Government agencies and officials try to announce potentially market-moving policy changes after Wall Street’s close of business, so as to avoid influencing stock trading. But on April 1, several large health-care company shares suddenly spiked shortly before trading ended for the day — after which the Centers for Medicare and Medicaid Services announced a new rule that significantly affected those companies. First reported in The Wall Street Journal , the trading surge has been linked to a client alert sent by a Washington “political intelligence” firm.
And so the fast-growing political intelligence business is again under scrutiny, with members of Congress from both parties demanding greater disclosure of these firms’ activities and client lists. Sen. Charles E. Grassley (R-Iowa) declared on April 29: “[T]he American people have a right to know who gleans and who gains from the sale of government information.... The knowledge belongs to the people, and if it’s being bought or sold, the American people should know who is doing the buying and selling.”
As is often true of government-ethics regulation, the problem is where to draw the line. Government personnel already are prohibited from personally selling or trading on non-public information acquired during the course of their official duties. Political intelligence firms, however, are part of a fact-gathering spectrum that arguably includes much of journalism. The Post also scours the halls of power for the inside scoop — albeit for sale to a much wider audience, for purposes broader than (but not excluding) smart investing and at a much lower price than the political intelligence shops.
The Stop Trading on Congressional Knowledge (STOCK) Act, passed last year to prevent members of Congress from trading on insider knowledge, defines political intelligence as information “from direct communications with an executive branch employee, a Member of Congress, or an employee of Congress” that’s sold “to a client who intends, and who is known to intend, to use the information” in investing.
Seems iron-clad, but as a newly published Government Accountability Office (GAO) report notes, there’s a “lack of consensus” about the meaning of those key terms. Furthermore, the GAO found it “especially difficult to determine the extent to which nonpublic government information is being sold as political intelligence.” A lot of government information is subject to disclosure eventually, so it may be difficult to say when any particular piece crosses the line between nonpublic and public.
Highly publicized cases such as the recent health-care stock spike aside, it’s generally impossible to measure the actual market impact of political intelligence in general, the GAO observed, and “extremely difficult” to measure the impact of any one report.
Reading between the lines of the GAO report, we almost detected a “buyer beware” message to potential consumers of political intelligence. For now, however, the market for governmental inside skinny remains robust. In an economy in which the federal government spends one out of every five dollars and influences the spending of many more, it’s no surprise that private-sector players would pay big bucks to find out what it’s going to do next.