Ethics groups call on coronavirus 'vaccine czar' to disclose potential conflicts

Increased scrutiny comes with rising general concerns about profiteering.

The Trump administration's decision to hire its new "vaccine czar" as a private contractor, rather than a government employee, has alarmed some ethics experts who say the designation will involve him in programs that could channel millions of federal dollars into the development of coronavirus vaccine and treatments without requiring he disclose financial holdings or potential conflicts.

When it was announced two weeks ago that Moncef Slaoui would head up "Operation Warp Speed" to find and distribute a vaccine, the administration described him as “chief advisor,” but did not explicitly say he would not be a formal government employee. As a private contractor, he is not bound to the same disclosure regulations and criminal ethics laws as many formal executive branch employees, ethics experts told ABC News.

That decision marks the latest concern with what ethics experts are describing as a blind spot into the coronavirus response, including where millions of public dollars are going, and an increasing risk that those with conflicts could capitalize on the mad dash for new COVID-19 drugs.

“The nation, the globe, is in an all-time historic crisis,” said Craig Holman, government affairs lobbyist for Public Citizen, a non-partisan public interest group. “We would pay a fortune to resolve this pandemic. So we are particularly vulnerable to being exploited by those who seek to profit on our misery.”

This week, Public Citizen was one of two watchdog organizations to call on the Office of Government Ethics to step in and re-classify the “vaccine czar” as a government job requiring disclosure – as other similar appointments, such as the nation’s “drug czar,” have required. But even before this question surfaced, Holman said there have been a number of red flags about the broader risks of people profiteering off of the coronavirus response.

The former director of the Office of Government Ethics on Thursday called the situation a “red alarm” in an interview with NPR Thursday after the news outlet reported that Marc Short, the chief of staff to Vice President Mike Pence, owns between $506,043 and $1.64 million worth of individual stocks in companies doing work related to the Trump administration's pandemic response -- including Johnson & Johnson, Pfizer, 3M and Merck, as his financial disclosure form filed to the ethics agency shows. A Pence spokesman said Short had “followed all applicable ethics laws.”

PHOTO: Chief of Staff to the Vice President Marc Short is seen in the East Room of the White House in Washington, January 15, 2020.
Chief of Staff to the Vice President Marc Short is seen in the East Room of the White House in Washington, January 15, 2020.
AFP via Getty Images, FILE

And earlier this month, federal agents served a search warrant on Sen. Richard Burr, the North Carolina Republican who chaired the Senate Intelligence Committee, seizing his cell phone. Burr is under scrutiny for selling 33 stock holdings collectively worth $628,000 to $1.7 million in February, just after a series of private briefings on the spreading coronavirus. Burr has denied wrongdoing.

Slaoui’s appointment in mid-May as the vaccine czar brought a strong early reaction from watchdog groups that had concerns about his past and ongoing ties to private companies, including those focused on health issues, as ABC News previously reported.

White House officials declined to comment about Slaoui’s job designation, or whether they would ask him to submit financial disclosure paperwork, and referred questions to Health and Human Services. Slaoui has not responded to requests for comment Thursday.

PHOTO: Sen. Richard Burr walks to a republican luncheon on Capitol Hill in Washington, May 14, 2020.
Sen. Richard Burr walks to a republican luncheon on Capitol Hill in Washington, May 14, 2020.
Erin Scott/Reuters, FILE

Health and Human Services spokesperson Michal Caputo told ABC News that Slaoui is on a contract receiving $1 for his services, as previously reported by The New York Times. Caputo said Slaoui's contract includes an ethics provision, though he did not provide details. Caputo also said Slaoui had "left all advisory boards and boards of directors of companies with even the appearance of conflict" and agreed to not trade coronavirus-related stocks. The agency allowed him to keep his investment in health giant GlaxoSmithKline, which announced last month that it has teamed up with Sanofi in a coronavirus vaccine development effort.

"HHS ethics officers have determined Dr. Slaoui’s contractor status, divestiture and board resignations put him in compliance with our robust department ethical standards. The American people are fortunate to have him as a leader of President Trump’s effort to discover vaccines, therapeutics and diagnostics to defeat the coronavirus," Caputo said.

But the fact that Slaoui would not be required to disclose his personal holdings only added to the broader, earlier concerns, Holman said.

"He is in such a unique position that almost every decision he would make would affect his financial interests, and so you would then be expected to divest from those interests," Holman told ABC News. “That's why the disclosure requirement's so critical."

