The Securities and Exchange Commission has issued subpoenas to a firm and individuals in connection with the leak last month of a federal funding decision that appeared to cause a surge in stock trading of several major health companies.
The move deepens the government’s scrutiny of the growing “political intelligence” industry, which has been thriving on delivering valuable information from Washington to investors. This relatively new breed of companies capitalizes on the fact that decisions made in Washington — whether a regulator blocking a big merger or a lawmaker tweaking legislation — can create opportunities for stock traders to make money.
The latest case emerged April 1 when Height Securities, a Washington-based stock brokerage firm, alerted its clients that the government would soon make a decision favoring private health insurers who participate in a Medicare program.
The alert went out 18 minutes before the end of the trading day, sparking a surge in trading in the shares of several major health-care firms, including Humana and Aetna. The official government announcement was made after trading closed for the day.
On Wednesday, several people familiar with the probe confirmed that the SEC has subpoenaed a Height Securities analyst and Mark Hayes, a health-care lobbyist who advised the firm on legislative issues. Hayes’s law firm, Greenberg Traurig, was also subpoenaed by the SEC, according to the sources, who spoke on the condition of anonymity because the matter was under federal investigation.
The SEC has conducted an interview with Hayes, who voluntarily submitted to four hours of questioning, these people said. The FBI was present at the meeting, suggesting that the Justice Department has taken a deep interest in the matter, one of the people said. A Justice Department spokesman declined to comment on an ongoing investigation.
The SEC also declined to comment, but people familiar with the investigation said the agency began issuing subpoenas in mid-April seeking e-mails and other internal documents after a report on the matter in the Wall Street Journal.
All the parties involved deny any wrongdoing, their attorneys and company officials said.
In a prepared statement to The Post, Andrew Parmentier, Height Securities’ managing director, said the firm’s alert “was based on careful and close analysis of the facts, and was solid, sound research in accordance with applicable laws and regulations.”
People familiar with the investigation said Height has not received a SEC subpoena.
SEC and Justice Department investigators recently have been escalating a crackdown on insider trading, setting their sights on some of the most powerful traders on Wall Street. The case opens a new front in this campaign by going after firms in the agencies’ back yard in Washington.
Defining the contours of the political intelligence world can be difficult. It ranges from law firms and lobbyists to small, boutique investigative firms. What many have in common are their customers: hedge funds and other major investors.
Law firms have long made money by offering legislative and regulatory insights to company executives. Even in the 1980s, the infamous trader Ivan Boesky hired lobbyists to figure out whether Congress would block Standard Oil of California’s bid to acquire Gulf Corp.
What’s different now is that many firms specialize in harvesting information in Washington for profit on Wall Street.
The global market for policy research and political intelligence was worth more than $400 million in revenue in 2009, according to Integrity Research Associates, which tracks the U.S. equity research industry. The group estimates that the political intelligence business has more than doubled in size over a decade.
But efforts to shed light on that growing industry have fallen flat. Congress abandoned a push that would have required the industry to report its activities to federal regulators, just as lobbyists must do.
In a report released last month, the Government Accountability Office said it could not quantify how much political intelligence the industry sold to clients or the nature of the compensation it received. The GAO said the information is often bundled with research and other materials, making it tough to gauge the industry’s activity or its effect on investors.
The report provided ammunition to critics of the industry, including Sen. Charles E. Grassley (R-Iowa) and Rep. Louise M. Slaughter (D-N.Y.), who said they plan to introduce legislation that would require the firms to disclose their activities and relationships to federal regulators and the public.
More recently, Grassley has waded into the fray by initiating his own investigation into the matter.
Key to Grassley’s inquiries is Hayes, the Greenberg Traurig lawyer, who was also a Humana lobbyist and a former Grassley staffer.