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More Washington Sleaze: Lobbyist Tip Stoked Health Care Stock Jump

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Yesterday, we featured an important article by Noam Scheiber on how Obama insiders cash out on their connections once they leave the fold. Today, in the Wall Street Journal, we read of the Congressional version in terms of how a tip by a lobbyist (and former Congressional aide) connected to an investment research firm led to a Congressional decision being leaked to investors before it was announced officially.

Understand how this connection game works. One way is that Corporate America tries to influence policy in Congress, with regulators, and with the Administration. Former insiders advise business chieftans and their minions who to approach, whose campaigns to support, how to craft their message, and with lobbying and with regulators, will act as agents, often fronting for industry associations with Orwellian names. Notice only working to influence Congress is considered “lobbying” and requires registering as a lobbyist.

The second sort of information flow is that of pending Congressional and regulatory actions (and Fed thinking) that can move markets. The Journal stresses that the political intelligence industry heretofore hasn’t gotten much attention, but the SEC has launched a probe of the case in question, that of a lobbyist Mark Hayes, who has Humana as a client. Hayes is a former health care aide to Senator Chuck Grassley. He also works for a broker-dealer and investment research firm, Height Securities.

Here is the basic outline of what happened, per the Journal:
…on April 1 Height sent a report to clients 18 minutes before the end of trading that predicted—correctly, it turned out—a government agency would drop planned cuts in funding for insurers that offered Medicare Advantage plans.

The report snagged the attention of big hedge-fund firms that placed profitable trades, according to people familiar with the trading activity. Shares in several health-care companies, including Humana, climbed sharply before the market close and again when trading opened the next day….

Mr. Hayes lobbies for Humana, which pressured the government’s Centers for Medicare & Medicaid Services to drop its planned cuts to certain insurance plans. A Humana spokesman said the company had no advance warning of the decision…

The back-and-forth between Mr. Hayes and Height transpired April 1 after a Height policy analyst, Justin Simon, scrambled to chase rumors of CMS’s decision, emailing an array of contacts around Washington, including an aide to Sen. Orrin Hatch (R., Utah,) the top Republican on the Finance Committee, and a lobbyist for Humana. Neither responded, according to the correspondence reviewed by the Journal.

At 3:12 p.m., Mr. Hayes told Mr. Simon in an email he had “heard from very credible sources” a decision had been made to restore the payments.

“Our intel is that a deal was already hatched,” Mr. Hayes wrote in the email.

As Height scurried to verify the tip with public officials, another Height employee forwarded Mr. Hayes’s email to several congressional aides in at attempt to confirm the information. At 3:42 p.m., Height sent a similarly worded alert to its Wall Street clients. Trading in health-care stocks surged.

Ironically, it is Hayes’ former boss, Chuck Grassley, who has been pushing for curbs on political intelligence, who has opened an investigation. The SEC has also opened a preliminary probe.

It’s also unfortunate, and unlikely not a coincidence, that the partial repeal of the STOCK act was signed into law yesterday. From Roll Call:

President Barack Obama signed a partial repeal of the STOCK Act on Monday, with the White House citing national security concerns in canceling a planned online database of investment information of top congressional staffers and administration employees.

It is also key to notice that the sort of multiple hats that Hayes wears is endemic in Washington. The best single work on power in the US is Janine Wedel’s Shadow Elite: How the World’s New Power Brokers Undermine Democracy, Government, and the Free Market. The book describes how connected insiders with shared ideological visions work through what she calls “flex networks.” She calls the perps “flexians” and describes how they collaborate to direct the policies and conduct of governments and major businesses. And they put their cause and their crowd first, and care little about the outcomes of their actions (one of the examples she describes at length is the Harvard cabal that led and tried to profit handsomely from the liberalization of Russia in the early 1990s.

Unfortunately, it is not clear that either the SEC or Grassley will be able to pin anything on Hayes. Insider trading historically was limited to “insiders,” as in people who had a duty of care to the corporation (officers, managers, executives, and agents they employes like law firms and investment banks). The SEC has successfully expanded the notion of what constitutes insider trading as investors have become much more aggressive about obtaining an information advantage (for instance, firms like Gershon Lerman who try to get corporate employees to moonlight on behalf of their clients. Everyone understands that what the clients want is inside information, even though everyone goes through the forms of pretending that the “information” is arms-length research). Case law does not exist in this area, and it will be interesting to see how far the SEC goes in this situation. Hayes’ emails show that he was upset with Height about the leak, but honestly, what did he expect?

So get out your popcorn. This will make for good theater, and it will at least around the margin lead some of the information-hustlers to be a tad more careful about how they play the game. Sadly, that is often the most we can get out of scandals like this.

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27 comments

  1. psychohistorian

    How soon before these parasites turn on each other or themselves?

