Health insurance stocks jumped in 2013 moments before the government announced Medicare payment news that was favorable to those companies. Did congressional staffers illegally pass along nonpublic information about health policy to their Wall Street trading buddies?
Prosecutors from the Justice Department think so and are gathering evidence for a grand jury probe. The Securities Exchange Commission (SEC) has also sent subpoenas to the U.S. House Ways and Means Committee and a top congressional healthcare aide, Brian Sutter, seeking records and other evidence.
According to the Wall Street Journal, the subpoenas are related to criminal and civil investigations examining whether anyone in the government illegally passed along nonpublic information about the health policy that ended up in the hands of traders, according to people briefed on the matter. The probe was sparked by a 2013 Wall Street Journal report that detailed how those health insurance stocks jumped moments before the government announcement of that favorable news.
The stock surge was prompted by an email sent by a Washington-based policy-research firm that predicted the change for its Wall Street clients. That alert, in turn, was based in part on information provided to the firm by a former congressional healthcare aide turned lobbyist, according to emails reviewed by the Journal.
The information given to the Washington research firm, Height Securities, came from a lobbyist named Mark Hayes. Hayes, who was a top healthcare aide in the Senate before he became a lobbyist, said in an April 1, 2013, email that he had learned of the change from “very credible sources, ” according to a copy of the email reviewed by the Journal. Prosecutors and SEC investigators have been trying for over a year to identify those “credible sources.”
According to the Journal, Hayes told congressional investigators he didn’t receive a tip from a single individual. He said he made his prediction based on information he gathered partly from conversations with a Senate aide and his own analysis.
This is the first time subpoenas have been issued in nearly a decade involving a federal insider-trading allegation. Given the constitutional separation of powers sensitivities, it’s very unusual for the Justice Department to issue subpoenas to members of Congress or their aides.
A 2012 congressional stock-trading law stipulated that public officials have a legal duty to keep confidential any nonpublic information about government actions that could affect stock prices. The SEC and Justice Department have yet to bring a case under the new law.
Centers for Medicare and Medicaid Services (CMS) launched its own investigation into whether officials there improperly leaked word of the policy change. That investigation has been referred to the Department of Health and Human Services.
Lawyers for Hayes and Height Securities have declined to comment.
