Requiring more disclosure from "political intelligence" entrepreneurs who gather information on Congress and other government activities and sell it to investors would help securities regulators in their investigations of insider trading, congressional watchdogs said Thursday.
At the same time, however, the Government Accountability Office said it is skeptical about the ability to determine how much the rapidly growing political intelligence industry impacts trading and other investment decisions.
"Even when a connection can be established between discrete pieces of government information and investment decisions, it's not always clear whether such information could be definitively categorized as material," the GAO said in its report.
Securities and Exchange Commission officials told the GAO, Congress' investigative arm, that requiring more transparency from political intelligence providers would aid the commission. "More information could allow enforcement staff to identify relationships or make connections between the various individuals involved in an investigation of potential insider trading," the GAO said, according to the report.
It's also difficult to determine how much nonpublic information is being sold to clients as political intelligence, according to the report. Many of the political intelligence firms meld information they've obtained with other analysis and research, the GAO said.
According to the report, Congress would also have to weigh any new regulations with "related practical and legal issues" including additional costs.
The GAO report was required under a law passed by Congress last year banning insider trading by lawmakers, aides and other government officials and requiring more financial disclosures from them.
Republican Sen. Charles Grassley and Democratic Rep. Louise Slaughter, who led the effort to pass the so-called STOCK Act, released a joint statement saying the GAO report showed the importance of transparency in the political intelligence industry.
"When a political intelligence professional is paid to gather inside information from congressional or agency sources that can be used to make investment decisions, that professional should have to register and disclose his or her activities to the public," Grassley and Slaughter said in the statement.
The Wall Street Journal reported Thursday on how a report from Height Securities, a Washington-based firm, to Wall Street clients on Monday led to a flurry of trades involving healthcare companies.
A report from the company predicted, correctly, that the Obama administration would reverse a previously announced decision to change Medicare Advantage rates. Soon after the report came out, according to the Journal, shares of several large insurance companies rose as much as 6 percent.