By The Hill Staff - 04/04/06 12:00 AM EDT
Among the new disclosure requirements that lawmakers are considering imposing on K Street is one to record, for the first time, the political-intelligence work firms do to supplement lobbying revenues.
Political intelligence refers to advice and tips lobbyists provide Wall Street clients about market-moving legislation.
To Democratic Reps. Louise Slaughter (N.Y.) and Brian Baird (Wash.), the practice smacks of a legal version of insider trading, whereby lawmakers and their staffs, and by extension lobbyists, are able to trade on their access to information in order to turn a profit.
Through relationships “built and nurtured by political favors,” Baird said, lobbyists are able to tip off clients about the prospects for an asbestos bill, for example — or use the information themselves.
“Billions of dollars are at stake” in the legislation Congress considers, he said.
House ethics rules prevent members of Congress from profiting from confidential information their jobs give them access to, but Baird said the bill is needed to criminalize the behavior.
Insider-trading laws have been used to investigate government officials and others outside the confines of the corporate world in the past. A Treasury Department official, for instance, would be prohibited from trading on nonpublic information about shifts in bond prices.
This week, Baird and Slaughter are searching for co-sponsors. Jennifer Crider, a spokeswoman for House Minority Leader Nancy Pelosi (D-Calif.), said caucus members are still studying the bill.
In addition to criminalizing the use of nonpublic information for financial gain, the bill also would impose a new disclosure element, which, considering the tenor of other lobbying-reform packages that focus on transparency issues, may be the component of the bill that has the best shot at passing.
One lobbyist involved in political-intelligence work said additional disclosures would be unlikely to hurt business, even though firms are quiet about the political-intelligence work that they do. They don’t usually voluntarily disclose their political-intelligence revenue or client lists.
“If every hedge fund that engages a political-intelligence firm needs to disclose equally, I don’t think it would affect us,” the lobbyist said.
Baird said he believes a disclosure-only measure wouldn’t go far enough, however.
With no disclosure rules, it is hard to get a handle on how widely lobbying firms do political-intelligence work because so far only a relatively small number of firms have publicly acknowledged doing it. Hedge funds, which hold on to stocks for shorter periods of time than, say, mutual funds, are thought to be the main benefactors.
Lobbyists say they more often provide their Wall Street clients with information about how Washington works, rather than hot tips that could move stocks.
It also isn’t clear how widespread use by lawmakers or congressional staff members is of information they are privy to for stock trades. A 2004 study released in the Journal of Financial and Quantitative Analysis found that U.S. senators are remarkably adept at playing the market.
Study authors found that stocks that were picked by senators between 1993 to 1998 beat market averages by 12 percentage points. Corporate insiders beat the market by six points.
Lawmakers and staff are required to disclose their financial holdings, including stock transactions, each year. The Baird-Slaughter bill would require disclosure within 30 days or the purchase or sale.