Virginia Canter, the chief ethics counsel with the non-partisan advocacy group Citizens for Responsibility and Ethics in Washington said the concern is that Slaoui will have access to mountains of nonpublic information, not just about companies with whom he has financial ties but also about his competitors, that could enable him to make profitable stock trades ahead of the rest of the marketplace or give him an advantage when he returns full-time to the private sector.

If Slaoui were hired as a government employee, Canter said, he would not only be required to disclose his personal finance but also be subject to a criminal conflict of interest law that would prohibit him from maintaining financial interests directly related to his role in the government, and thus he would be required to divest from those interests. As a contractor, he would not necessarily face criminal consequences even if he violated the ethics provision included in his contract.

"I think what's disconcerting about this is, he's coming from a venture capital firm," Canter said. "How how long will he be refrained from getting back into the venture capital business after he leaves this position?"

The new ethics worries also come as lawyers for investors and experts in financial regulation sound their own alarms about the conduct of the drug companies currently in the hunt for coronavirus cures and vaccines.

One company that has already faced scrutiny is Moderna Inc., where Slaoui recently served as member of the corporate board. He stepped down in order to accept the government post and divested some $12 million-worth of stock options.

According to financial records filed to the Securities and Exchange Commission, Moderna executives cashed in millions of dollars in stock just hours and days after the value soared on what they said were “positive” indications from the early work on a vaccine against the novel coronavirus, and some financial and legal experts took notice.

Days later, the company’s share value receded as the scientific community urged caution, emphasizing that those early developments were based on a tiny sample size, and had not yet been subject to wider scientific scrutiny.

“It doesn’t just smell fishy – it smells like a rotting whale,” said Kevin Simpson, President of the Florida-based investment advisory firm Capital Wealth Planning, who has watched the trading activity closely. “From a careful investor's point of view and from the SEC’s point of view, stock manipulation is a valid and worrisome concern.”

Moderna has not been accused of any wrongdoing. Ray Jordan, the head of corporate affairs for Moderna, noted that all of the trades were disclosed in accordance with the SEC rules.

"The trades themselves are all pursuant to 10b5-1 plans, which were entered into consistent with the companies insider trading policy," Jordan told ABC News.

The SEC did not say whether it is reviewing any of the trading activity. But several law firms that organize investor class action cases have already issued press releases in the past several days announcing they are investigating both the trades and a $1.5 billion stock offering that Moderna launched just after announcing promising vaccine news.

PHOTO: President Donald Trump, left, listens as Moncef Slaoui, a former GlaxoSmithKline executive, speaks about the coronavirus in the Rose Garden of the White House, May 15, 2020, in Washington.
President Donald Trump, left, listens as Moncef Slaoui, a former GlaxoSmithKline executive, speaks about the coronavirus in the Rose Garden of the White House, May 15, 2020, in Washington.
Alex Brandon/AP, FILE

“The investigation focuses on whether the company and its executives misled investors concerning the viability of the Moderna’s lead drug candidate, a vaccine candidate against novel coronavirus,” said the release from one firm, The Portnoy Law Firm in Los Angeles.

The developments have brought new scrutiny to the potential that the sudden flurry of drug development activity could tempt some executives to engage in insider trading or stock manipulation, experts told ABC News.

Daniel L. Zelenko, a former federal prosecutor and SEC enforcement official, said he believes federal regulators are looking “quite closely” at all of the trading activity by companies in the hunt for cures and vaccines.

“With more players involved in the hunt for new cures and vaccines, it increases the risk for insider information to change hands without precautions being taken,” Zelenko said. “Along with federal investigators, companies themselves need to take steps to ensure that information remains confidential.”

Some financial experts pointed out that in Moderna’s case, the stock price had already been on the rise this year, since before its announcement of the early test results, and that the company’s executives have been actively cashing in on their stocks for at least a couple months. The stock price especially saw an early surge last month when the company announced it had received $483 million in federal funding as part of the coronavirus vaccine development effort.

Andrew Gordon, a financial analyst at Equilar, a company that specializes in collecting executive compensation data, said “It’s not uncommon for insiders to sell shares they own, nor is it bad for them to capitalize on the current stock price.”

Gordon and Simpson both noted that company insiders, including directors and executives, filed documents intended to head off allegations of stock manipulation by alerting the SEC that they intend to make designated trades at specific times. The filings, which are referenced in public documents, are submitted so there cannot later be allegations that improper trades were made based on internal information.

That has not stopped some critics from questioning the timing of the trades.

“Was it just good fortune or irony that the news release happened on the same day [as the scheduled trades]?” Simpson asked. “It’s very suspicious. I think it should be looked into.”