Mr. President, with the passage of the STOCK Act last year, Congress made an important statement:
When it comes to insider trading laws, there is no special exemption for Congress.
If anyone in government provides confidential information to someone for the purpose of trading on it, that’s insider trading.
It is illegal if the information is both material and non-public.
“Material” means a reasonable investor would want to know it before investing.
“Non-public” means the information has not been released to the general public.
To violate the law, the person making the disclosure must have a duty to keep the information secret.
Frankly, there is very little information here in Congress that must be kept secret—and that’s a good thing.
Unlike the executive branch, most of what Congress does is public immediately.
But, disclosing material non-public information can be a crime.
Even if it is not done intentionally, people might be investigated before getting a chance to clear their names.
And there is a big difference between material non-public information and an expert’s educated guess about what a government agency might do.
We now know that Wall Street has been harvesting expertise and tidbits of information from Washington, D.C., for years while keeping us largely in the dark.
In fact, the political intelligence industry is so big and so opaque that the GAO was unable to quantify it or judge its size, despite a year of investigating.
Political intelligence firms extract pieces of information from the government and use that intelligence to make money on Wall Street.
Each detail may not be material or non-public on its own, but the purpose of collecting and analyzing those details is to get an edge in the markets over other investors.
That is not illegal, and I have never suggested that it should be.
People should not be discouraged from sharing information and opinions about how our government operates.
We should be more transparent, not less.
The less open and transparent government is, the more opportunities there are to exploit government information for profit in the markets.
I have been investigating the role of political intelligence firms in the early release of information about Medicare Advantage rates prior to the public announcement on April 1.
There has been some confusion over the scope of my inquiry, so I want to be clear.
There are reports that the Securities and Exchange Commission is investigating whether material non-public information was released about the Medicare Advantage rates.
My interest is much broader than that.
Political intelligence is not the same thing as material non-public information.
Gathering political intelligence includes a lot of activity that falls short of material non-public information.
So, just because I am asking questions about how certain information or expert opinions flowed to these political intelligence firms, does not mean I am accusing anyone of any wrongdoing.
I am not seeking to ban the gathering of political intelligence.
I am not suggesting that if someone was the source for some piece of political intelligence, that the source did anything illegal.
But, the goal of these firms is to get an edge on other investors, and that should be understood by everyone who communicates with them.
This investigation has shed a great deal of light on the political intelligence industry.
I hope to use this information to improve the legislation on political intelligence disclosure that I plan to re-introduce with Representative Slaughter.
I am trying to learn how these political intelligence firms function by using this real-world example, so that I can write better legislation on disclosure.
To be clear, I am not focused on examining whether particular congressional staff acted properly with regard to their professional duties.
Any reports to the contrary are simply inaccurate.
What I think we need is more transparency.
Government officials need to know what happens with the information they provide to outside parties.
I want to arm government officials with knowledge about who they are talking to.
My inquiry started with Height Securities, the firm that put out an alert 18 minutes before the markets closed on April 1.
That alert caused a huge spike in the health insurance stocks that stood to gain from the rate announcement.
I initially learned that an email on April 1 from a health care lobbyist to the analyst at Height Securities looked like the basis for the flash alert that moved the markets.
In the interest of full disclosure, it has been reported in the press that the lobbyist was formerly on my staff.
But, I continued to press for more information.
I learned that Height paid for his expertise on healthcare, although his entire billing amounted to only 1.75 hours of work before sending the email on April 1.
I learned that the Height analyst had also communicated with two other health care policy experts before putting out his alert to the market.
Then, I learned that the Centers for Medicare and Medicaid Services (CMS) had already made its decision to reverse the rate cuts much earlier, two weeks before the Height Securities alert.
The press has reported that there were major spikes in options trading on March 18 and March 22.
Options trading is one way folks on Wall Street make big bets on a stock when they think they have a sure thing.
March 18 happens to be the first trading day after CMS made its decision internally.
March 22 happens to be the day that CMS transmitted its draft decision to the White House—more than a week before the public announcement.
On that date, the circle of people in the administration who would have known about the CMS decision expanded significantly.
This suggests that political intelligence firms may have obtained key information for their clients in mid-March, not just the day of the announcement on April 1.
The press also reported on the possible involvement of another political intelligence firm, Capitol Street.
Capitol Street arranges conference calls between investors and governments experts.
In addition, I have asked two major hedge funds mentioned in the press whether they profited from trades in advance of the rate announcement.
So the scope of my inquiry is broad.
It is not focused on particular people.
It is focused on the facts.
The Securities and Exchange Commission is also investigating.
It is their job to determine whether any material non-public information was passed to Height or to anyone else in this case.
That is not my job.
I am working on legislation to make the political intelligence industry more transparent.
I am gathering facts to inform that legislation.
Remember, political intelligence does not necessarily involve material non-public information.
But, people in government need to know who they are talking to and what they will do with your information.
That is why it is so important to ensure that political intelligence relationships are transparent.
Even if the information you provide is merely an educated guess, it can still move markets.
It can still create an impression that a fortunate few are making money from special access to insiders.
If political intelligence transparency is passed, government officials would be more fully informed when they provide expertise to these firms about how the information might be used.
But as things stand, without transparency, you do not necessarily know what firms like Height Securities or Capitol Street do with the information you provide to them.
You don’t know if they have a contract with a lobbyist who is bringing in some other client for a meeting.
You don’t know that your discussion with that lobbyist’s client might be repeated to people who are looking for an edge in the stock market.
What you think may be an innocent detail or an educated guess may move markets.
At the end of the day, that is what these firms want to exploit.
That is what they are after.
That is what they sell.
They should be honest and upfront with people about how they make money.
Lobbying disclosure isn’t perfect, but it has brought more transparency to the process.
Now, we need political intelligence disclosure too, for the same reasons.
Transparency increases the public’s ability to trust that we are working for them, not for just for special interests.
That principle should apply just as much to special interests on Wall Street as it does to special interests on K Street.
