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Profiting from Political Intelligence

Posted by Larry Doyle on February 16, 2012 9:54 AM |

Gaining sensitive, market moving information is NOT by its very nature illegal or unethical. In point of fact, those who are ingenious and industrious enough to outwork and outsmart the competition are fully deserving of the benefits and rewards that come their way.

That ingenuity and industriousness are cornerstones of capitalism. I love it and commend those who ethically pursue these paths to success.

That said, how are these pursuits regulated? Who is monitoring the exchange of what might be exceptionally sensitive and insider information? Great questions.

With many in Washington having access to incredibly sensitive information which can move markets, are we to believe that the handling of that information is always done in an ethical and legal fashion? Let’s not be so naive as we enter into the developing world of those who traffic in Political Intelligence.

Again, I refrain from painting this exchange of political intelligence with a broad and incriminating brush, but in light of the voluminous body of work which Sense on Cents has defined as Wall Street-Washington Incest (only about 150 separate commentaries on that link collated over the last three years), we should take a closer look at this space.

A firm known as The Osint Group puts forth the following description of its business,

Political Intelligence

To understand what policy and political leaders are doing today and planning for tomorrow, institutional investors need to do more than monitor news and data services. You need to know more. You need answers to your questions from a consistently reliable source of insight into the world of politics and policy.

Every day in Washington and within government institutions across the globe, decisions are made that affect the prospects and profitability of individual companies and entire industries. The investment and political worlds are both in the midst of a sea change. Higher levels of regulation are in the works, no matter which party is in control.

The forces driving these changes – the political contests and policy debates – are not as familiar to investment professionals as fundamental, technical or quantitative research. Our “Political Intelligence” service is built on a single powerful idea: to provide institutional investors with accurate, actionable and timely information created by the currents of political forces and regulatory decisions.

The OSINT Group has assembled a group of experts from the ranks of lobbying, academia, government consulting, industry, journalism and law who are skilled in every major area of policy and politics.

Our political intelligence operation differs from standard ‘lobbying’ in that The OSINT Group is not looking to influence legislation on behalf of clients, but rather provide unique ‘monitoring’ of information through our personal relationships between lawmakers, staffers, and lobbyists working the K Street – Pennsylvania Avenue corridor.

Providing this service for clients who do not want their interest in an issue publicly known is an activity that does not need to be reported under the Lobbying Disclosure Act (LDA), thus providing an additional layer of confidentiality for our clients.  Because of our unique relationships in Washington, we are able to outsource government affairs requests at a discount to a specialized firm that best fits a client’s interest where these activities are required.

This service is ideal for companies seeking a competitive advantage by allowing a client’s interests to remain confidential as the relationship between the client and the outsourced firm is protected by attorney-client privilege.

Sounds like a fascinating business.

Those who appreciate the Sense on Cents virtues of truth, transparency, and integrity are compelled to ask if our regulators are qualified and equipped to monitor this space. Are our legislators and their staffs aware of what exactly is and is not “inside information” and how that information should be handled?

Senator Chuck Grassley (R-IA) weighs in on this sensitive topic in writing, Grassley Outlines Case for Political Intelligence Amendment:

In the dark of night Tuesday, the House released its version of the STOCK Act, which wiped out any chance at meaningful transparency for the political intelligence industry.

What we are faced with is a powerful industry that works in the shadows.  They don’t want people to know what they do or who they work for.  They are afraid of sunlight.

My amendment was adopted here in the Senate on a bipartisan basis, a rare occurrence recently. It simply requires registration for lobbyists who seek information from Congress in order to trade on that information.

It’s straightforward.  If trades are taking place based on political intelligence obtained from Congress or the executive branch, people should know who is gathering such information.

Not requiring political intelligence professionals to register and disclose their contacts with government officials is a gaping loophole that my amendment fixes.  In fact, political intelligence firms actually brag about this loophole.

Dark of night . . . works in the shadows . . . afraid of sunlight? Those mental images are not conducive to a healthy “sense on cents”.

