How DC’s Political Intelligence Biz Made Fat Cats Fatter

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House Majority Leader Eric Cantor of Va. answers questions from reporters on President Obama's jobs bill, the debt reduction supercommittee and the economy, Monday, Oct. 3, 2011, on Capitol Hill in Washington. (AP Photo/J. Scott Applewhite)
Now-outgoing House Majority Leader Eric Cantor answers questions from reporters, Oct. 3, 2011, on Capitol Hill in Washington. (AP Photo/J. Scott Applewhite)

Looking over the last few weeks of news, if you would seek a single headline that sums up the Hulk-like grip in which corporate America holds the US Congress, this might be it: “Eric Cantor’s Loss a Blow to Wall Street.”

So wrote The Wall Street Journal, that Pravda of the One Percent, on the day after House Majority Leader Cantor lost his Virginia GOP primary to tea party upstart David Brat. “Since he was first elected to Congress,” the Journal noted, “Mr. Cantor has been Wall Street’s go-to guy on issues big and small… he was a top recipient of Wall Street donations and he regularly stood up for the banks, securities firms and insurance companies.”

That’s right: on behalf of poor, beleaguered high finance, Eric Cantor stood up to the little guys who had the gall to have their jobs and mortgages pulled out from under them. Blackstone Group, Scoggin Capital Management and Goldman Sachs — Cantor’s largest campaign contributors — don your mourning weeds and muffle the drums. Never mind his other alleged perfidies and character flaws: it’s the deprivation faced by the financial community that has been created by the end of Cantor’s inside connections — that’s what you and the Journal are lamenting.

Pity Wall Street. At year’s end, your errand boy will be out of office, but probably in a far, far better-paying job than he has ever had before — and most likely in your industry.

So it’s actually somewhat heartening that Cantor’s loss was due in part to those very same connections. His opponent David Brat told a campaign rally, “All the investment banks up in New York and DC, whatever, those guys should have gone to jail. Instead of going to jail, where’d they go? They went onto Eric’s Rolodex.”

Brat made particular reference to the Stock Trading on Congressional Knowledge Act — the STOCK Act — passed into law in 2012. That’s the legislation, authored by Democratic Congresswoman Louise Slaughter of New York, which requires members of Congress and their staffs to disclose all of their stock transactions — an effort to make sure they’re not trading on insider information gleaned from their governmental wheeling-dealings. (This is the bill that languished on the Hill for years until a 60 Minutes report embarrassed Congress into passing it.)

Unfortunately, before it became law, stripped from the legislation were requirements that family members publicly reveal their stock trades as well as disclosure requirements for companies engaged in gathering political intelligence. And guess who was singlehandedly responsible for gutting the bill of these provisions? Yep, Eric Cantor, with the heavy hands of lobbyists pushing from behind.

But now it seems the payback chickens may be coming home to roost, for not only is Cantor being shown the exit from the henhouse, and not only does Rep. Slaughter intend to reintroduce legislation regulating political intelligence, the Securities and Exchange Commission (SEC) and Department of Justice are hot on the trail of what may be its first test case involving insider trading and the political intelligence business.

As yet another subset of the monolithic Washington consulting machine, the political intelligence business exploded as companies paid big money — $402 million in 2009 — for knowledgeable, experienced Beltway players who know how the system works and can act as interpreters. As Michael Mayhew, founder of Integrity Research Associates, told Mother Jones magazine last year, “Investors started to realize that there was money to be made by knowing what was going on in Washington and knowing it as quickly as possible.”

Political intelligence operatives sift through and analyze mountains of reports and transcripts — augmented, of course, by their contacts and frenzied networking on a scale that makes speed dating look like the stately social conventions of an Edith Wharton novel. As the revolving door spins faster than ever between jobs in government and corporate America, information and who you know are the currency that gets you through the tollgate, information which paying clients then use for ever greater profits and a competitive edge.

Although the considerable money to be made as a political intelligence agent has suffered in comparison to the billions hauled in by the lobbying industry, those in PI, as it’s called, have little interference from government oversight and legally don’t have to disclose much of what they’re up to, including the identity of clients or how much they’re being paid. This has outraged Republican Senator Chuck Grassley, who tried to restore the language regulating political intelligence that was torpedoed in the original STOCK Act by Eric Cantor.

“We ought to know who these people are that seek political and economic espionage,” Senator Grassley said. Coincidentally, the ongoing SEC/Justice investigation of PI concerns a former Grassley Senate staffer. And because it also involves a current House staff member, the case may provide a chance to invoke the STOCK Act after all.

