As the industry keeps changing, it's important to know a company's "pedigree."
WASHINGTON, June 19 -- Rep. Louise M. Slaughter, D-N.Y. (25th CD), issued the following news release:
Today, Congresswoman Louise M. Slaughter (D-NY), author of the STOCK Act, responded to the issuing of a subpoena for records and evidence by the Securities and Exchange Commission and a subpoena to testify before a grand jury by the Department of Justice in a growing political intelligence scandal where congressional staffers are accused of tipping off Wall Street traders on a change in health care policy, a move that sent health stocks soaring last year. Read the full story after the jump.
"Today's news demonstrates why it is so essential to shine a light on the political intelligence industry, which generates more than $400 million each year through gleaning information from the halls of government and selling it to Wall Street to inform investment decisions," Rep. Slaughter said. "When I authored the STOCK Act to include a provision requiring disclosure of political intelligence activities, it enjoyed widespread bipartisan support, including 188 Democrats and 99 Republicans. I look forward to enjoying similar support when I reintroduce legislation later in this term."
When Representative Slaughter first wrote the STOCK Act, she included a requirement for disclosure and oversight of political intelligence professionals under the Lobbying Disclosure Act. The provision was stripped from the bill by outgoing Majority Leader Eric Cantor before the final legislation was passed out of the House of Representatives in 2012. Numerous reports pointed to Cantor's gutting of the provision as a factor in his primary defeat last week.
Representative Slaughter plans on re-introducing a bill to require disclosure of political intelligence activities during the 113th Congress.
Wall Street Journal: House Panel Is Subpoenaed as Trading Probe Heats Up
Prosecutors Gathering Evidence for Grand Jury in Centers for Medicare and Medicaid Services Leak Case
By BRODY MULLINS and ANDREW ACKERMAN
Updated June 18, 20147:38 p.m. ET
WASHINGTON--Prosecutors are gathering evidence for a grand-jury probe into whether congressional staff helped tip Wall Street traders to a change in health-care policy, an indication the long-running investigation has entered a more serious phase.
Public documents show federal law-enforcement officials and the Securities and Exchange Commission are seeking records and other evidence from the House Ways and Means Committee and a top congressional health-care aide, Brian Sutter, staff director of the committee's health-care subpanel.
The SEC sent subpoenas to the House committee and Mr. Sutter seeking documents and testimony in the matter, according to documents made public by Rep. David Camp (R., Mich.), who is the committee chairman, and Mr. Sutter.
Separately, the Justice Department issued a subpoena to Mr. Sutter to compel him to testify before a federal grand jury at the U.S. District Court for the Southern District of New York, according to Mr. Sutter's public disclosure, which was included in the congressional record per House rules. Committee officials wouldn't say whether Mr. Sutter has testified. A spokesman for the Ways and Means Committee, speaking for Mr. Sutter, declined to comment.
The subpoenas are related to criminal and civil investigations examining whether anyone in the government illegally passed along nonpublic information about the health policy that ended up in the hands of traders, according to people briefed on the matter. The probe was sparked by a 2013 Wall Street Journal report that detailed how health-insurance stocks jumped moments before the government announced news favorable to those companies relating to Medicare payments.
The stock surge was prompted by an email sent by a Washington-based policy-research firm that predicted the change for its Wall Street clients. That alert, in turn, was based in part on information provided to the firm by a former congressional health-care aide turned lobbyist, according to emails reviewed by the Journal.
The activity surrounding the federal grand jury wasn't previously known and signals that prosecutors haven't given up on the matter.
It is highly unusual for the Justice Department to issue subpoenas to members of Congress or their aides, given sensitivities and legal barriers connected with the separation of powers between the executive and legislative branches of government. These subpoenas are the first formal requests for information to Congress involving a federal insider-trading investigation in nearly a decade.
Insider-trading investigations involving information that originates from within the government are different from traditional insider cases. Under securities rules, company executives are prohibited from discussing nonpublic, market-moving information about the company with individual investors.
Until recently, it had been unclear how such restrictions applied to government officials. But a 2012 congressional stock-trading law stipulated that public officials have a legal duty to keep confidential any nonpublic information about government actions that could affect stock prices. The SEC and Justice Department have yet to bring a case under the new law.
The subpoenas suggest prosecutors are seeking information from officials in the U.S. House as they try to track how information about the policy moved between Wall Street and the Centers for Medicare and Medicaid Services. The investigation had previously focused on health-care aides in the Senate, according to people briefed on the matter.
Mr. Camp declined to discuss the investigation except to confirm receipt of the subpoenas. "I'm not going to comment on details or what may or may not be happening on the committee," he said in a brief interview.
A spokesman for the SEC declined to comment, as did a spokeswoman for the Southern District of New York.
It isn't known whether Mr. Camp or officials with the Ways and Means Committee agreed to provide information to investigators or whether they are targets of the investigation or witnesses. Representatives of the U.S. House have discussed the subpoenas with SEC officials, according to people involved in the matter.
CMS launched its own investigation into whether officials there improperly leaked word of the policy change.
A spokesman for the agency said its investigation has been referred to the Department of Health and Human Services, of which CMS is a part, which declined to comment.
The information given to the Washington research firm, Height Securities, came from a lobbyist named Mark Hayes. Mr. Hayes, who was a top health-care aide in the Senate before he became a lobbyist, said in an April 1, 2013, email that he had learned of the change from "very credible sources," according to a copy of the email reviewed by the Journal.
Lawyers for Mr. Hayes and Height Securities declined to comment for this article.
Federal prosecutors and SEC investigators have spent more than a year seeking to identify who those "credible sources" were and to determine whether they broke insider-trading rules. It would be illegal if someone in the government leaked word to Wall Street traders or to anyone seeking information on behalf of investors.
Mr. Hayes told congressional investigators he didn't receive a tip from a single individual. He said he made his prediction based on information he gathered partly from conversations with a Senate aide and his own analysis, the Journal reported last year, based on information from Senate investigators.
The investigation is part of a new focus by SEC and law-enforcement officials into possible violations of securities rules involving trades based on information about government policy.
Federal securities regulators have been eager to bring an insider-trading case against a government official since the 2012 law made clear that members of Congress and congressional aides have a legal duty not to share nonpublic, market-sensitive information with Wall Street, according to securities lawyers.
"The SEC recognizes that the strongest deterrent message to Hill staff will be in an insider-trading case," said Jacob Frenkel, a partner at law firm Shulman Rogers Gandal Pordy & Ecker PA and a former SEC enforcement attorney.
--Jean Eaglesham and Charles Levinson contributed to this article.
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