I do not ever think the playing field on Wall Street is ever going to be level, but if we are to expose the potential of increased incestuous activities between those in Washington with sensitive information and those on Wall Street willing to pay for it, the world of political intelligence cannot and should not operate under a welcome cover of clouds and in the dark of night.

Sunlight remains not only the great disinfectant but also provides an environment and atmosphere in which a strong and robust spirit of capitalism can thrive.

Now that’s what I’m talking about!! What about you? Comments, questions, constructive criticisms encouraged and appreciated.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

  • fred

    This little piggie went to market…

    Political Intelligence Gatherers(PIGS) are not considered lobbyists because customers of the intelligence firms have no vested interest in the political outcome of any issue.

    Technically correct, but…

    PIGS are often involved in the disemination of insider information (material, non-public information) for profit. Unless the ‘incite’ PIGS provide is a function of ‘outsider’ expert opinion of publically diseminated information available to all, it would seem their customers are indirectly acting upon ‘insider information’.

    What if the customers were publicly exposed and theatened with prosecution? Maybe, just maybe, the little PIGS would just go wee, wee, wee, all the way home.

    I don’t know about you LD, but I’m getting tired of all the $#%holes splitting hairs then taunting the rest of us at public expense. Let’s “simplify, clarify and prosecute”.

  • LD

    Fred,

    Your summation is one of the many reasons why I write this blog.

  • DT

    I think you may have a point wrong in your article. I believe the SEC prosecuted and found Ray Dirks guilty when he uncovered some insurance company falsifying their books. He revealed the info to his subscribers only and I think the SEC got him for passing inside information. It was a long time ago but I think the SEC said because he only gave it to his subscribers that was passing inside info and those that traded on it were using inside info. They said it was his duty to reveal the info he uncovered to all the public.

  • LD

    DT,

    Not sure to what you are referring here.

  • Hi,

    The politicians around the world are nothing more than auction items which can be sold to the highest bidder. They will do whatever they can for the lobbyist paying them the maximum amount of money or votes, be it the unions, the banksters, the richest corporations or individuals. They are in the power seat to extract maximum advantage for themselves in the small time frame they occupy the seat of power.

    The rest of the population is least of their concerns. The only activity they do is pacify the majority of the population using false statistics and promises of a better future so that they do not lynch them and their masters while they are robbing the taxpayers.

    http://www.marketoracle.co.uk/Article32741.html

  • Tom

    Larry,

    All of this makes me think about running for Congress! Our fearless leaders (or is it feckless leaders?) leave a lot to be desired. Do as I say… how does the rest of that go?

    Tom

  • Shadow

    I have the tar … but seem to have misplaced the feathers … fear not, I will not rest until I find them. You wouldn’t happen to have any extra rope and a few torches handy, would you?

    On the other hand … I would much rather have the hot dog concession at the guillotine.

    Wall Strret has always been home to criminals and scam artists, which is why the SEC was created to start with. Alas … another in a long line of government failures as they have a long history of looking the other way.

    America is broken. The head villain is GREED and his henchmen are all in Washington. The American Dream is now a nightmare. The only thing honorable there lies under the ground at Arlington National. Joe Six-Pack can no longer afford to take his kids to a ball park built with his dad’s money. Is your home still underwater to the bankers? What will your kid’s lives look like if they graduate college with a $30, or $40,000 debt at juice-loan rates?

    Most of America’s institutions are now criminal organizations … particulary the FBI, CIA, and the unJustice Department. America has presented a new face to the world and it is not pretty. Killing ragheads for fun and profit. Arms dealer to the world. Do what we tell you or we will regime change your as.. Torture is fine and dandy if it suits our purpose. Geneva what?

    The 24 trillion that Bush and Co spent to put the next four generations of Americans in debt is not difficult to find at all. It is on the books of corporate America … the oil companies, banks, and the military and defense contractors. It could easily be called war profiteering and confiscated. Poof … no more national debt. There is precedent for this going back to the Civil War.

