Getting Smart on Political Intelligence
For weeks, the Stop Trading on Congressional Knowledge (STOCK) Act looked like the legislative juggernaut of 2012. Momentum slowed, however, because of major differences between the House and Senate versions. But now things appear to be moving again.
Late last year, CBS’s 60 Minutes aired a segment that raised questions about potential loopholes in the existing patchwork of insider trading rules. These loopholes could allow government employees and those that do business with the government to exploit ambiguity in the law and profit from inside information inherent in the legislative process before it becomes public knowledge.
Although Rep. Louise Slaughter (D-NY) has sponsored the STOCK Act for the past five years, the bill gained a serious head of steam in the wake of the 60 Minutes broadcast and congressional hearings in both the House and Senate. President Obama announced his support of the bill, too, saying he will “sign it right away.”
In a rare feat for Washington, both the House and Senate versions passed with overwhelming bipartisan support – 417-2 in the House and 96-3 in the Senate.
So why isn’t the STOCK Act on the books?
There are major differences between the House and Senate bills. The Senate version included new regulations for political intelligence firms that require them to register their activities under the Lobbying Disclosure Act (LDA), as well as provisions that strengthened anti-corruption laws in the wake of the Supreme Court’s decision on honest services legislation. Both the political intelligence and anti-corruption provisions enjoyed huge bipartisan supermajorities in the Senate, but Rep. Eric Cantor stripped them from the House bill.
Now there are indications that a compromise between the two bills may be in the works, with the Senate taking up the House’s weaker version instead of going to conference to work out differences between the two chambers.
Which raises a question that some readers have asked: just what are these “political intelligence firms” – the regulation of which has led to the slowdown in passing the STOCK Act?
Political intelligence firms (and political intelligence consultants) leverage contacts and personal relationships to glean behind-the-scenes information about legislation – including market-moving information – that the political intelligence firms and professionals go on to sell to information-consumers like hedge fund managers. Those that purchase the “political intelligence” can then base business decisions on their newly acquired information. At least one prominent Washington law firm alerted its clients to the scope of the Senate version of the STOCK Act which includes political intelligence regulation, telling clients that “if, for example, a hedge fund calls a Congressional committee staffer to gather information about the status of a bill that relates to the fund’s investment decisions, the fund may need to register [under the LDA].”
But better to take it straight from the horse’s mouth. Here is how one political intelligence firm describes its activities: “Our political intelligence operation differs from standard ‘lobbying’ in that [the firm] is not looking to influence legislation on behalf of clients, but rather provide unique ‘monitoring’ of information through our personal relationships between lawmakers, staffers, and lobbyists working the K Street – Pennsylvania Avenue corridor.” It goes on to say that not registering as lobbyists under the Lobbying Disclosure Act provides “an additional layer of confidentiality for our clients” and that it is able to “outsource government affairs requests at a discount.”
That is, because political intelligence professionals do not traditionally advocate for legislation, the Lobbying Disclosure Act (LDA) is inapplicable to their activities. However, such political intelligence professionals do peddle influence, and there is a vacuum around their operation in practice.
Senator Chuck Grassley (R-IA), the sponsor of the amendment to the Senate version that included regulation of political intelligence professionals as lobbyists, put it this way: “[I]f trades are taking place based on political intelligence obtained from Congress or the executive branch, people should now who is gathering such information.”
In other words, sunlight is imperative to democracy.