September 24, 2014

US Lawmakers push for new limits to political intelligence brokers

By Peter Schroeder - 09/24/14 06:00 AM EDT
Lawmakers who were thwarted in their push to expose the nascent political intelligence industry are back to finish the job.

Advocates of curbing the lucrative trade in political intelligence — a clandestine market for information that runs from Capitol Hill to Wall Street — have been buoyed by former Rep. Eric Cantor’s (R-Va.) sudden exit from Congress.

Cantor in 2012 used his position as House majority leader to strip a provision from the Stop Trading On Congressional Knowledge (STOCK) Act that would have required brokers of political intelligence to register with Congress.With Cantor now on Wall Street, lawmakers are reviving the registration plan in hopes of getting it to President Obama’s desk before he leaves office.

“It definitely improves the prospects of this going forward,” said Craig Holman, a government affairs lobbyist for Public Citizen. “Now that Eric Cantor is no longer in the House ... there may not be that much opposition to this legislation.”

Hours before lawmakers left town for the campaign trail last week, a trio of House lawmakers — two Democrats and a Republican — unveiled legislation that would require political intelligence operatives to register and disclose their activities in a similar fashion to lobbyists. The bill is largely similar to the provision that was removed from the STOCK Act by Cantor, who argued it was too broad and could discourage legitimate communication between government officials and the public.

Rep. Louise Slaughter (D-N.Y.), the lead sponsor of the House measure, said she does not expect the bill to get consideration during the crowded lame-duck session after the midterm elections. But she said it was important for lawmakers to show that they haven’t given up on the plan.

“We want to really put our marker down,” Slaughter told The Hill. “We understand that we’re going to have to start again in January.”

Congressional efforts to curb political intelligence have been effectively sidelined since lawmakers overwhelmingly passed the STOCK Act in 2012.

The growing political intelligence field, in which firms and operatives track down exclusive Washington information that can be sold to Wall Street investors, has come under heightened scrutiny.

Federal investigators have reportedly issued subpoenas to some intelligence firms, as well as some congressional staff, after several healthcare stocks spiked just minutes before the government announced new rates for Medicare payments. Officials are probing whether any insider trading laws were violated.

The STOCK Act, which bars lawmakers from making financial trades on nonpublic congressional information, was unexpectedly fast-tracked for passage after “60 Minutes” ran a segment arguing several members might be gaining a trading edge from their service in Congress.

But the political intelligence registration requirement proved to be a surprisingly contentious piece of the bill. While the provision was scrapped before final passage, observers say the political intelligence industry remains on shaky ground.

“If another one of these scandals gets exposed ... that could be enough to actually get Congress to say, ‘OK, we’ve already got these types of disclosures for us, let’s apply it to the political intelligence industry as well,’ ” Holman said.

Slaughter said public pressure spurred action on the insider-trading bill, and believes more of it will be needed in order for the curbs on political intelligence to become law.

“‘60 Minutes’ runs a 15-minute piece and everybody wants on,” she said. “It was like a hot knife on butter.

“Frankly, I will try to get CBS interested in it again,” she added.

The office of House Majority Leader Kevin McCarthy (R-Calif.), who served as chief whip under Cantor, did not respond to a request for comment on whether he would support or oppose the political intelligence bill. Slaughter said she plans to bend his ear on it.      

“I’ve not spoken to him, but I will,” she said. “He’s across the hall from me in the Capitol.”

In the Senate, Sen. Chuck Grassley (R-Iowa) has been the leading critic of political intelligence activities, and openly criticized Cantor for pulling the provision back in 2012. A spokesman for the senator said he is still interested in the issue, and is looking for the “right opportunity” to revisit it.

Holman said he expects Grassley to continue the push sometime after the election, after he lines up a Democratic co-sponsor for legislation.

Of course, even if the bill manages to become law, it remains an open question whether requiring political intelligence operatives to disclose their activities would curb the most criticized parts of the practice.

In April 2013, the Government Accountability Office reported that while the political intelligence trade was growing and in demand, determining whether a specific piece of information is leading to unfair trading is nearly impossible.

The report, mandated by the STOCK Act, found that political intelligence is often packaged for clients alongside expert analysis, news coverage and other sources of information. Furthermore, any trading decisions are also affected by the needs of the particular investor, as well as regulatory requirements and other economic factors.

And even if a specific piece of Washington information led to a successful trade, it’s an entirely different challenge to determine if that move would violate insider trading laws, which would dictate the information had to have been both material and not available to the public

Details of the STOCK Act:
Answers the President’s Call to Ban Insider Trading for Members and Congressional Staff:  The STOCK Act expressly affirms that Members of Congress and staff are not exempt from the insider trading prohibitions of federal securities laws and gives House and Senate ethics committees authority to implement additional ethics rules.  The Act makes clear that Members and staff owe a duty to the citizens of the United States not to misappropriate nonpublic information to make a profit.

Increases Transparency in Financial Disclosure Reporting:  The STOCK Act amends the Ethics in Government Act of 1978 to require a government-wide shift to electronic reporting and online availability of public financial disclosure information.  The STOCK Act provides additional transparency for Members of Congress, legislative staff and other government employees currently required to make public financial disclosures:
• Trade Reporting:  requires that Members of Congress and government employees report certain investment transactions within 45 days after a trade.  

• Online Availability: mandates that the information in public financial disclosure reports (currently made available on request) be made available on agency websites and ultimately through searchable, sortable databases.

New Ethics Requirements:
• Expands Pension Forfeiture for Corrupt Members:  the STOCK Act requires forfeiture of federal pension if a Member of Congress commits one of several corruption offenses while serving as an elected official.  Current law forfeits a Member’s pension for conviction of offenses committed while serving in Congress.  The STOCK Act expands forfeiture to apply to misconduct by Members committed in other federal, state and local elected offices and adds further federal crimes, including insider trading, for which forfeiture will be required.

• Requires Disclosure of Terms of Mortgages:  the STOCK Act will require Members and certain high level government officials to disclose the terms of personal mortgages.

• Bans Special Access to Initial Public Offerings (IPOs):  the STOCK Act limits participation in IPOs by Members and senior government employees to purchases available to the public generally.

• Requires Report on Political Intelligence in the Financial Markets:  the STOCK Act requires GAO and CRS to produce a report on the role of political intelligence firms in the financial markets.

• Requires Job Seekers to Disclose:  the STOCK Act requires that Members of Congress and senior federal employees file a written notification with their ethics office when starting a job negotiation to leave the government.

Bans Bonuses for Fannie & Freddie Executives:  the STOCK Act bars senior executives at Fannie Mae and Freddie Mac from receiving bonuses during any period of conservatorship after enactment.

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