Political intelligence has become a new buzz phrase in Washington in recent months, as the House and Senate have weighed legislation to ban insider trading by members of Congress.
What exactly is political intelligence?
It’s an information network that connects Washington insiders with investors.
Often, the information comes at a steep price, and often – although certainly not always – it is gathered by current or former lobbyists.
Advance knowledge of government decisions on such issues as financial regulation, health care and taxes can translate into millions of dollars in profits for brokerages and hedge funds.
Collecting and distributing that knowledge has grown from a sideline into a major industry, reports Wall Street Journal reporter Brody Mullins.
Research by Integrity Research Associates, a firm that tracks the investment research industry, indicates that the global market for political intelligence services totaled $402 million in 2009.
Gerson Lehrman Group, one of the largest firms in the market, has organized councils linking consultants and clients.
Members of the group’s council for legal, economic and regulatory affairs include the following lobby firms:
– Clark & Weinstock
– DTB Associates
– Hall & Associates
– Slover & Loftus
– SNR Denton
– Van Ness Feldman
– Van Scoyoc Associates Inc.
– Wiley Rein
Another firm, JNK Securities, arranges meetings between clients and members of Congress. Its in-house government policy specialist is Dean Thomas, former lobbyist for the National Beer Wholesalers Association. Thomas previously worked as senior legislative assistant to U.S. Rep. Tim Ryan (D-OH).
JNK came out in support of the Stop Trading on Congressional Knowledge (STOCK) Act, banning insider trading on Capitol Hill.
The Senate passed the measure earlier this month, by a vote of 96-3. After languishing for years, the bill found new popularity after the issue was examined in a November segment of “60 Minutes”.
The Senate version included an amendment requiring registration of those who gather political intelligence. The addition was proposed by Sen. Chuck Grassley (R-IA), who released this statement:
“You have a growing industry with no transparency. If a lobbyist has to register in order to advocate for a school or church, shouldn’t that same lobbyist have to register if they are seeking and getting inside information to make a profit on? This is especially true if that information would make millions for a hedge fund or a private equity firm.”
In the House, Majority Leader Eric Cantor (R-VA) cut the registration requirement, saying it was too broad in its definition of “who and what would qualify.”
His action came after many in the securities industry raised concerns about the scope of the reporting requirements.
The revised bill instead calls for a study of the political intelligence industry by the Government Accountability Office.
Rep. Louise Slaughter (D-NY), who had co-sponsored the original legislation, spoke out against Cantor’s changes, saying they had been made “in secret, behind closed doors, brokering deals for special interests.”
Nevertheless, the House passed the bill by a vote of 417-2 last week. The two members voting against it were Reps. John Campbell (R-CA) and Rob Woodall (R-GA).
Differences between the two bills must now be reconciled. An alternative would be for the Senate to vote on the House version.
President Barack Obama pledged during the State of the Union that he would sign immediately a bill to ban insider trading.