Despite having similar language removed from a bill a few years ago, Senator Grassley recently announced that he plans to re-introduce bipartisan legislation requiring the disclosure of any political intelligence activity. So what’s new this time?
Last week Senator Chuck Grassley (R-IA) announced that he will renew his push for legislation requiring the disclosure of political intelligence activity. Senator Grassley was unsuccessful in getting a provision requiring such disclosure to be passed as a part of the 2012 STOCK Act.
Now that Senator Grassley is the Chairman of the Senate Judiciary Committee, he has vowed to support the re-introduction of bipartisan legislation in both the House and Senate mandating that all political intelligence gathering be disclosed in a similar way that lobbying activity is disclosed under the Lobbying Disclosure Act (LDA).
Based on the provision included in the STOCK Act, Grassley and his supporters are looking for the public disclosure of anyone who gathers information from contact with an executive branch or legislation branch employee that is used to inform or analyze investment decisions on behalf of a client.
History of the Political Intelligence Industry
Most agree that the political intelligence industry has been existence for many years. However, the use of lobbyists and law firms to provide investors with insight about Washington developments started to become more widely practiced in the 1980s. It was then that investor Ivan Boesky hired lobbyists to gather intelligence on whether Congress intended to block Standard Oil’s proposed takeover of Gulf Corp. Boesky learned that the merger would be approved, and used that information to make some profitable trades.
From 2004 to 2006, the US congress debated revising the asbestos-litigation system by creating a $140 billion trust fund to pay health-care and other costs incurred by people injured by asbestos. The fund was expected to be paid for primarily by companies with asbestos liabilities and their insurance companies. However, the bill was finally defeated in February 2006 after Senate Majority Leader Bill Frist changed his vote from Yes to No.
A number of hedge funds hired Washington lobbyists to keep them informed of the progress of the bill, profiting from these developments by trading stocks like USG Corp., W.R. Grace & Co., and Crown Holdings – all companies that would have benefited from the establishment of the trust.
In recent years, political intelligence has become a hot topic because due to a number of government investigations. The most widely written about has been the FBI and SEC investigation into whether government officials passed on inside information to a lobbyist from law firm Greenberg Traurig regarding the Centers for Medicare and Medicaid Services’ (CMS) reversal of a decision to cut Medicare Advantage payments.
In addition, the SEC has also investigated other political intelligence firms, including the Marwood Group, a company set up by Edward Kennedy Jr., the late Ted Kennedy’s son. Marwood came under scrutiny over information it shared with clients about the delay of a 2010 FDA approval of a promising new diabetes drug. Some have suggested that Marwood knew of this information in advance of its announcement.
Efforts to Regulate Political Intelligence
While there had been some nascent attempts to regulate the growing political intelligence industry, the first notable effort came in 2012 with the passage of the Stop Trading on Congressional Knowledge Act (“STOCK” Act). This bill prohibits members of Congress and their staff, employees in the Executive branch, as well as Judicial branch employees from using private information derived from their official positions to trade on and for other personal benefit.
As part of this bill, Senator Grassley and Democratic Congresswoman Louise Slaughter of New York were successful in including a provision requiring purveyors of political intelligence to register with Congress. However, the political intelligence registration requirement proved to be a surprisingly contentious piece of the bill, and was eventually scrapped before final passage – much to the consternation of Senator Grassley. This provision was replaced with a requirement that the GAO study the topic.
In April 2013, the GAO report was released, providing few conclusions and making even fewer recommendations. The GAO report stated that, “The extent to which investment decisions are based on a single piece of political intelligence would be extremely difficult to measure.” Consequently, Congress dropped any follow-up action on political intelligence.
In September of 2014, Congresswomen Slaughter, along with Jimmy Duncan (R-TN) and Tim Walz (D-MN), unveiled the Political Intelligence Transparency Act that would require firms engaged in the collection of political intelligence to register and disclose their activities in a similar fashion to what is currently required under the LDA. Congress did not take up action on this bill during the crowded lame duck session following the midterm elections.
Passing legislation to regulate the political intelligence business has not been particularly popular on Capitol Hill over the past few years. However, the headlines associated with a number of relevant political intelligence related investigations have kept this topic in the news.
Most importantly, the fact that Senator Grassley has recently admitted that he is interested in pushing for legislation on the issue, and that he is now the Chairman of Senate Judiciary Committee, means he will be in a position to reintroduce political intelligence disclosure legislation to the floor of the Senate quickly.
While we are unsure exactly what such legislation will look like, Grassley’s past comments on the topic suggest that he will push to have any individuals or firms engaged in the collection of “political intelligence” register as political intelligence providers and be forced to disclose the issues they are working on for their investor clients – much like what a lobbyist must disclose today under the LDA. Like in so many other cases, the devil in this potential bill will really be in the details. Stay tuned for more on this pending development.