New York, NY – Last Thursday the House of Representatives approved by a vote of 417 to 2 their own version of the STOCK Act, a bill that bans Congress from trading on nonpublic information they learn while doing their jobs. The House bill is similar to one passed the previous week in the Senate, though the House version excludes a requirement that “political intelligence” firms register in a manner similar to lobbyists. A final bill will require some form of reconciliation before it can be sent to President Obama for his signature.
Differences between Bills
The House bill clarified language in the Senate version extending insider-trading restrictions to the executive and judicial branches of government: “Each officer or employee in the executive branch … who occupies a position classified above GS-19 and … each officer or employee in any other position determined by the Director of the Office of Government Ethics to be of equal classification” must now report their stock trades within 30 days of making them.
The House added, what in some circles is called the “Pelosi Provision”, to prohibit members of Congress and executive branch officials from receiving special access to initial public stock offerings because of their positions.
The House bill eliminated the language in the Senate bill which closed various loopholes in anticorruption laws, including increasing sentencing for corruption cases. This included granting more time to investigators and prosecutors to go after corruption, and language that cleared up ambiguity in existing anti-corruption laws.
The House bill also eliminated the provision in the Senate bill that would, for the first time, require firms that collect “political intelligence” for hedge funds, private equity funds and other investors to register and report their activities, as lobbyists currently do. In place of this requirement, the House bill calls for a year-long GAO study of the political intelligence industry.
Next Steps / Potential Resolutions
At this point there are two possible next steps for the STOCK Act. One is for the bill to head to a special committee of lawmakers tasked with reconciling the differences between the House and Senate bills. Alternately, the Senate could choose to take up the House-passed version of the bill and make changes before sending the bill to President Obama for his signature.
The big question for political intelligence firms is will the requirement that they register be included in the final piece of legislation. Most insiders we have spoken with suggest there are two likely outcomes. These include:
Elimination of registration requirement. Most political intelligence firms, including lobbyists, Wall Street investment banks, and independent policy research providers, argue that the language in the Senate version of the bill was extremely broad, and would require a large number of firms to register as political intelligence firms, including broker-dealers, asset managers, subscription-based news organizations, corporations, and others. These firms suggest that the unintended consequences of this provision could be significant. As a result, these firms propose a GAO study on the topic.
Changed definition of “political intelligence” activity. A large group of lawmakers, however, believe that the promotion of transparency around the political intelligence industry is extremely important. These proponents add that it is critical for them to know if the lobbyists, law firms, or consultants that they speak with during the legislative process are passing on the information they share to institutional investors. Others add that the collection of political intelligence is a potentially corrupting force, given the extremely high financial value that many investors place on gathering insights from inside Congress or the administration.
These supporters suggest that the definition of “political intelligence” activity could be narrowed in a variety of ways. One way includes raising the minimum number of “political intelligence contacts” that a person or firm needs to make before having to register from 1 to some higher number. Another suggestion that some make is including a minimum amount of time a person needs to be engaged in collecting political intelligence (20% of their time) before being required to register.
One very interesting suggestion we have heard on this topic is to require “political intelligence” firms to register, but not force them to have to reveal the customers they are working for. Most of the political intelligence firms we have spoken with say this is the requirement which could have the most damaging consequences to their businesses.
The major issue we have with changing the definition of political intelligence activity is that we would hate to see an “unlevel playing field” created if certain types of firms were excluded from registration while others were not. This is particularly true of many large investment banks or broker-dealers who, in many ways, perform the same type of “political intelligence” activities as many lobbyists do.
It is highly likely that the differences between the House and Senate version of the STOCK Act will be resolved in the next few weeks – whether by conference or having the Senate vote on the House bill. However, it is not so clear what Congress will do with the registration requirement for political intelligence firms. It is obvious that most policy research firms and providers of political intelligence services are loathe to promote transparency in their industry, as this would run contrary to the interests of clients who profit from gathering proprietary information and insights. However, it is also clear that eliminating the negative connotations that many associate with gathering “political intelligence” might also be an important step to helping the industry mature and become more professional.