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Inside the Washington-Wall Street Corruption Industry

9 | By Shah Gilani

There’s a new twist in an ongoing U.S. Securities and Exchange Commission (SEC) probe.

For months now, the SEC has been investigating whether anyone in the federal government leaked inside information to a Washington-based investment research firm.

While that was pretty juicy already, those investigators are now looking at up to 44 hedge funds that may have traded on that inside information.

If you already thought our public servants were greedy, dirty and corrupt, well, this helps prove your case.

If, on the other hand, you think our folks in D.C. are pure, altruistic angels, today I’m going to convince you otherwise…

A Revealing Timeline

At 3:42 p.m. on April 1, 2013, more than 150 investor clients of Height Securities were sent an email predicting that the federal Centers for Medicare and Medicaid Services (CMS) would reverse course on planned funding cuts for private insurance plans.

Based on the “prediction,” the hedge funds now under investigation bought shares of insurance companies that would benefit if CMS did in fact reverse its stance.

And wouldn’t you know it, at 4:22 p.m. that same afternoon, the folks at CMS announced they were reversing themselves. In afterhours trading and over the next several days, insurance company stocks soared.

The SEC investigators believe the Height Securities analysts told the hedge-fund traders – immediately after the initial email was sent to Height’s 150 clients – that Height’s information was based on a “credible source” in the federal government.

If the credible source was leaking inside information, or the traders even thought that Height’s tip was inside information, and they acted on it, those hedge funds could be charged.

It’s all well and good that the SEC is looking into who made what on their trading. But what’s far more interesting and important is who the credible source was.

Was he or she paid? Was he or she given the inside information by anyone in the government who was paid?

Whether we find all this out or not may be based on an upcoming judge’s ruling.

That’s because the credible source, Brian Sutter, a top House of Representatives healthcare aide, has refused to comply with an SEC subpoena in the matter. Sutter ignored the subpoena based on advice of congressional lawyers.

That prompted the SEC to file a federal lawsuit seeking to force Sutter to turn over his communications and records to investigators. The judge hearing the case is expected to rule any day now.

What is known to have happened, based on email and phone records, is that Sutter spoke to healthcare lobbyist Mark Hayes, who previously worked for Height Securities. And within 10 minutes, Hayes communicated CMS’s change of course to someone at Height, citing a “credible source.”

The SEC, to its immense credit, is actually investigating the Washington political-intelligence industry. That the investigators have been stymied by House lawyers is indicative of something.

Some D.C. watchers say it’s indicative of the separation-of-powers issues that come up when the executive branch investigates the legislative branch.

I say poppycock. It’s indicative of a cover-up.

Here’s what I want to know.

Are people in and around Congress making money directly (envelopes of cash) or indirectly (campaign donations) by channeling inside information to hedge funds?

Do you think we’ll ever find out?

9 Responses to Inside the Washington-Wall Street Corruption Industry

  1. RUSS SMITH says:

    Hi!, Patrons Of Wall Street Insights & Indictments Et Al:

    Years and years ago someone in OUR local community quizzed my deceased mentor, by asking him if he trusted the US government and he merely replied: “Should I !!?” Trust should NEVER be taken for granted, because real and reliable trust is earned. After real trust is earned then should come faith as in faith in OUR government and this doesn’t mean blind faith either but faith won through unsolicited, honorable trust from perceived correct actions that warrant that trust followed by abiding real, honest faith based on solid as a rock premises is my opinion.

    RUSS S., CA. (One Of Our Broke, Fiat Money States)

  2. dbtheonly says:

    Mr. Gilani;

    I remember you writing about the STOCK Act a couple of years ago. Isn’t this exactly the things it would have prevented, if passed?

  3. Gibble says:

    “Are people in and around Congress making money directly (envelopes of cash) or indirectly (campaign donations) by channeling inside information to hedge funds?”

    Does it matter? They can legally receive bribes in the form of shares which they can then sell for cash so whats the point in doing this in an illegal way?

    And no one yet has been imprisoned and I do not think anyone will.
    Crony capitalism wins again.

  4. Ron A says:

    How do we stop this madness- All politicans are crooked except mine and yours- ha!! Do we have to revolt in the streets to change the direction of this country!!

  5. dave says:

    Of course, you’re right, but this seems rather run of the mill compared to the shenanigans of Jon Corzine of MF Global, who, depending on the source, stole between 1.2and 1.8 Billion from his clients. Why is he being protected?
    Because he is an adept fund raiser? At least, they finally got Bernie.

  6. Fred D Haruda, MD,FAAN says:

    To clean up the government’s finances and eliminate fraud and cheating, the income tax and the IRS must be eliminated. Instead we should have a sales tax on EVERY TRANSACTION. The federal government reportedly accounts for 20% of the GDP, so the sales tax should be 20%. A sales tax is the fairest and most equitable tax. Everyone pays something, since we all receive some government services. People with more money who spend more would pay more. Those with less money who spend less would pay less. It would promote industry and job growth. It’s no accident that states with no income tax, TX, FL, NV, WA are economic powerhouses! Tax shelters and other schemes to hide income from the IRS would vanish. OUR WHOLE COUNTRY WOULD BE BETTER OFF!

  7. Kevin Beck says:

    This all comes back to one thing: Should government be made smaller?

    In almost every area, I would say YES!

    If so, then such issues as this would never come up; they would never be under the influence of any government scalawags in the first place.

  8. RISTOS says:

    Truth is a flexible concept in WDC and a few other places I could mention. During a short time with a federal agency, I witnessed two cover-ups at the highest level done to prevent adverse affects on the agency. Capitol Hill is notorious for its immunity to close scrutiny. As our Roman friends once put it: Quis custodiat ipsos custodes? Roughly translated: Who is watching the watchers.

  9. Fred G. Laliberte says:

    What about Congress, why are they allowed to do inside trading, especially, when people like Martha Stewart went to jail for the very same thing. These people (Congress) The United States (LAW MAKERS) exempt!! What’s up with that?

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