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For Immediate Release
August 6, 2013

Response to a News Story on Medicare Advantage Probe

The Aug. 5, 2013, Wall Street Journal article “Insider Probe Caught in Knot/Investigation of Health-Policy Leak Is Muddled by Provision Protecting Congress” is inaccurate.  It also represents another example of the newspaper’s inordinate focus on Senate staff in its coverage of an insider trading probe, even though Senate staff would have been among the last to know of the government decision in question.  By contrast, hundreds of people in the Executive Branch knew about the decision weeks in advance.  Like the reporters’ previous reporting, the sourcing for the article is anonymous, vague, and lacks the context necessary for the reader to evaluate its credibility.  Rather than citing specifically to any Executive Branch sources, the piece relies solely on unnamed “people familiar with the matter.”
 
The article falsely states that a Justice Department interview with a staff member for Sen. Chuck Grassley “took place only after delays over the terms of the questioning.”  There were no delays and no negotiations over the scope of the questioning.  Sen. Grassley’s office voluntarily provided the Justice Department with access to internal emails by the Justice Department’s requested deadline, May 24.
 
The Aug. 1 voluntary interview with the Grassley staffer occurred on schedule, at the time agreed to weeks ago by the Justice Department and the Grassley staffer.  Sen. Grassley’s office was not involved in the scheduling decision.  His office was involved in responding to the Justice Department’s document request and has provided an extraordinary level of cooperation on this matter.  Any suggestion to the contrary is patently false and thus presumably did not come from the Justice Department attorneys actually responsible for the inquiry.  The Justice Department has not given Sen. Grassley’s office or Senate Legal Counsel any indication of dissatisfaction with the level of help provided by the Grassley office.  Any point of view about whether the Justice Department is satisfied with the level of cooperation by Senator Grassley’s office should be attributed directly to the Justice Department. Notably, however, the Justice Department is not quoted in the article, and there is no indication of whether the reporters sought Justice Department comment for the article.
 
The article gives outsized importance to the Speech or Debate privilege.  The Senate has neither invoked nor waived the Speech or Debate privilege.  Voluntary interviews are designed to facilitate cooperation and provide information informally.  Privilege issues need not be addressed in that context, which benefits both the Executive and Legislative Branches’ interests.  Senator Grassley’s staffer provided a voluntary interview in order to help the Justice Department as much as possible.
 
The Wall Street Journal’s preoccupation with staff members for Sens. Grassley and Hatch is illogical.  The staff members worked in the minority party in the Senate and the opposite party of the Administration.  If anyone on Capitol Hill is likely to receive advance word of a key administration decision, it is not staff for the minority party.
 
The Wall Street Journal and perhaps the newspaper’s unnamed sources ignore a key fact:  Hundreds of employees within the federal government had notification of the Medicare Advantage decision prior to April 1.
 
The Grassley office does not have HHS, OMB or White House emails, so this analysis is limited to what is available. According to a Grassley staff analysis of CMS emails, CMS and HHS employees received draft documents that appear to contain advance information about the rate announcement as follows:
 
• By Tuesday, March 12, 2013, 38 employees had received documents about the rate announcement.
• By Thursday, March 14, 2013, 46 employees had received documents about the rate announcement.
• By Friday March 15, 2013, 61 employees had received documents about the rate announcement.
• By Tuesday, March 19, 2013, 138 employees had received documents about the rate announcement.
• By Thursday, March 21, 2013, 162 employees had received documents about the rate announcement.
• By Friday, March 22, 2013, 252 employees had received documents about the rate announcement.
• By Tuesday, March 26, 2013, 320 employees had received documents about the rate announcement.
• By Wednesday, March 27, 2013, 449 employees had received documents about the rate announcement.
• By Thursday, March 28, 2013, 456 employees had received documents about the rate announcement.
 
Options in Medicare Advantage-related stocks reportedly spiked on the first trading day after CMS made its decision internally on March 15, as well as the day that the OMB received draft paperwork on March 22 — weeks before the trading activity on April 1 that prompted the initial scrutiny.
 
Are The Wall Street Journal and the newspaper’s unnamed sources interested in whether any executive branch employees might have leaked word of the April 1 decision in advance, having had notice of the decision?

 

The text of the article follows here.


