Rep. Brian Baird, a Washington state Democrat, wants to end an inside-the-Beltway version of insider trading as part of his party’s larger lobbying-reform effort.
But to do so, he may have to craft a legislative remedy to this town’s tendency to talk, an effort Baird admits will be difficult and lobbyists say is an overreach.
The conversations in question are secret tips lobbyists get from their contacts on Capitol Hill and pass along to hedge-fund clients, who in turn may use the information to buy or sell a stock. The tips could include, for example, nonpublic information about when a bill is going to be introduced or a key member’s opinion on a particular policy.
Several K Street firms supplement their lobbying incomes through this type of “political intelligence” work, serving as pipelines to hedge funds in particular because they often trade stocks more frequently than other businesses, such as mutual funds.
The problem, Baird says, is the trading on information that is not yet public and therefore not readily available to other investors who can’t afford to hire lobbyists.
“Clearly, the selling or buying of stock based on this type of ‘political intelligence’ has the potential to profit some private parties at the expense of others who may not have access to the same information,” Baird wrote to the House ethics committee in November after learning of the activity in a report published in The Hill.
Staffers and lawmakers are prevented from releasing classified information. Congressional rules prohibit members or staff from using confidential information available to them as a consequence of their positions to make money. Beyond those, though, there are few formal institutional limitations on what Capitol Hill employees can discuss with outsiders.
It’s tricky to deal with political intelligence, Baird acknowledged, because lawmakers and their staffs need to talk with lobbyists about prospective bills to ensure any measure doesn’t have unintended consequences.
Defining what is and isn’t public information is another complication, Baird said.
“It turns out that it’s not easy,” Baird says of his efforts to draft a bill.
But Baird says he’s determined to shine some light on the practice, which has increased along with the growth of hedge funds in the past decade, because the potential to make big money from the release of the information could have a corrupting influence on the process.
One possible solution Baird suggested was that lobbyists would promise not to pass along information gleaned from Capitol Hill contacts to their hedge funds for investment purposes.
“I think there are ways you can do this,” he said.
At a minimum, Baird said, he would press for “clear-cut, full disclosure” of lobbyists’ relationships with hedge funds. Lobbyists currently can keep their relationships with hedge funds private. Disclosure rules don’t apply because the firms aren’t attempting to influence Congress.
Baird said he expected his bill to be part of the broader reform package Democrats offer this year.
But even supporters of broad lobbying reforms said it might be difficult to try to stem the flow of information from Capitol Hill.
“The Hill is so gossip-driven. Information flows all over the place,” said Joan Claybrook, president of Public Citizen, a watchdog group. “It would be hard to define what is unique information.”
That said, Claybrook supports an effort to require lobbyists and other political-intelligence practitioners to disclose their clients.
Lobbyists who do political-intelligence work but asked not to be identified because they didn’t want to challenge a reform effort publicly in light of the scandals, said their business is not dependent on the hot tips Baird seems to be after.
Some firms do only political-intelligence work; others use it to supplement their lobbying practices.
Because companies don’t have to disclose these revenues, it’s unclear how big the business is.
One source said that while his firm provides the occasional heads-up about a bill to be introduced or an amendment offered during floor debate, the bulk of its work is more macroeconomic, such as providing advice on which companies may benefit from an energy bill or a particular version of asbestos-litigation reform.
The source equated his practice with a “high-cost media subscription service” because the tips the firm does pass on could be the same type of not-yet-public information that press outlets provide readers. It would be unfair to prevent his firm from profiting from its contacts on Capitol Hill while also allowing reporters to mine their contacts, the source said.
Another lobbyist who advises Wall Street also said his investor clients are rarely looking for a hot tip. More often, clients look for an analysis of a bill or just basic information about how Washington works.
“You can’t believe the dumb questions that I get paid to answer,” the source said.