Last year, The Wall Street Journal’s Brody Mullins and an investigative team reported that, “A key source for a private report that sent health-care stocks on a tear… is a former top congressional aide who is now a health-industry lobbyist…

“Mark Hayes is currently an outside lobbyist for health-insurance giant Humana Inc. His email to Washington investment-research firm Height Securities, alerting it to a government decision that will save the industry billions of dollars, was a final piece of confirmation Height received before blasting a news alert to its clients, according to emails and people familiar with the matter.”

Many health-care stocks rose sharply and savvy hedge funds made out like bandits, including Viking Global Investors and SAC Capitol Advisors (after pleading guilty to unrelated insider trading charges, it stopped managing outside money and changed its name to Point72 Asset Management). Questions arose because Hayes was wearing two hats — lobbyist and political intelligence purveyor — and for eight years had been with the Senate Finance Committee, four of those years as health care advisor to Senator Grassley, who for a while was the committee chair. Hayes had developed contacts throughout the health care and insurance industries and with congressional and other government agencies, including the Center for Medicare and Medicaid Services (CMS), which made the decision that sent health insurance stocks spiraling upward.

The SEC investigation began. A spokeswoman for Hayes’ employer said his information was based on his own research and analytic skill and that he “did not receive or disseminate material nonpublic information.” But on June 22 of this year, the Journal broke the story that the SEC believed a possible inside source for Mark Hayes was Brian Sutter, “staff director of the House Ways and Means Committee’s health-care subpanel.” Hayes and Sutter spoke on the phone just ten minutes before Hayes sent his e-mail to Height Securities.

What’s more, “During the prior month, Mr. Sutter also spoke ‘several times’ to a colleague of Mr. Hayes at his law firm, Greenberg Traurig LLP, the SEC said. He e-mailed or spoke with at least two individuals at the federal health-care agency [CMS] responsible for the policy change in the week before the policy announcement, the SEC said.”

Did Brian Sutter leak privileged information not available to the public in advance of an official statement? According to the Journal, the SEC alleged that “Mr. Sutter gave conflicting accounts of his discussions with Mr. Hayes to law-enforcement officials.”

House of Representatives attorneys tried to persuade the SEC to grant Sutter immunity. The commission turned down the offer and has subpoenaed the House for documents and other evidence, including testimony: rare for a government agency to subpoena Congress; it’s usually the other way around — and even rarer to take it to court. As Justice Department prosecutors prepare for a federal grand jury, the US District Court for the Southern District of Manhattan has given Sutter and the House lawyers until July 4 to explain their opposition to handing over what has been demanded.

The possibility of an insider trading case actually resulting in indictments has sent the political intelligence business scurrying for cover, as the SEC apparently has investigated other PI businesses as well. Among them, Marwood Group, a company set up by the late Ted Kennedy’s son, Edward Jr. It came under scrutiny in 2010 over how it knew in advance that FDA approval of a promising new diabetes drug might be delayed, information it shared with investor clients. (An FDA spokeswoman denied that Marwood somehow had an inside track.)

Integrity Research Associates reports that because of the SEC probes, “Many hedge funds and other asset managers have either eliminated or dramatically reduced their use of Washington policy research, lobbying firms, or other sources of potentially risky ‘political intelligence’ information… prompting some of them to scale back or shutter their operations altogether.” Others say they are relying more on data-driven quantitative models and algorithms rather than personal contacts for info, sort of like the CIA and NSA depending more on satellite photos and signal intercepts than agents on the ground.

If even a weakened STOCK Act, with its provisions forbidding members of Congress and their staffs from insider trading or passing nonpublic information to investors can scare the PI business and its sponsors like this, imagine how a new law demanding much greater transparency and culpability in political intelligence could better rein back and hold at bay the profit-thirsty clients who value ill-gotten gains over an honest buck.

Beholden to his financial industry masters, that’s why Eric Cantor was dead set against it. All the reason to be for it.

Michael Winship is the Emmy Award-winning senior writer of Moyers & Company and BillMoyers.com, and a senior writing fellow at the policy and advocacy group Demos.
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  • Thaddeus Kozubal

    Thank you for such an informative and insightful article. Now, if a form of the STOCK act can ever be passed with some teeth in it, there’s a small chance to start cleaning up the cycle between Wall street and Washington, DC. Not much of a chance, but a small one. Now, the only question I have is: Do you think there is a chance of selling handguns and ammo in the Rotunda of the Capitol for those bad days in the House?

  • Veteran

    turn every state blue and you will get the teeth you seek.

    With Scotus ruling yesterday, there is real motivation to return the house to the democrats. The Scotus has some potential retirements, and America needs to ensure that the nominations are made by democrats, not the confederate kkkristian zealots.

    Lest we follow the countries down into the religious war abyss.

