying ceo compensation to stock. My question for mr. Claypool and ceos and corporate ceos and pharmaceuticals and otherwise are compensated with stock packages and packages where an enormous amount of money that theyre being compensated in is in Stock Options, how does that potentially influence decisionmaking for when it comes to the longterm health of a company or longterm decisions for pharmaceuticals . Thank you, congresswoman. You know, thats a really interesting question. So often the idea that, you know, the premise of issues Stock Options as a way of paying executives is intended to align the interests of a company with the interests of shareholders. And what were seeing in instances such as were observing here is where this intense shortterm encourages ways for companies to look for ways to quickly raise the stock price or take advantage of volatile circumstances in pursuit of shortterm gain. There have been a variety of reforms that have Even Companies have selfenacted, most companies in the aftermath of the scandal where companies were backdating their pay, it was kind of the opposite where they were the pay the price of the stock would go up, so they would sort of shift the date of the award backwards in time. Many companies sort of picked in fact i think most companies now pick a select date to award those Stock Options. That was a positive development. However, what studies are now showing is that companies are were talking about trueing to find ways to save time, bad news or at least beforehand before the announcements or saving the good news. Stock options are many now. Every individual instance of this may have a very plausible explanation for why they announced the news when they did and the timing of the options. But the recent study has shown its over 1,200 companies that have this sort of vshaped pattern in how theyre paid. And the pattern is greater for companies who pay above average amounts of Stock Options and for companies that are hard to value because these pharmaceutical companies who their destinies are based on the success or failure of a single drug being developed. Is a circumstance that invites t invites shenanigans. Im happy the committee is looking into it and will hopefully find ways to thwart that. Certainly. Congresswoman, could i just weigh in on that . Yes, absolutely. Sorry to interrupt, but you identify concerns about short term trading opportunities. However, i think the literature demonstrates a bigger problem which makes operational decisions to risky. I think that relates to congressman castens concern about Scientific Development and particularly vaccines. If you have Stock Options, thats a really high powered incentive to take risks so your stock price balloons. I think that in this environment, thats an extra caution that we really have to worry about. Absolutely. Would you say its fair to say that, having these kinds of Stock Options could incentivize riskier behavior . And when it comes to an industry like pharmaceuticals, that that could carry an elevated risk with it . Absolutely. I think where we see particular concern is in some of these companies that historically have not been profitable. The stock price is very low to begin with, and therefore the potential downside is very limited but the potential upside is enormous. Thank you very much. I have one last question for mr. Franken. Youve been a prosecutor. Insider trading is perhaps activities that mirror or appear like Insider Trading are not exclusive to the private sector. Weve seen questionable activity right here in congress. I am really interested in your thoughts on the 2012 stock act, how it may fall short and what are some of the concerns that you think there are with respect to congress and members of Congress Engaging in behavior that could be seen as or interpreted as insider training . I will ask you to answer in a couple of seconds because the time has expired. Thank you mister chairman. I think the easiest way to answer that question succinctly is we look to both the sec in the department of justice through bringing its cases to have a deterrent effect on certain behavior. Absent there being such cases, there is always a perception that the law may not be effective. I think we have to defer to the investigations and see if they result in Enforcement Actions that in turn will send a message about the level of commitment of enforcement of such laws. Thank you. Thank you very much. I see no other members have not been recognized. All members of the subcommittee who wish to participate have been able to ask. Is there a member of the subcommittee that has not asked questions . No, mister chairman. However, i am trying to get your attention so i can submit an article for the record. The gentleman is recognized. Thank you. It actually fits perfectly with what my colleague from new york was talking about as well as mr. Frenkel and others. This is november 2019 reuters article. The title is sec enforcement activity. The second highest level ever in 2019. The article goes on to explain what the sec has been doing on enforcement. I would like to submit that. Objection, it will be made part of the record. Again, seeing no members who have not been recognized, i would like to thank our witnesses for their testimony. There are seven days to submit additional written questions for the witnesses. You submit those to the chair and they will forwarded to the witnesses for the response. I ask witnesses to please respond promptly. I think today weve learned that especially during an era of covid, we need to make sure that insiders dont deal unfairly and dont profit from not yet disclosed material information. I look forward to working with my colleagues to achieve those objectives and hopefully the sec will not only continue the enforcement efforts that have been pointed out, but will look at some of the issues brought up by this hearing. Without objection, all members with have five legislative days to submit extra tiniest materials for the record. I remind members to submit written questions and materials to the record by the email address provided to your staff. This hearing is adjourned