It was back in April 2013, when the WSJ reported of a peculiar surge in various health insurance stocks that came moments after a report from Height Securities, a Washington-based investment-research firm that ferrets out policy news and analysis for investors, correctly predicted the Obama administration would reverse course on big spending cuts that would have hit health insurers. The note was released about 15 minutes before markets closed on Monday, April 1, leading to the following surge in the biggest Obamacare beneficiaries.
Needless to say, it is quite clear that non-public info was leaked by US legislators to a "expert network" consulting company, which in turn further propagated the information to its own clients, making them profits of up to 8.6% in milliseconds. As the WSJ summarized at the time, "The resulting stock surge is one of the most dramatic examples in recent years of how tips and insights from Washington's burgeoning political-intelligence business can drive trading on Wall Street, potentially leading to big profits for those in the know."
It took the SEC 14 months to finally figure out there may have been something illegal with this setup and as the WSJ followed up three weeks ago, "prosecutors are gathering evidence for a grand-jury probe into whether congressional staff helped tip Wall Street traders to a change in health-care policy, an indication the long-running investigation has entered a more serious phase."
Public documents show federal law-enforcement officials and the Securities and Exchange Commission are seeking records and other evidence from the House Ways and Means Committee and a top congressional health-care aide, Brian Sutter, staff director of the committee's health-care subpanel.
The SEC sent subpoenas to the House committee and Mr. Sutter seeking documents and testimony in the matter, according to documents made public by Rep. David Camp (R., Mich.), who is the committee chairman, and Mr. Sutter.
Separately, the Justice Department issued a subpoena to Mr. Sutter to compel him to testify before a federal grand jury at the U.S. District Court for the Southern District of New York, according to Mr. Sutter's public disclosure, which was included in the congressional record per House rules. Committee officials wouldn't say whether Mr. Sutter has testified. A spokesman for the Ways and Means Committee, speaking for Mr. Sutter, declined to comment.
Furthermore, the SEC went to court June 20 to enforce subpoenas it issued as it sought information related to a probe into whether Sutter leaked material nonpublic information about Medicare reimbursement rates to Mark Hayes, a lobbyist at Greenberg Traurig LLP.
As Reuters reported previously, the SEC said Hayes spoke with Sutter the same day that the Centers for Medicare and Medicaid Services announced reimbursement rates for the Medicare Advantage program. The regulator said Hayes then emailed the brokerage firm Height Securities, which shortly afterward sent its clients a "flash alert" suggesting the deal could help insurance companies such as Humana and Health Net, leading to the surge shown above.
In brief: what Sutter did is effecitvely leaking material non-public information which ultimately made its way to paying clients of Height, and nobody else, allowing them to generate quick, and substantial profits. The information had not been made public yet to the general public.
What is unknown is whether Sutter and other members of the House Ways and Means committee also traded concurrently on this non-public information, making some whopping profits in the process too. And it appears that is precisely how Sutter et al want to keep it.
According to Reuters, the Ways and Means panel said on Friday it should not have to comply with a federal regulator's demand for documents sought for an insider-trading probe involving the staff director of a subcommittee and a lobbyist.
The House Ways and Means Committee argued in a court filing that U.S. District Judge Paul Gardephe in New York should deny the Securities and Exchange Commission's attempt to subpoena documents from the committee and its healthcare subcommittee staff director Brian Sutter.
The SEC went to court June 20 to enforce subpoenas it issued as it sought information related to a probe into whether Sutter leaked material nonpublic information about Medicare reimbursement rates to Mark Hayes, a lobbyist at Greenberg Traurig LLP.
The committee's filing called the SEC subpoena "a remarkable fishing expedition for congressional records." It said the U.S. Constitution shields the panel and Sutter from being compelled to testify or produce documents.
Wait, the Constitution protects leakers of material, non-public inside information, disseminated to curry favor with various paying clients and lobbyists, and to further one's career, not to mention paycheck? Maybe the committee can point to just what page in the constitution they are looking at as we can't seem to find this particular section. We even checked the amendments - it's missing there too.
As Reuters concludes, "the dispute between the House committee and the regulator could test the boundary of the SEC's powers to compel the legislative branch of government to cooperate with its enforcement of the federal securities laws."
Spoiler alert - we are happy to reveal the answer already: the SEC's "powers to compel" will be found null and void, because while as we already noted recently while central bankers are clearly above the law, so are those who actually make it: because when it comes to insider trading, US Congress is happy to dole out fire and brimstone on all those who abuse their fiduciary responsibility or happen to prove the strong form of the EMT, but when it comes to Congress, it's look but don't touch, and certainly don't investigate.
After all corrupt Congressmen have only a few years in which to become rich, and if abuse of insider trading laws is what it takes, so be it.