    We are still loved by the rest of the world as long as your outstretched hand has greenbacks in it. Don’t listen too closely as you turn your back. I tell friends headed overseas to pretend they are Canadians. America is not very well liked anymore.

    First … the 99 said – We have to kill the IRS. It has a long and vulgar history of abusing small taxpayers that can’t fight back. The POLWAPS(Political Whores and Pimps)use it as a system of rewards and punishment; and once in a while, for a little good old fashioned extortion. A few words dropped in front of a national camera about contemplated tax law changes can quickly bring a flood of cash into campaign coffers. The taxation system is regressive to start with, hurting small people a great deal more than the wealthy. You didn’t really believe that tripe in the Constitution about ‘equal justice,’ did you? And then there are those corps and wealthy folks that don’t pay taxes at all because the IRS has limited resources and would have to hire more vampires to deal with them. The G has many legitimate uses for cash, but a much fairer way to collect would be a sales tax on spending and a value added tax on intermediate manufactured goods. Since every cash register manufactured has the ability to handle multiple tax rates, the stroke of a pen could write fini to the IRS abomination, and a new system could be in place before the week is out.

    Over and out!
    Shadow

  • DKantz

    May I ask you please to check that I’m correctly understanding this issue by walking through these following statements and then clarifying/correcting/verifying as is appropriate?:

    1) Congresspersons are legally prohibited from simultaneously being corporate insiders.

    2) The buying and selling of equities by corporate insiders who have access to non-public information that could affect the stock price (typically referred to as “insider information“) is illegal.

    3) It is totally legal for any others than corporate insiders who were exposed to insider information to buy and/or sell such stocks despite having acquired that insider information.

    4) Congressperson/staffers are among those who are other than corporate insiders; therefore, they may legally trade equities despite having insider information that was generated during the course of governance (which, in that case, this specific type of insider information is now being referred to as “political intelligence.”)

    4) For corporate insiders to hire agents specifically for the purpose of acquiring and reporting back on political intelligence they gathered is legal. But IF it can be proven that said corporate insiders had acquired that political intelligence previous to the execution of those trades, then those trades will have been proven to have been illegal.

    Thanking you for your assistance in advance.

    • LD

      Thanks for writing and raising these points.

      Let me first put forth that I am not a securities lawyer so I do not want to say something that I believe may be true but is in fact not the case. The questions you raise and points you pose tread very much in the minutiae of securities law. This minutiae does not always paint a black and white picture. In fact often it is intentionally gray as a result of effective lobbying done on behalf of those who may benefit.

      I know my response does not specifically address your points but I do not want to present something which is not totally accurate.

      • dkantz

        hmmm … the underlying problem the subject STOCK legislation attempted to address is that Congresspersons/staffers have almost certainly profited from trading on “political intelligence” — which, by definition, is potentially market moving info not available to the general public.

        Perhaps I misinterpreted what you meant to convey by the context in which you framed your question:

        “Are our legislators and their staffs aware of what exactly is and is not “inside information” and how that information should be handled?”

        I understood that you consider Congresspersons/staffers trading on “political intelligence” to be ethically equivalent to corporate insider trading. Did I misinterpret what you intended to convey? If so, then please clarify. But if I did properly understand you, then how do you suggest the problem be addressed?

        • LD

          Thanks for continuing the conversation.

          I was writing in a very matter of fact sort of style. That is, do those in Congress and on their staff understand what they can and cannot address and discuss? I could very easily imagine a young staff person being plied for information on a topic, provide some sort of insight, and not fully appreciate the sensitivity of the info shared.

          In this situation, basic understanding of compliance rules and regulations need to be implemented and practiced. More aggressive and timely oversight and recording of conversations and transactions must be enforced as well.

          Who’s minding the store and how are they doing their job? Who in turn is “policing the police”?

        • jack smith

          the solution, is the Grassley amendment, or the new bill he is trying to get passed. it directly solves most the problem.






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