By Kevin Bogardus - 05/08/13 09:00 AM EDT
K Street is worried that renewed scrutiny of political intelligence services could lead Congress to rush through legislation hampering the growing practice.
Lobbyists and political operatives are concerned that lawmakers will attempt to use a sudden surge in healthcare stocks — allegedly traced to a K Street tipster — to criminalize a portion of their work.
“As we tend to do here in Washington, we overreact to these things. We have to be careful here,” said Gregg Hartley, vice chairman and chief operating officer of Cassidy & Associates.
“1,200 other people can call that same staffer and get that same information. Is that private information? Is that public information? I believe that’s public information. A lot of this has to do with how critics are trying to define it,” Hartley said.
Information trading has long been the lifeblood of the lobbying business, but the practice has been called into question amid the rise of the so-called political intelligence industry.
Observers use that term to describe a secretive network of tipsters who shop information about Congress and the administration to hedge funds and other financial firms. Information about pending bills and regulations can move markets, and the appetite for it appears to be growing.
Congress explored new disclosure rules for political intelligence last year, but opted instead to order a federal study of the industry.
But the issue is back in the public eye following reports that the Securities and Exchange Commission (SEC) is investigating an alert from a Washington brokerage firm that preceded a major rally in insurance stocks.
Sen. Chuck Grassley (R-Iowa), who is conducting a separate investigation into the tip, plans to reintroduce legislation with Rep. Louise Slaughter (D-N.Y.) that would require political intelligence consultants to register as lobbyists and disclose their clients.
Slaughter told The Hill that the legislation might be strengthened to include a “revolving door” component that would require political intelligence consultants to disclose prior government jobs. Her office has been in talks with SEC lawyers about how to draft the bill.
“I find it almost phenomenal when we are trying to get political intelligence back in the bill, we have the most perfect case,” Slaughter said. “We are looking at the bill that maybe we need to change it and make it a little stronger.”
Wall Street resisted Grassley and Slaughter’s proposal last year, and a lobbying backlash is likely if the revamped version of the bill gains steam in Congress.
“People were chafing at the prospect of the bureaucratic filing, the workability of it,” said one lobbyist who dabbles in political intelligence.
The lobbyist said there is “heightened awareness” in the industry about the possibility of new legislation.
“I think there is a fascination with the events as they unfold with the investigation still to come. ... Congress will react to the headline and put out some proposals in reaction to that headline. That’s what will drive the anxiety and concern in the industry.”
The fears are being fueled by the federal investigation into Height Securities and other firms. The brokerage firm sent out an alert in April that said the Obama administration was planning to back down from proposed cuts to Medicare Advantage. Health insurance stocks shot up, and soon after, the Centers for Medicare and Medicaid Services announced the cuts would be scrapped.
A lobbyist at Greenberg Traurig — a major K Street firm — allegedly tipped off an analyst at Height Securities about the Medicare decision.
The case has caught the attention of Grassley and the SEC — using potentially non-public information to make trades is against insider trading laws.
Adam Goldberg, a spokesman for Height Securities, said the firm issued the client alert to hundreds of firms based off research from several sources in full accordance with the law.
“Height is a licensed, highly-regulated securities firm, not a political intelligence consultant,” Goldberg said. “Recent news reports evidence that many others were also following this issue closely and sharing their thoughts well before April 1. Height is cooperating with the SEC and Sen. Grassley.”
In a statement, Greenberg Traurig said it “found no information that any of our shareholders had access to any material confidential government information.”
The firm will not represent political intelligence firms in the future and “will continue to cooperate with government inquiries related to Height’s alert, subject to our ethical obligations.”
One Washington consultant described the mood in the political intelligence realm as nervous. The consultant said a Washington Post story last week that revealed the SEC has issued subpoenas to the Height Securities analyst and Greenberg Traurig has been making the rounds over email.
“It’s a little dicey out there,” said the consultant. “Things look a little bit hot right now for firms in this industry, and it’s recommended that they are covering their bases and sixes.”
Slaughter believes the episode will give new momentum to her political intelligence legislation.
“The important thing for me is now people understand what political intelligence is because of this case,” she said. “We are hopeful that we can get some quick action on it.”
Grassley plans to use the information gleaned from his investigation into the Medicare tip to revise the bill.
“His goal is to refine the legislation as needed to reflect any conclusions drawn from the Medicare Advantage inquiry,” said Jill Gerber, a Grassley spokeswoman.
Several lobby shops declined to comment when asked by The Hill about practicing political intelligence. Many firms advertise that they work in the field.
The Cassidy website says the firm provides “political intelligence that goes far beyond the headlines ... because many decisions are made and deals struck behind the scenes before the debate even enters the public domain.”
Hartley said the firm doesn’t have any political intelligence clients at the moment, but does have policies in place to protect against insider trading, along with annual ethics training for all of its employees.
“If it’s spoken in a public place or in a committee room, it’s public information. If a [legislative assistant] is telling everyone who calls, it’s public information,” Hartley said. “The fact that it has grown into a healthy subsector all on its own has probably invited scrutiny. Also, people don’t understand it.”
One Washington lawyer who worked in political intelligence said the business is changing, making it more dangerous. Clients are increasingly seeking tips that they can trade on in real time, rather than long-term strategic advice.
“I never felt comfortable being asked for tradable information,” said the lawyer.
“The pull is where [clients] are asking for some secret handshake, some backroom meeting, some decision that is not announced yet that would move markets. I don’t know how to do that. I don’t even know how to think like that.”