President Obama’s health care overhaul and the ongoing effects of the recession have combined to drive demand for political intelligence, according to a Government Accountability Office report that discusses the difficulty of enforcing laws against insider trading by government officials.
“Three of eight political intelligence firms and two of four law firms who provide political intelligence confirmed that they have seen a rise in demand for their services in recent years, in part due to interest in policy issues such as the nation’s budget uncertainty and health care reform legislation,” the GAO reported Thursday.
It’s illegal to use political intelligence before the information has gone public. “Interviewees from six of eight political intelligence firms and one of four law firms who provide political intelligence said that they have policies in place to ensure they do not knowingly sell material nonpublic information, which would be a violation of insider trading laws,” the GAO explained.
The GAO report comes just days after a “tip on policy jolted health shares,” per The Wall Street Journal. “The instigator for Monday’s rally was a report from a Washington-based investment-research firm that often ferrets out policy news and analysis for investors, according to industry experts and market data from that afternoon,” the WSJ explained Thursday.
Alerted by a private message about a potential coming change in government health care policy, certain investors earlier this week sparked a frenzy of trading in some of the industry’s largest companies.
The GAO issued the study pursuant to the Stock Act, a law passed after Peter Schweizer’s book “Throw Them All Out” revealed legislators making investments based on private information that they received in their capacity as members of Congress.
“The Stock Act makes it clear that if members of Congress use nonpublic information to gain an unfair advantage in the market, then they are breaking the law,” President Obama said when he signed the bill into law last year. “It creates new disclosure requirements and new measures of accountability and transparency for thousands of federal employees.”
The GAO indicated that the law, as written, is difficult to enforce effectively. “What is most difficult to measure is the extent to which investment decisions are based on a single piece of government information or political intelligence,” the report concluded. “Even when a connection can be established between discrete pieces of government information and investment decisions, it is not always clear whether such information could be definitively categorized as material or nonmaterial and whether such information stemmed from public or nonpublic sources at the time of the information exchange.”