On April 1, 2013, an hour before the markets closed, a congressional staffer named Brian Sutter passed along to a lobbyist the kind of tip that can make a savvy investor a quick fortune: Medicare was about to raise some reimbursement rates, which would be a windfall for big insurance companies. Ten minutes later the lobbyist, Mark Hayes of Greenberg Traurig, whose clients included Humana, notified an analyst at Height Securities, a small Washington investment research firm. And minutes after that, Height issued a “flash report” to 200 investor clients, including several large hedge funds and money managers, 44 of which traded on the information and profited when shares of large insurers jumped just before the close, according to court filings by the Securities and Exchange Commission. Fifteen minutes after the bell, Medicare’s administrators announced to the public what this network of Washington insiders had long since ferreted out: Reimbursements were going up.
This episode is a prime example of the shadowy Washington business of “political intelligence”—gathering inside information on executive, legislative, and regulatory developments and selling it to Wall Street investors, who pay large sums to keep abreast of what’s going on behind the headlines and trade on it before anyone else.