    If we can’t put them in jail then maybe we can incite them to off themselves somehow without taking us with them.

    1. NotTimothyGeithner

      Wal-Mart is offering healthcare and financial services beyond pay day loans. They already are. Like the destruction of the American middle class, it takes time.

    1. banger

      And how would that happen? In a society where money is the ultimate arbiter of all values how would you take it out of the system? The Founders understood the dirty game that politics is and was and designed a pretty good system that endured for quite a long time. We have to rethink the entire thing because it has become completely gamed.

      1. jrs

        Only there are more actual examples of countries less corrupted by money in politics (most developed countries) than there are examples of countries operating with politics entirely out of healthcare. So I don’t know, the empiracle tested or the utopian ….

  2. Chris Engel

    The repeal of the STOCK Act provisions was more egregious than Yves mentions. Allow me to expand on just how shady the process was:

    http://thehill.com/blogs/on-the-money/1007-other/293919-obama-signs-stock-act-step-back

    Both chambers of Congress quickly — and near silently — approved the repeal legislation at the end of last week by unanimous consent, just before heading home to their districts.

    The Senate advanced the bill Thursday by unanimous consent, without debate or even briefly describing what it would do. The House signed off on the bill Friday using the same approach.

    as NPR reported:

    http://www.npr.org/blogs/thetwo-way/2013/04/12/177063450/congress-repeals-financial-disclosure-requirements-for-senior-u-s-officials?ft=1&f=1001

    NPR’s Tamara Keith tells us the House procedure took exactly 30 seconds.

    And from the Library of Congress:

    http://thomas.loc.gov/cgi-bin/bdquery/z?d113:S.716:@@@L

    You can see that the bill was introduced on Thursday, passed Congress with unanimous voice vote by Friday, and Obama signed it on Monday.

    No debate, no public inquiry — just a swift, bi-partisan steamrolling through Congress and a silent closed-door signing by President Obama.

    This is truly outrageous — and Center for Responsive Politics and Sunlight Foundation have been screaming about this issue but nobody has listened.

    So instead of the transparency we were promised by President Obama, they secretly passed a change to the STOCK Act which made public internet accessibility and requirements to file by staffers and all officials disappear.

    And the “national security” and “privacy” concerns? Total nonsense of course, those are go-to talking points to pass secretive bills and getting things done in DC that don’t have public appeal.

    Seriously, whenever something in THIS obstructionist congress passes with UNANIMOUS bi-partisan support in BOTH chambers, eyebrows ought to be raised and people should be wondering wtf has just happened.

    1. banger

      So then why did “nobody” listen? In Washington where I worked for much of my life, the “nobody” you are talking about means something specific–no it doesn’t mean the public it means the leaders of the permanent government, the big players and fixers who are brokering power and who you encounter on K Street and in the more expensive restaurants. Once this group, like its brothers on Wall Street, had some concern for the welfare of the country–they believed, however dimly, that there was such a thing as going too far and that there should be limits to greed and graft.

      Gradually a new generation came into power on Wall Street and in Washington and this group had no, and I repeat, no interest in the welfare of the country. They don’t believe in a “country” they see themselves as part of an international ruling elite. Ok, some of them can get sentimental about America–but in their jobs they don’t care at all about the welfare of the American people–only the next game and the next opportunity to extract riches from the system; in other words, it’s just a game.

      Or so it appears to me. After years of being a progressive, I don’t think I am anymore because I believe the government and those around it are no longer legitimate nor even borderline honest. It will cause pain on us all but we need to decentralize and stop supporting both political parties who support systemic corruption.

      BTW, the system can continue to be as corrupt as it is for decades to come without completely destroying the system–it’s very robust and the security services have now virtually unlimited power to crush any opposition. And there’s enough residual wealth to keep the majority from even wanting to revolt. What we need to do is understand where we are and stop living in the illusion that we are in the old U.S.A. which went into a coma on November of 1963 and was taken off of life support in 2001, so to speak.

      1. Massinissa

        Progressive ideology isnt that bad, as far as bourgeois ideologies go (sorry im letting my own ideology show through in that statement ^_^).

        But the members of the Progressive Caucus are just as corrupt as any other politicians. They really are not worth supporting.

        So if by no longer being a progressive, you mean you no longer support the democratic party, even a part of it, then my friend, you have in my mind come to the correct decision.

        You could still be a progressive ideologically if you really wanted to be, though IMO attaching identity to a word isnt really necessary, especially when others who attach the word to themselves do the word such extreme disservice.

        1. banger

          To put it another way, I am a progressive culturally and that won’t change. It isn’t only the Democratic Party I have it is the whole left apparatus that seems unable to come up with a vision or an analysis that is grounded in reality other than a few voices who are willing to look into Deep Politics, which as I always say is just, politics minus American Exceptionalism.

