The report’s lack of insight 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, just as lobbyists do.
“This report shows the dire need for transparency in the political intelligence industry, which profits from the cozy relationship between Washington, D.C., and Wall Street,” Grassley and Slaughter said in a joint statement.
In the report, the Securities and Exchange Commission said that requiring disclosures from the industry would help the agency clamp down on insider trading.
“SEC officials told us that disclosure of more information could allow enforcement staff to identify relationships or make connections between the various individuals involved in an investigation of potential insider trading,” the report said.
The report was mandated by Congress a year ago as part of the Stop Trading on Congressional Knowledge Act, known as the Stock Act, which bolsters the laws that ban lawmakers and other government officials from cashing in on material non-public information they acquire on the job.
An early version of the Stock Act required the political intelligence industry, which includes law firms and the arms of large lobbying operations, to report their activities to federal regulators.
But the House stripped the provision from the bill. House Majority Leader Eric Cantor (R-Va.) argued against the disclosures, saying they were outside the scope of the bill. Cantor also said the disclosure requirement was written so broadly that it could force constituent groups to file forms when discussing pending legislation with lawmakers.
The final bill required the GAO study to shed light on the industry.
But one group that’s been tracking the issue called the end result “useless.”
“We know as much now as we did before the report was written,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics. “The report provides no information.”
The GAO made no recommendations, but did warn of potential challenges should Congress pursue the disclosure route.
For instance, it is not always clear if the information at issue came from public or non-public sources when it exchanged hands or if the information was material, meaning that it was useful in making an investment decision, the report said.
The report, which was based in part on interviews with a dozen political intelligence firms, warned that if Congress requires disclosures, it would have to consider the benefits and costs as well as the practical and legal issues.
The report also said that while some public advocacy groups cited potential benefits to disclosure, three of the ones interviewed “questioned whether requiring disclosure would be a matter of promoting transparency without a compelling public purpose and were not certain what specific problem disclosure would resolve.”
The SEC also had some doubts. In the report, the agency said that more transparency instills investor confidence and maintains market integrity.
“However, for political intelligence it is uncertain how helpful disclosure would be to an investor given the pace of market movements,” the report said, citing SEC officials. “For example, a firm’s disclosure that it shared political intelligence with a large pension fund would only be helpful to other investors if the disclosure was filed and made available almost instantaneously.”