Report: SEC issues subpoenas in political intelligence probe

The Securities and Exchange Commission has issued subpoenas as it investigates a tip about government action that coincided with a surge in healthcare stocks.

The Washington Post reported Thursday that the SEC has issued subpoenas in relation to an alert the stock brokerage firm Height Securities sent to clients in April. The tip reportedly said the Obama administration was close to scrapping proposed cuts to the Medicare Advantage program.

The tip led to a spike in the value of health insurance stocks just before the stock markets closed. Less than an hour later, the Centers for Medicare and Medicaid Services confirmed the cuts would be scrapped.

According to The Post, the SEC has subpoenaed an analyst with Height Securities, as well as Mark Hayes, a healthcare lobbyist who also worked with Height. Greenberg Traurig, the law firm that employs Hayes, also was subpoenaed.

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Hayes voluntarily submitted to four hours of questioning by SEC investigators, and Justice Department officials were also present, according to The Post.

The probe could lead to precedent-setting federal action against the shadowy "political intelligence" industry, where lobbyists and former congressional staffers trade valuable information about Washington and Congress to traders on Wall Street.

From 2002 to 2010, Hayes worked for the Senate Finance Committee as a top aide on healthcare to Sen. Chuck Grassley (R-Iowa). Grassley, a vocal critic of the political intelligence industry, has said he is conducting his own investigation into the tip.

While the industry has come under scrutiny, determining how to ensure political intelligence firms are not enabling insider trading is a difficult matter. A Government Accountability Office (GAO) report released in April found that increased disclosure by political intelligence firms could help matters, but it remains "extremely difficult" to get a handle on the industry as a whole.

The GAO said it is difficult, if not impossible, to pinpoint whether a piece of political intelligence is driving trading activity, noting that clients typically use that information in conjunction with a host of other sources, as well as their own intuition, to make financial moves.

Furthermore, if a piece of political intelligence was determined to be the driving force behind a trade, it would also have to be proven to be nonpublic and material at the time of release for it to be barred by insider trading laws, the GAO said.

Political intelligence entered the spotlight as Congress considered the Stop Trading on Congressional Knowledge (STOCK) Act in 2012. The law explicitly banned insider trading by members of Congress, but also mandated the GAO study on political intelligence.

Grassley had pushed to include a provision in the STOCK Act that would require the intelligence firms to register like lobbyists, but that was scrapped when the legislation made its way to the House.