          The other problems I have with progressives is that they believe the federal government ought to do x, y and z–and, as I see it, Washington is just too corrupt right now. It would take years to reform the feds before they could tackle any major issues. Mind you, some Departments work better than others but, on the whole, Washington is a mess–and I know it intimately–large corporate interests are more dominant in Washington than ever.

          1. jrs

            The programs we are getting now, to the extent we get anything at all, are often increasingly corrupt (obamacare), still some older programs are pretty straightforward and not easily corrupted (social security – it’s really hard to corrupt such a simple system of direct payments). And even with the corruptable programs having some government is presently often better than none (some epa regulations are enforced etc. – not to the extent anyone would want but …). As for what to do about the corruption itself, attempts to get money out of politics seem the best option out there.

    2. progressive humanist

      It was interesting to see common outrage among Fire Dog Lake commentors and also those on late Breitbart’s old blog, about this uniformly corrupt culture of governance banding together to trash the STOCK act, and POTUS wasting his pen ink signing it.

      (There is an old Tibetan saying: when a glove touches poop, the poop does not take on the smell of the glove)

      The resulting loss of confidence in elected representatives turned bandit and their ever-increasing subversion of due process (as in Feinstein blocking the filibuster reform), explains why recent gun legislation cannot get passed. What’s good for the goose (banksters) is good for the ganders (gun lobby).

      That the administration cannot see how the “catfood commission-great betrayal” further undermines their standing with the politically-aware public of all political persuasions, merely evidences how blinded they’ve become by their own DC air polluted with institutionalized, endemic, corruption for which no effort is spared to keep “normalized” and “legalized”.

      Unfortunately the politically-aware public is a minority, but it is encouraging to see common ground growing among the disparate popular political sectors (http://www.democracynow.org/2013/4/17/after_obama_shuns_probe_bipartisan_panel)

      I try to find compassion for our profoundly imperfect elected representatives; as anger and hatred is mostly counterproductive. With the US govt firmly sold to monied interests, perhaps the best the rest of us can do is build counter-cultures with counter-systems. Maybe there is more hope at local levels.

      1. diane

        While I somewhat get your point about anger, I wonder if one of the current problems is that people are shot down so much about feeling anger, as if that is somehow abnormal, that they eat that anger until it ultimately explodes into murderous rage.

        Our society needs to once again acknowledge that: many times anger is quite natural and sometimes productive, as you imply above.

    3. youthinasia

      Thank you, Chris Engel for your post and those who continue the thread. It’s so disappointing to see so little in blogs about this act of terrorism on our democracy by Reid, McConnell, Boehner,Pelosi and Obusha!

      I can’t help but think that the events of this past week were orchestrated to cover the the repeal of the STOCK Act. Another part of me knows that there was no cover-up; rather, it is evidence that the American media is so venal that if the story has no video (as the fast tracking of S 716 lacked) there is in effect no story at all. We are so f*cked!

  3. TomDor

    It should make big time news that a bipartisan agreement passed. We see gridlock (man on main street view) that nothing gets done…news media is always drumming this beat yet, when something bipartisan gets passed…no reporting. It really should be news but, it ain’t.

    1. banger

      It was sort-of covered but not prominently. The emphasis on this or that story in the mainstream media is determined by a virtual Central Committee of senior editors, PR executives (they have far more power than most people think) who represent the lobbying communities, and the usual gray eminences that make up the senior Washington establishment in and out of government. Editors have to very circumspect in what they allow out there and where, more importantly, where to emphasize and not emphasize stories and what aspects to bring out. For all intents and purposes the mainstream media are semi-governmental institutions part of a virtual Propaganda Ministry. If you depend on them for information you know next to nothing about the world. I include here everybody’s darlings on MSNBC, NPR and Comedy Central–they offer only a slightly different approach but question nothing fundamental.

      1. jrs

        I very much doubt those are the darlings of many NC readers. Well maybe NRP, the rest of them are basically the darlings of obamabots.

      2. progressive humanist

        http://www.democracynow.org/

        has not yet been subverted, and most on

        http://kpfk.org/ is still safe.

        For news/current events and commentary, Ian Master’s Background Briefing is pretty good (http://kpfk.org/programs/48-background-briefing-with-ian-masters.html) although some of his interview subjects still smoke the hopium pipe.

        Smiley and West’s program is also good editorial on events (http://www.smileyandwest.com/radio.html), as is Blase Bonpane’s World Focus program (http://www.smileyandwest.com/radio.html)

        This media is member-funded and doesn’t accept corporate funding. I urge anyone to become a member, but it is not necessary for listening.

