Note: Submitted by Guest Blogger James Berger (James is an attorney, member of the ABA’s New York White Collar Crime CommitteeÂ and public affairs partner at the firm McLean/Clark LLC)
Among the endless parade of scandals marching across recent headlines, there has been a sudden surge in SEC and Justice Department “attention”Â focusedÂ on the providers of so-called “political intelligence.” I’m concerned, because, despite the usualÂ “gotcha politics”Â I’ve come toÂ expect, the concepts here are both more straightforward – and profound – than many of the “serious people” out there appear to appreciate.
On the one hand, some in government (and elsewhere) are claiming that investors (in particular, institutions like banks, hedge funds, and PE firms) who employ lobbyists or other Washington “insiders” to gather information based on their daily inside-the-Beltway activities, then collate it into a usable form and present key points to their clients, are assisting in a new form of insider trading. According to this theory, both the entities or individuals who trade on such information AND the DC-types who gather it, are guilty of your standard 10(B)(5) violation: colluding in the purchase or sale of securities based on material non-public information. After all, not everyone can spend time at committee hearings, meet with Members of Congress (and their staffers) and attend glitzy dinners at the White House (not to mention, endure what’s actually the most common but least reported type of political intelligence gathering activity – spending hours watching stunningly boring and pointless floor sessions on CSPAN . . .) The question, however, remains: since not everyone can do it (or pay somebody else to do it), is the practice of political intelligence actually equivalent to, say, your cousin at Apple telling you the release date of a next generation iPhone that’s bound to send Apple stock soaring back into the stratosphere?
Clearly, this is a subject on which lots of reasonable, well-informed people disagree. But let us be clear: at FrazerRice.com, we’re sure as hell not in the business of pandering to the reasonable and well-informed.
My view: Political Intelligence is absolutely not insider trading. Think about what it would mean if that were actually the case. First, the type of information in the Apple scenario actually is coming from an “insider” – that is, a person with specific knowledge, gleaned from their position within a public company, which is also likely to have a direct impact on the performance of that company’s stock. Some elected and appointed members of government might also have such knowledge, but that’s not what political intelligence analysts are gathering. Instead, their focus is on the public words and actions of individuals who are OUR EMPLOYEES – words spoken on the job, while working FOR US.
You may not like paying taxes, but at least you can take some comfort in knowing that politicians andÂ bureaucratsÂ – as dysfunctional as they may be – are, by law, your servants. That’s what that whole American Revolution thing was about. We don’t have a king or nobility. If any institution in America needs greaterÂ transparency and more access (put differently, more widespread “political intelligence”) – surely, it’s the United States government.
Second, the First Amendment expressly protects the “right the of the people to peaceably assemble and petition their government for a redress of grievances” and guarantees that “Congress shall make no law . . . abridging the freedom of speech or of the press.” From a Constitutional perspective, unless the information acquired by a political intelligence firm is officially classified or is provided in an improper form (an example might be a Senate staffer sharing office information without authorization), then banning the sharing of such information is absolutely in violation of the First Amendment (an obvious dis-qualifierÂ in itself but also enough to invalidate any securities law). Lobbying has long been upheld as a valid exercise of the the “petitioning right” and the gathering of information is the very essence of press freedom. Were we to start restricting such activities simply because they result in high-priced publications, there would be no clear endpoint. If I read twelve newspapers (because I happen to have time) and you read only one, I have may indeed have more “political intelligence” than you do. Now, if I then call my broker and trade on what I’ve learned from these public sources, should I be hauled off to prison? What about if some people can afford faster, more powerful computers than others? Are they too illegal insiders? (God forbid – what if someone has the audacity to hire a private wealth manager – say, someone like Frazer?) Our ConstitutionÂ guarantees liberty – not equality. And from my perspective, the founding fathers made the right call on that one.
In the end, the government’s current mindset should be severely troubling to anyone regardless of their feelings about Wall Street. Why? Because this most certainly isn’t just a Wall Street story. It’s an American story. And if the government wins this round, just imagine how pleased those jokers in DC will be to prevent YOU – the honest tax-paying citizen – from retaining the type of journalistic access that has always been our nation’s best defense against the encroachment of tyranny.