Wall Street tipsters brace for exposé on their industry, scrutiny from Capitol Hill

Participants in the secretive political intelligence trade are bracing for the release of a new report that could bring unwanted attention from Capitol Hill.  

Legislation approved by Congress last year to prevent insider trading by lawmakers and staffers also authorized a government study on the growing market for political intelligence at hedge funds and financial firms. 

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That report — which is due by April 4 — has struck fear into the lobbyists and operatives who have turned the inside scoop on bills and regulations into a multimillion-dollar industry.

“I know that the industry is afraid that the report is going to lead to some sort of legislation or regulation for the political intelligence industry. ... They are afraid of the outcome,” said Michael Mayhew, chairman of Integrity Research Associates, which looks at research and stock analysis firms for the financial sector.

Sen. Chuck Grassley (R-Iowa) is among those eager for the results of the investigation. An aide said the senator is likely to reintroduce legislation that would require disclosure by political intelligence consultants once the report is released.

“Sen. Grassley will keep tabs on [the report on the political intelligence industry] as best he can. His staff also will be talking with Rep. [Louise] Slaughter’s office about re-introducing their bill, most likely after the report comes out in case the bill language needs to be refined to reflect the report,” the Grassley aide said.

Slaughter (D-N.Y.) and Rep. Tim Walz (D-Minn.), who both championed the Stop Trading on Congressional Knowledge (STOCK) Act with Grassley, plan to introduce legislation in the near future that would shed light on the political intelligence industry, aides said.

“If you’re paid to take information from Congress and sell that information to Wall Street, you should be registered with the House and Senate like every other lobbyist for the American public to see,” Slaughter said in a statement to The Hill.

Grassley, Slaughter and Walz all pushed for a provision in the STOCK Act that would have required political intelligence consultants to register under the Lobbying Disclosure Act (LDA). Grassley added it as an amendment to the Senate version of bill, but it was later jettisoned by the House.

In place of registration, lawmakers ordered the Government Accountability Office (GAO) to submit a report to Congress on the role of political intelligence’s in the financial markets within one year.

“We’re expecting to meet the deadline and release it April 4,” said Chuck Young, a GAO spokesman. 

The report will be sent to the Senate Homeland Security and Governmental Affairs Committee, the House Judiciary Committee and the House Oversight and Government Reform Committee. Aides to those panels said they would review the report once they receive it, which could lead to future action on Capitol Hill. 

Trade groups for Wall Street are well aware that the study is coming. 

“We are looking forward to reviewing the report upon its release,” said Steve Hinkson, communications director for the Managed Funds Association.

“[The Securities Industry and Financial Markets Association (SIFMA)] looks 

forward to reading the GAO report on political intelligence and will review the report’s conclusions and recommendations,” said Andrew DeSouza, a spokesman for the trade group.

The Managed Funds Association and SIFMA, along with other financial groups and companies, reported lobbying on the STOCK Act. After Grassley’s amendment was added to the bill in a 60-39 floor vote, SIFMA held a weekend conference call with its member companies to discuss the bill. 

The proposal to require political intelligence consultants to register as lobbyists has raised concerns in the industry. Many fear that increased oversight from Washington will limit the information investors receive from the firms.

“They just want to understand what the heck is going on. The more government has gotten involved in the economy, the investors want to learn more about Washington,” said one political intelligence consultant. “This could put the stop on the flow of information.”

That “flow of information” is hugely profitable for many in Washington. In a briefing given to congressional aides in February 2012, Mayhew estimated that the global market for policy research and political intelligence was approximately $402 million in 2009.

Above all, political intelligence firms fear lawmakers will approve legislation that would force them to disclose their clients.

“What people are most concerned about is not disclosing their firm as a political intelligence firm, but they are worried about disclosing their clients,” said Mayhew, who was interviewed by GAO for the forthcoming report. “Their customers are extremely secretive and they are worried once they disclose their clients, their clients will go elsewhere.”  

Watchdog groups hope the GAO study will goad Congress into action.

Craig Holman, a government affairs lobbyist with the watchdog Public Citizen, said he is already talking to lawmakers about reintroducing political intelligence legislation. The report should help lawmakers better understand the industry, but Holman believes Wall Street will lobby against a new bill. 

“Once the GAO report is issued, Congress and the public will then understand the scope and nature of the political intelligence industry, so the first obstacle will be removed. Then it remains to be seen if we can overcome the second obstacle — a battle that I am looking forward to,” Holman said.

Others hope the report will correct misperceptions about the industry and help lawmakers understand that a broad definition of political intelligence could have unintended consequences.

“This comes down to a definitional issue: what do you include and not include within political intelligence,” Mayhew said. “Is it a very narrow definition that includes purely lobbyists, or does it go much broader to firms that deal in political intelligence? That could be boutique policy research firms, broker-dealers and media organizations that report to hedge and mutual funds.”