"I think the SEC needs to be on full alert at this moment," said Sen. Chris Van Hollen, a Maryland Democrat, in an interview with ABC News. "It's important as we move quickly to develop a vaccine we make sure the public's interests are protected. That's their job. They're supposed to be the watchdog for the public interest here."
There have been indications the SEC is stepping up examination of potential insider trading in connection with the stock of a number of health care companies that have been engaged in the race for COVID-19 treatments -- many of whom have received lucrative government contracts to help address the public health crisis.
Earlier this week, the Wall Street Journal reported that the SEC had launched a probe into Eastman Kodak's handling of a $765 million loan agreement with the federal government to develop drugs in its domestic factories. The newspaper cited sources familiar with the matter. The SEC declined to comment when reached by ABC News, and a Kodak spokesman said the iconic photography company has "not been contacted yet by the SEC." The spokesman said he could not confirm whether there was an investigation underway, but said that "the company intends to fully cooperate with any potential inquiries."
And on Wednesday, the Democrat-led House Financial Services Committee announced an investigation into the Kodak loan, requesting documents pertaining to negotiations from the government agency that brokered the deal. In a press release announcing the probe, committee members characterized Kodak as "a company with little experience producing prescription drugs or their components."
Jacob Frenkel, a former senior counsel in the SEC's division of enforcement who now works in private practice representing corporate clients, including on SEC issues, told ABC News any public company mentioning coronavirus and the word "solution" in the same phrase -- when timed with a spike in its stock -- "is likely to trigger a SEC enforcement investigation into possible insider trading and stock manipulation."
"They recognize that any mention of a COVID-19 solution is a potential market moving statement," Frenkel said.
Frenkel has been tracking the SEC's activity in policing companies trumpeting products or treatments related to coronavirus and said it's been unprecedented. He said the agency has used civil enforcement authority dozens of times to suspend trading in securities of companies making suspect or questionable disclosures about vaccines, protective devices, testing, mitigation and technology.
He said regulators are following a simple formula: "COVID + announcement + trading + price spike = SEC investigation."
Moderna Therapeutics, the drug company that has become a domestic leading contender in the race for a vaccine, has also attracted unwanted attention for its executive trading. The company's stock shares rose as much as 21% in April after the company announced a deal with the federal government that would pay as much as $483 million for the development of a vaccine.
Executive trading activity ahead of Moderna announcements about the promise of its vaccine candidate drew scrutiny, even as the company explained that its executives who had traded had followed SEC guidelines by filing documents laying out a schedule of stock sales in advance -- to avoid any potential suspicion that they were trading based on inside information.
Van Hollen, a member of the Senate Banking Committee, said that long before the pandemic, he harbored concerns that executives had found ways around the safeguards -- for instance, the risk someone could file a schedule of pre-arranged stock sales with the SEC, and then time market-moving public announcements to push up the stock price just ahead of a sale. Van Hollen has legislation pending that he says would add safeguards to make sure the advanced filings delivered the kind of protection that was always intended.
"The government is doing the right thing to develop a vaccine as soon as possible and the amount of money flowing into this is appropriate. These are important investments," Van Hollen said. "But whenever you see that kind of money flowing rapidly into something like a vaccine, it's important to prevent fraud."
On Monday, Moderna held an investor call in which it sought to emphasize the public service of its vaccine work, as opposed to the potential financial gain, but also noted that the firm had "received approximately $400 million of customer deposits for potential supply" of its vaccine.
"We have a responsibility to do everything we can to develop a safe and effective vaccine. We have invested in manufacturing at risk ahead of approval to ensure supply if our COVID-19 vaccine candidate is approved," said Moderna CEO Stephane Bancel. "We are working with governments around the world, and overseas to ensure the vaccine is accessible regardless of ability to pay. And it will be responsible on price, well below value during the pandemic."
In a statement to ABC News, Moderna explained that its executive stock sales are regulated by a program that "tends to execute either on the basis of an advance schedule of regular timed sales" as part of an effort to avoid insider trading.
Reports of a possible SEC probe involving Kodak surfaced Tuesday, one day after Sen. Elizabeth Warren, D-Mass., penned a letter to SEC Chairman Jay Clayton calling for an investigation into "potential incidents of insider trading prior to the July 28, 2020, public announcement" of the loan to Kodak.
"There were several instances of unusual trading activity prior to the announcement of this deal, raising questions about whether one or more individuals may have engaged in insider trading or in the unauthorized disclosure of material, nonpublic information regarding the forthcoming loan awarded under the Defense Production Act," Warren wrote.
"This is just the latest example of unusual trading activity involving a major Trump administration decision," she added.
Indeed, trading volume in Kodak stock rose sharply the day before the government announced its massive loan to the company. The investigation reportedly includes scrutiny of the pre-announcement stock activity, according to the Wall Street Journal.
The newspaper reported last week that Kodak's communications team mistakenly omitted an embargo on an advanced press release about the loan agreement to a local reporter, who then tweeted about the prospective deal. The external Kodak spokesperson told ABC News, "the company's internal communications team did not intend for the news to be published by the outlet in question."
Kevin Simpson, the founder of a Florida investment advisory firm, Capital Wealth Planning, LLC, said there is not a more important time for the SEC to be policing corporate executives than during this type of national crisis.
"Whenever there is a crisis, there is an opportunity for people to take advantage," Simpson said. "When you see these types of activities, it raises the question, are we really dealing with a fair and level playing field?"