        I would be amiss to leave out Sam Seder’s Majority Report, also member-funded, which targets a slightly younger audience (http://majority.fm/)

  4. rich

    Felons in Charge of Our Largest Financial Institutions-Professor William Black

    Former bank regulator and Professor William Black says, “Apparently, regulators are much more sophisticated than we were because we had never thought of leaving felons in charge of our largest financial institutions.” Dr. Black contends, “This started with the first lie of the virgin crisis–that the banks are pure and had stopped violating the law. The second lie is that we can’t prosecute . . . because if we did, we would cause the financial system to collapse. This is ludicrous.” Dr. Black predicts, “The U.S. banking system is absolutely primed for the next meltdown. Dr. Black and others think, “There is pervasive fraud at the most reputable banks. . . . The U.S. financial system is sick, and we still have the fundamental dynamic of a regulatory race to the bottom.”

    http://youtu.be/RhWFoMEGpTI

  5. banger

    Excellent story! It’s wonderful to see this written out. I’m suprised the Journal took the story on–very interesting. I don’t think anything will come out of it–nothing ever does really.

    I think what can happen is that the regulators will insist that the players be more circumspect in their dealings but insider trading is thriving in the investment communities. It’s easy to game the system by speaking in code, through body language and through trading patterns and other signals to confederates–not unlike bidding in the game of bridge. Just as smugglers find new ways to smuggle drugs, find new officials to pay off, the player/buccaneer class of operatives will find ways to grab money for nothing and chicks for free.

    The problem is not regulations or law-enforcement though both of those areas are mainly corrupt but that our ethics as a society don’t exist or consist of pure selfishness. It’s pretty much the case that when money becomes, as it has, the ultimate arbiter of value that getting and keeping money is constantly emphasized as the ultimate meaning of life that, eventually, people will come around to that or at least integrate it into their personal morality. I’ve seen this happen–you see, for example, devout Christians who flaunt their wealth–in generations past it was considered unseemly.

    1. Ed S.

      I’ve seen this happen–you see, for example, devout Christians who flaunt their wealth–in generations past it was considered unseemly.

      Banger, this is a very important point. Boston and Philadelphia were the key cities in the founding of the Republic; I can’t speak to Boston and Puritanism but can to Philadelphia and Quakers. To the Quakers, any display of wealth was considered abhorrent. “Plain” was a quality to be developed.

      This isn’t a hijack into religion — just a note that culture today is 180 degrees from culture 50 years ago, let alone 150. In your face, f-you jack I’ve got mine displays of wealth (without questioning the source) is CELEBRATED today. It’s no wonder why we are where we are.

      1. NotTimothyGeithner

        You have never been to Newport, Rhode Island or Versailles obviously. “I’ve got mine to hell with everyone else” has been the rallying cry of the wealthy and the bourgeoisie since time immortal.

        America in the 1770′s wasn’t as bleak a place as its portrayed by later historians and generations. Outside of the South where slavery was rampant, a guy who couldn’t ply a trade could always farm. Land was free. Behind the backdrop of the war and going ons in Boston/Philadelphia, proto-industry and land were being developed. Wages were high. I know only land-owning males could vote, but unless you were a child, a slave, or fresh off the boat, you owned land. Much of it was the result of circumstance. The indian wars were mostly over, and the indian population was decimated from disease already. There was a ton of land, and a demand for resources and homespun industry.

        When people don’t need the attention of their “betters” to do well, they might be more willing to oppose their “betters.” A rich person may want to project a regular guy status because he might find being an asshole means people won’t work with him because there are other avenues/opportunities/ways to make a living. This is what was really going on.

        1. banger

          So what’s the point? Oligarchs have always been around–but America was then more the land of opportunity for rich and poor than it is now. We live in a highly controlled overly controlled bureaucratic world. Back then there was a lot more leeway since you could always escape your permanent record and really re-invent yourself and start your own business without jumping through endless hoops and be in debt for 100k before you make a dime. Sorry this version of capitalism really sucks.

          1. NotTimothyGeithner

            The point is the situation isn’t cultural and won’t be resolved by hankering for the days of good ole values. Structures have to fixed, or the value of labor has to be fixed in some way such as 4 day work weeks.

  6. Johnny Fraudclosure

    We know who directly bribes members of Congress and Mary Jo defended some of them. Nothing to see here, don’t get sick, etc.

  7. walter_map

    Obama and the pubs are in a heated contest to see who can sell out the country the fastest. It’s hard to tell who’s winning, but it’s easy to see who’s losing.

    Time is getting short, and TPTB know it. That’s why they’re selling out – while there’s still something left to sell. They’re positioning for the collapse, which is inevitable because they will do nothing to prevent it. They can, however, arrange to maximize their profits when the worst happens, and that’s all they care about anyway.

    And you get to watch it happen. Pretty surreal, huh?

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