Earlier this week, a news story regarding a federal investigation into whether insider trading occurred around a major government decision involving Medicare Advantage relied on a single anonymous source to create an unfair and misleading impression about an aide to Senator Grassley.
The story leads with the claims that the Federal Bureau of Investigation has “shifted the focus” of its inquiry to Congress and is “seeking information to determine whether one of Senator Charles Grassley’s aides may have been involved in sharing information” about the decision “with Wall Street.” This statement is attributed to an unnamed “person familiar with the matter.” However, the article fails to inform the reader whether the person is a government official or provide any other context to evaluate whether the source is authoritative and well-informed. Someone in law enforcement could have been a source for the article, but since the sourcing information is so limited, the credibility of the claims is impossible for the reader to determine.
In fact, the anonymous claim that the FBI has shifted its focus to Congress is inconsistent with communications about the matter between Justice Department and Senate lawyers regarding a related document request. Contrary to the impression left in the opening paragraph of the story, the Justice Department explicitly has indicated that the Grassley aide is not a target of the investigation.
As the article notes several paragraphs down, quoting a Grassley spokeswoman, the Grassley aide could not possibly have passed along any information about the government’s Medicare Advantage decision ahead of public release because he had no advance notice of the decision. The story notes that federal investigators “want to know about communications (the aide) may have had with people and entities who had a role in passing along word of the government decision to investors.” That statement is true.
On May 9, Senator Grassley received a Justice Department letter requesting communications between his health care aide and 28 individuals and five entities on Medicare Advantage over a certain time period. Senator Grassley cooperated with the Justice Department’s voluntary request in the interest of assisting the Justice Department’s investigation into insider trading. A request for documents is not an indication of suspected wrongdoing.
The article gives outsized importance and lacks context regarding a communication between the Grassley aide and a lobbyist on a nomination hearing for the head of the Centers for Medicare and Medicaid Services. The article said the proposed hearing date was not “public.” Contrary to the impression left by the article, the tentative hearing date was neither market sensitive nor secret. The date was distributed to all the Senate Finance Committee member offices -- roughly one-quarter of the Senate. The Grassley aide works for a committee member, not a committee leader. He’s not on the committee leadership staff that made the scheduling decision. More importantly, he had no reason to believe the tentative hearing date had any connection to the Medicare Advantage rate decision.
The story gave an outsized, unfair focus on an aide who did not have advance notice of the Medicare Advantage decision, in contrast to at least 436 individuals at CMS who did. That number is expected to grow. Moreover, 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 Office of Management and Budget received draft paperwork on March 22 — weeks before the trading activity on April 1 that prompted the initial scrutiny.
The Grassley office worked to convey our point of view to the reporters on a short turnaround. The article includes some of our points as a result but the first paragraph is misleading, thinly sourced, and damaging to the reputation of an individual who did nothing wrong and is not accused of having done anything wrong by federal law enforcement or anyone else.
The text of the article follows.
Insider Probe Hits Congress
FBI Is Looking Into How Investors Learned of Move to Boost Insurers' Funding
By BRODY MULLINS JAMES V. GRIMALDI and DEVLIN BARRETT
WASHINGTON—The Federal Bureau of Investigation has shifted the focus of a broadening insider-trading investigation to Congress, seeking information to determine whether one of Senator Charles Grassley's aides may have been involved in sharing information about an important government decision with Wall Street this spring, said a person familiar with the matter.
It is rare for federal law-enforcement officials to involve congressional aides in investigations, mainly because the Constitution extends legal protection to legislative-branch employees for their official duties. Making matters more unusual, the Iowa senator is the top Republican on the Senate Judiciary Committee, which oversees the Justice Department.
In addition to the FBI probe, the Justice Department last month sent Mr. Grassley's office a letter seeking information on the same Grassley health-care aide, Rodney Whitlock, said a person familiar with the matter.
Mr. Grassley agreed to cooperate and has shared the information with the Justice Department, his spokeswoman said.
The Justice Department and FBI want to know about communications Mr. Whitlock may have had with people and entities who had a role in passing along word of the government decision to investors, said people familiar with the matter.
One of the individuals is Mark Hayes, a former Grassley aide and now a lobbyist, said people familiar with the matter. Mr. Whitlock worked for Mr. Hayes for several years when Mr. Hayes was Mr. Grassley's top health-care aide.
At issue is whether anyone violated insider-trading laws by improperly tipping off investors of a coming announcement by the Centers for Medicare and Medicaid Services to restore cuts in funding for private health insurance plans.
"Rodney could not possibly have conveyed to Mark Hayes or anyone else what CMS was planning to do on Medicare Advantage because he didn't know," Mr. Grassley's spokeswoman said, speaking on behalf of Mr. Whitlock and referring to the decision in question by the CMS.
She added that the Justice Department has told Senate lawyers that Mr. Whitlock is not a target of their investigation.
Legal specialists said the investigation appears to be one of the first involving the burgeoning political-intelligence industry. "This is all fairly uncharted territory in this context," said John C. Coffee, a securities-law specialist at Columbia University in New York.
Criminal investigations involving Congress can be tricky. Federal subpoenas often are resisted by Congress, citing the Constitution's speech-and-debate clause, which aims to prevent executive-branch abuses such as thwarting legislative acts or jailing political opponents.
Mr. Coffee said the Justice Department might have sent a letter of request rather than a subpoena because the case hasn't advanced to a grand jury, or because investigators don't want to ruffle a powerful senator.
The Wall Street Journal reported last month that current and former Grassley aides had spoken a few times before the April 1 decision. Mr. Grassley had signed a letter to CMS urging the policy change.
Mr. Whitlock told Mr. Hayes that the Senate was planning a nomination hearing to make permanent the interim head of CMS, said Mr. Grassley's spokeswoman at the time. That information, which wasn't public, suggested key senators were pleased with CMS decisions, said people who follow the matter.
According to the Journal's stories, Mr. Hayes worked both as a lobbyist and political-intelligence adviser when he received an email April 1 from an analyst for Height Securities, a Washington-based investment-research firm that was a client of Mr. Hayes.
Mr. Hayes responded that a deal had been reached for CMS to restore funding for private insurers offering Medicare Advantage plans, according to email seen by the Journal. At 3:42 p.m., Height sent an alert to investors predicting the move. Shares in the largest health insurance firms jumped. In the final 17 minutes of trading, Humana Inc. shares rose 8.6% and UnitedHealth Group Inc.'s rose 3.1%. CMS announced its decision after the markets closed.
Lawyers for Mr. Hayes haven't responded to requests for comment. Height declined to comment.
Mr. Grassley, who is conducting his own investigation, asked CMS for the names of people involved with the decision. CMS produced information showing that more than 400 individuals at CMS knew ahead of time.
The Grassley spokeswoman said that hundreds of CMS employees "had advanced notice of the Medicare Advantage decision. Rodney did not."
—Tom McGinty
contributed to this article.
Write to Brody Mullins at
brody.mullins@wsj.com and Devlin Barrett at
devlin.barrett@wsj.com
A version of this article appeared June 11, 2013, on page A6 in the U.S. edition of The Wall Street Journal, with the headline: Insider Probe Hits Congress.
