(Updates with comment from House general counsel, background on
By Nate Raymond, Jonathan Stempel and Sarah N. Lynch
NEW YORK/WASHINGTON, June 20 A U.S. judge on
Friday directed the House Ways and Means Committee and a staffer
to appear at a July 1 hearing to address their alleged refusal
to respond to U.S. Securities and Exchange Commission subpoenas
as part of an insider trading probe.
The order by U.S. District Judge Paul Gardephe in New York
covers both the committee and Brian Sutter, staff director for
its healthcare subcommittee, and came at the SEC's request.
The SEC said it is examining whether material nonpublic
information concerning an April 1, 2013 announcement by the
Centers for Medicare and Medicaid Services of 2014 reimbursement
rates for a Medicare program was leaked improperly, and whether
anyone traded on that information.
The case could prompt a courtroom showdown between the SEC's
authority to enforce U.S. securities laws against Congress'
power to manage its own affairs.
"This cannot be good for inter-governmental relations
between the SEC and Congress," said Bradley Bondi, a partner at
Cadwalader, Wickersham & Taft and former counsel to two SEC
The House committee has resisted the subpoenas, in part by
arguing that the U.S. Constitution shields lawmakers from having
to testify or turn over documents.
"The SEC subpoenas run seriously afoul of the Constitution's
Speech or Debate Clause, and we expect to respond in due course
on that ground, among others," Kerry Kircher, general counsel
for the House of Representatives, said in an email.
In a letter later Friday, Kircher asked Gardephe for
additional time beyond July 1 to respond to the SEC.
Sutter's lawyer declined comment.
The court filings followed earlier reports of an insider
trading investigation into whether congressional staff helped
tip traders about the CMS announcement.
"Immunity will be the focal point of the legal controversy,"
said Karl Manheim, a professor at Loyola Law School in Los
The initial SEC subpoena to the House committee was
previously disclosed by the committee's chairman, Rep. David
Camp (R-Mich.), according to the May 9 Congressional Record.
That same day, Sutter disclosed receiving subpoenas from the
SEC and a grand jury in Manhattan.
In court papers on Friday, the SEC said it was looking into
an email a lobbyist at the law firm Greenberg Traurig sent to
broker-dealer Height Securities regarding a deal struck in
Congress about the Medicare rates.
It said that email was 70 minutes before CMS announced the
rates after U.S. markets closed, and about 30 minutes before
Height issued a report suggesting that the change could help
companies such as Humana Inc and Health Net Inc.
The SEC said the share prices of both companies jumped after
the report, with Humana's rising 7 percent in the last 15
minutes of trading.
Sutter, meanwhile, had on the day of the announcement been
emailing the Greenberg Traurig lobbyist about the termination of
a client from the Medicare program, the SEC said. Both then
spoke on the phone for three minutes, which was 10 minutes
before the lobbyist emailed Height, the SEC said.
Greenberg Traurig spokeswoman Jill Perry said: "We are
cooperating with the inquiry and will continue to do so." A
Height spokesman did not respond to a request for comment.
The SEC's investigation marks what is likely the first ever
to invoke provisions of a 2012 law called the STOCK ACT, which
seeks to prevent people from using "political intelligence" to
illegally trade on material, non public information.
The SEC in its motion called the House's decision to resist
turning over documents "particularly odd" and "unwarranted" in
light of the STOCK Act's passage.
Andrew Ceresney, the head of the SEC's enforcement division,
was among a group of lawyers who penned a legal memo analyzing
the impact when he previously worked at Debevoise & Plimpton in
In that memo, Ceresney and the other attorneys conceded that
despite the passage of the law, there is still some ambiguity
over what constitutes "material nonpublic information" in this
Harvey Pitt, a former SEC chair, said he believed even
before the STOCK Act, the agency could have subpoenaed documents
from Congress that might relate to securities law violations.
"After the STOCK ACT, I don't doubt the SEC is well within
its right to obtain information of possible insider trading
violations," he said, calling the lack of production
The case is SEC v. Committee on Ways and Means of the U.S.
House of Representatives et al, U.S. District Court, Southern
District of New York, No. 14-mc-00193.
(Reporting by Nate Raymond and Jonathan Stempel in New York,
and Sarah N. Lynch and Emily Stephenson in Washington, D.C.;
Editing by Chris Reese, Bernard Orr)