Insider Probe Caught in Knot
Investigation of Health-Policy Leak Is Muddled by Provision Protecting Congress
By
•    JAMES V. GRIMALDI, BRODY MULLINS And DEVLIN BARRETT

 

WASHINGTON—Federal investigators interviewed a Senate staff member for four hours Thursday, part of a wide-ranging insider-trading probe into how a major change in U.S. health-care policy leaked to Wall Street traders before it was announced.


But Thursday's interview with Rodney Whitlock, a health-care aide to Sen. Charles Grassley (R., Iowa), took place only after delays over the terms of the questioning, according to people familiar with the matter. In addition, Mr. Whitlock didn't answer several questions from investigators that touched on a parallel investigation by Mr. Grassley's staff, according to a written statement from Mr. Grassley's office.

 

At issue is the constitutional privilege held by members of Congress and their staff to protect them from certain civil and criminal lawsuits. Attorneys for the Senate and the staffers have said formal interviews can proceed only without waiving the provision in question, known as the Speech or Debate Clause.

 

The Office of Senate Legal Counsel, which is in charge of safeguarding the privilege, also has been negotiating with the Justice Department over the terms of an interview with a former staff member, Stephanie Carlton, who used to work for Sen. Orrin Hatch (R., Utah), according to people familiar with the matter. It isn't clear if that interview has taken place.

 

The Federal Bureau of Investigation, Securities and Exchange Commission and the Department of Health and Human Services' Office of Inspector General are investigating whether anyone violated insider-trading laws by tipping investors to early word of an announcement April 1 from the Centers for Medicare and Medicaid Services.

 

The agency that day restored billions of dollars in funding cuts for private Medicare insurance plans known as Medicare Advantage.

 

The investigation began after The Wall Street Journal reported on a spike in health-insurance stocks just before the Medicare decision was announced.

 

Paul Lettow, a lawyer for Ms. Carlton, directed questions to the Office of Senate Legal Counsel, which declined to comment on the Carlton matter. The Senate Legal Counsel confirmed Mr. Whitlock had been interviewed voluntarily by investigators.

 

A spokeswoman for Messrs. Grassley and Whitlock, Jill Gerber, said Mr. Whitlock agreed to the voluntary interview. "As we've emphasized before, none of this means anyone is accusing Rodney of having done anything wrong," she said. Ms. Gerber said Mr. Whitlock didn't know about the health-care decision before it was announced.

 

Speech or Debate Clause issues have thrown an unexpected wrinkle into one of the biggest recent insider-trading cases in Washington. The speech-or-debate privilege doesn't exempt crimes, such as bribery, committed while engaging in legislative acts, but it could pose significant legal hurdles the Justice Department must overcome before it obtains evidence and testimony from Congress.

 

If the testimony is needed in court proceedings, the full Senate might have to vote to give approval. The protections extend to former lawmakers and aides when it involves activity that occurred during their time in Congress.

 

The founders wrote the clause to protect the independence and integrity of Congress and insulate it from intimidation by the executive branch or judiciary.

 

Investigators have zeroed in on Mark Hayes, a Grassley staffer turned lobbyist, the Journal has previously reported. Mr. Hayes passed news of the health-care announcement to a Washington consulting firm, which in turn passed it to traders just before the markets closed.

 

Seeking to trace the trail of information, investigators initially focused on the health-care agency, but then turned toward a possible leak from Congress, according to people familiar with the matter.

 

Administration officials briefed Congress on the decision after markets closed. Investigators want to know if anyone on Capitol Hill was given an informal heads-up before the announcement.

 

At the time, both Mr. Whitlock and Ms. Carlton worked for the Senate Finance Committee, which oversees Medicare. Messrs. Hatch and Grassley are the senior Republicans on the committee.

 

Ms. Carlton left Mr. Hatch's staff in April, shortly after the Medicare decision, to work for consulting firm McKinsey & Co. Mr. Hayes, the lobbyist at the center of the investigation, previously was Mr. Whitlock's boss at the committee.

 

Earlier this year, Mr. Hayes told Mr. Grassley's investigators he pieced together the information on his own and that no one had tipped him off. His lawyers didn't return calls seeking comment.  Investigators for Mr. Grassley also have interviewed Mr. Hayes. Federal investigators are eager to know what Mr. Hayes told the Senate investigators, but several specific questions about Mr. Grassley's investigation were off limits during the interview with Mr. Whitlock.

 

Write to Brody Mullins at brody.mullins@wsj.com and Devlin Barrett at devlin.barrett@wsj.com