  • Anonymous

    My Uncle
    Riley got an almost new red GMC Canyon just by some parttime working online
    with a laptop. visit their website F­i­s­c­a­l­p­o­s­t­.­C­O­M­

  • Anonymous

    Think industrial espionage here that deploys propaganda-agents who appear to be so IN-CREDIBLE -ly stupid that NO possible course of action toward problem solutions is acceptable to them.

    e.g. Consider the, something-in-the-neighborhood of, THOUSANDS of TRILLIONS of MONEY, including several hundreds of trillions of US Dollars, that have been ZEROED OUT from the World economy and, yet, we have not only people willing to commit political SUI-GENOCIDE over the fact that there has been no prosecution of the BANKSTERS, but that same cohort is ready also to shoot anyone who tries to find out enough about that PRIVATE MONEY that they can do something effective about this problem that is holding the ENTIRE EARTH HOSTAGE.

    I repeat, IN-*C*R*E*D*I*B*L*E* and, therefore likely this hidden-agenda intransigence is truly coming from those who are waiting for another configuration of factors that will allow them to COERCE their own EXCLUSIVE “solutions” on, most of all, the USA and, hence, upon much of the rest of Earth and all of that is just fine with “Libertarians” as long as it wears ANY degree of a putative 3rd party label, *A*N*Y*.

    “Libertarian”, EXPLOITATION is thy name.

  • medcannabis1

    RICO Act time for all of those that have profiteered off of their service in Congress…. shame upon those that allowed themselves to be corrupted ….. maybe its time to send the corrupted and the lobbyists that bribe our legislators to prison for 5-10 years and strip them of their assets .

  • Anonymous

    Someone needs to do time. The scenario and conduct of these polity abusers would quickly change.

  • Nancy Freeman

    At Obomba’s first state of the union speech there was a FB stream, afterwards his staff took digital questions from the audience. I asked, “When is the prosecution going to start of the criminals who stole the American’s homes, retirement funds, and investments?” There was a visible rustle among the staff members and they never mentioned my question, but went on to the next one. Now it’s 5 years later and the question still has not been answered!
    And let’s not forget that Abranoff did time, but not his stooge Tom DeLay who opened the doors and cleared the way.

  • Andy Lyke

    An aside – An appropriate tag line to “The Wall Street Journal” might be …”sister publication of the New York Post and News of the World”

  • rg9rts

    So which Wall Street trough will Cantor be feeding from when he is out of office??

  • Anonymous

    This will only continue as long as the citizens of this country continue to mindlessly elect bottom feeders to Congress !

    Author and Journalist Chris Hedges correctly defined the problem in his book “Empire of Illusion”;

    “Those captive to images cast ballots based on how candidates make them feel. They vote for a slogan, a smile, perceived sincerity, and attractiveness, along with the carefully crafted personal narrative of the candidate. It is style and story, not content and fact, that inform mass politics.”

  • Anonymous

    Another gift to Wall Street from the Clinton Administration who also signed off on the NAFTA trade legislation, a twofer that set the stage for the move to a low wage economy in this country and the economic collapse of 2007. Those who are excited over Hillary’s potential run for president in 2016 might want to consider her failed stewardship of, among other things, the Healthcare legislation introduced in the early nineties that would have moved us much closer to a single payer system that most Americans can only dream about. The Clinton administration that has long been held in highest regard by the Neo-Liberal leadership of the current Democrat Party provided the stimulus for the precipitous rise of the Tea Party radicals on the Right and the evolution of all political representation in this country to the point where both majority parties are essentially two sides of the same privately held coin ! Today’s U.S. Government is essentially the product of two decades of control by the Bush/ Clinton dynasties that have been extended since 2008 by the fully complicit Obama Administration ! The American People should take to heart the warning issued by renown scientist and mathematician Albert Einstein; “Insanity is doing the same thing over and over again and expecting different results.”

  • rg9rts

    The electorate is a collection of boobs, voting for an image and complaining when those they voted for act true to their roots.

    We had an election for county executive and this gopee clown told everyone what they wanted to hear and then did what he damn well wanted to once he was in. And the people cried”How could he do this?”

  • HopeWFaith

    You know, I don’t ever mind when someone discusses the Bill Clinton Signature on the now infamous NAFTradeAgreement. What I do mind, is when they conveniently leave off the hard, extreme push by the REPUBLICANs who stood behind his back and forced this to be signed, with lies and manipulations about what it was going to achieve. He was lied to, as were you and I. So don’t leave that part out, please. It is not just a signature he gave us. It is the worst Agreement we have had shoved down our throats in almost the entire history of our nation, save just few others. So let us keep our perspective on FACTS. Please!

    By the way. Hillary will not get my vote unless extremely important changes are decided upon by her. Number 1. She backs GMO industry wholeheartedly. 2. She is a Republican in blue disguise.
    3. She is scared to death of Wall Street CEOs. I have no respect for anyone who caters to any of the above.