WASHINGTON Law firms, brokerages and other companies that analyze the U.S. government for investors could be forced to disclose client lists and other sensitive information under legislation that a top Republican lawmaker hopes to soon resurrect.
Iowa Senator Charles Grassley is investigating what he calls a "political intelligence" firm and whether it engaged in insider trading last month. Grassley is also looking at other firms and trying to ensure greater transparency about how private firms use data they get from government officials.
Grassley on Wednesday said he would introduce a bill shortly to shine more light on the whole political intelligence industry and how it made money by selling such information.
"People in government need to know who they are talking to and what they will do with your information," he said on the Senate floor. "What you think may be an innocent detail or an educated guess may move markets ... That is what these firms want to exploit."
A similar effort passed the Democratic-controlled Senate last year as part of a crackdown on insider trading by lawmakers and staffers, but it was stripped out of the broader bill in the Republican-controlled House of Representatives.
It's not clear whether Grassley's bill will fare better this year, but it could get a boost from the investigation into Height Securities LLC, a company that helps interpret Washington for investors, and other firms.
On April 30, Grassley sent letters to two major hedge funds asking whether they had profited from information provided by Height and other firms that provide "political intelligence."
Height Securities drew the scrutiny of Grassley's staff and the Securities and Exchange Commission because of its April 1 research report that prompted a surge in healthcare stocks. The report correctly predicted that President Barack Obama's administration would keep certain medical payment rates in place, rather than cutting them as previously announced.
Height's report came out 18 minutes before the U.S. Centers for Medicare and Medicaid Services made its official announcement. The alert enabled Height clients to bet that health stocks would rise before other investors were able to profit from the information.
Height said it did nothing wrong and based its report on several sources, including information that had leaked out a few weeks earlier.
"We are a registered, highly regulated securities firm that conducts investment research like thousands of other financial analysts across the country in complete compliance with the law," said Adam Goldberg, a spokesman for Height Securities. He said the firm is cooperating with both the SEC and Grassley's office.
The investigation has highlighted the political intelligence industry, a loosely defined group of consultants who interpret regulations and politics for Wall Street players. Housed in brokerage firms, lobbying shops and free-standing research outfits, the industry has become more prominent in recent years as events like the Wall Street bailout and Obama's healthcare reform have underscored Washington's impact on the economy.
Critics say political intelligence firms are an outgrowth of a pay-to-play culture that gives Wall Street and other interests unfair access to the powerful.
"In a system in Washington that's already awash in money, here is yet another advantage that moneyed interests have," said Meredith McGehee, policy director at the Campaign Legal Center, a nonprofit group that seeks greater disclosure.
JUST LIKE LOBBYISTS?
Grassley's bill last year would have required political intelligence firms to list their names and client lists, much like the disclosure now filed by lobbying firms.
This year's bill will be similar, an aide said. New York Democratic Representative Louise Slaughter is expected to sponsor a similar bill in the House.
That could make it easier for regulators and law enforcement officials to uncover cases of insider trading, said Kenneth Gross, a partner at Skadden Arps's political law practice.
But the measure will almost certainly face resistance from financial companies and other groups that argued the measure was too broad. A group of 40,000 business lawyers said last year that it could interfere with routine legal research, client discussions and communications with regulators.
Deciding whether a company would have to register under the proposal could be difficult. Some are registered as brokerages or investment advisers, while others are consulting firms not subject to regulatory scrutiny.
Height Securities, for example, is a Washington-based broker-dealer that is regulated by the SEC and the Financial Industry Regulatory Authority. Its research arm, Height Analytics, is an investment adviser overseen by state securities regulators in Washington, D.C. and Connecticut. (Editing by Marilyn Thompson and Eric Walsh)