The House Ways and Means Committee and a top aide on the panel were ordered to explain to a federal judge why they shouldn’t provide documents to regulators investigating possible insider trading in health-care stocks.
U.S. District Court Judge Paul Gardephe in New York yesterday directed the committee and aide Brian Sutter, a possible source of the leak according to the U.S. Securities and Exchange Commission, to appear before him July 1.
The SEC sought the subpoenas in an investigation testing the limits of federal insider-trading laws on whether the committee or staff members illegally passed on non-public information about a change in U.S. health-care policy. In seeking compliance with the subpoena demand, the SEC cited a 2012 law that requires public officials to keep confidential any non-public information about government matters that could move stock prices.
The regulator is investigating a spike in trading of health-insurance companies, including Humana Inc., ahead of a government announcement last year that increased, rather than cut, payments to health insurers.
The SEC said that on May 19 the committee and Sutter notified the agency that they would refuse to comply with the subpoena demand because it was “repugnant to public policy.”
The regulator disclosed new details of its investigation in court filings, saying it has evidence that Sutter “may have been a source” used by a lobbyist at Greenberg Traurig LLP. The lobbyist disclosed the health policy changes to an analyst, who sent out an alert ahead of the government announcement, according to the SEC. Trading in health-insurers surged ahead of the announcement.
The SEC said in the filing that it “wasn’t at liberty” to give details of the evidence it obtained against Sutter and the lobbyist.
Greenberg Traurig is cooperating with the inquiry and will continue to do so, Jill Perry, a spokeswoman for the law firm, said in an e-mailed statement.
“The SEC subpoenas run seriously afoul of the constitution’s speech or debate clause,” Kerry W. Kircher, general counsel in the House Office of the General Counsel, said in an e-mailed statement. “We expect to respond in due course on that ground, among others.”
Kircher sought more time, past July 1, for Sutter to respond to the SEC in a request filed to the judge yesterday.
Sutter was interviewed by a Federal Bureau of Investigation agent last year and an investigator from the Office of the Inspector General at the U.S. Department of Health and Human Services, the SEC said. Sutter said he didn’t recall speaking with the Greenberg Traurig lobbyist, according to the SEC. He changed his story a few days later, saying it was possible he did speak with the lobbyist, the SEC said.
“Mr. Sutter’s best recollection now is that he previously may have used his mobile telephone to speak with the GT lobbyist, although he is not certain,” a lawyer for the House said in a letter to the FBI and HHS office, according to the SEC.
Other statements Sutter made might also merit clarification, the lawyer wrote, although the SEC said he never met with the FBI or the HHS office to do so.
The SEC sought documents, including phone records, to determine who Sutter spoke with and if he had contact with Greenberg Traurig.
Minutes before the government announced the health care policy change, an analyst at Height Securities LLC released a flash report outlining the proposal, the SEC said.
Within five minutes of Height Securities’ report, prices and trading volumes of health care insurers spiked, with Humana rising 7 percent, according to the SEC.
The SEC said it’s also looking into last year’s confirmation of Marilyn Tavenner by the U.S. Senate as administrator for the Centers of Medicare & Medicaid Services.
Tavenner’s confirmation was “politically linked” to the centers’ decision to boost payments to health insurers, an April 1, 2013, e-mail to Height Securities from the Greenberg Traurig lobbyist suggested, according to the SEC. Tavenner was confirmed May 15, 2013, by a 91-7 vote in the Senate.
“The commission seeks documents concerning that potential confirmation in this time period to ensure that it obtains all documents and communications that might reflect knowledge or disclosure of the rate announcements,” the SEC said.
The case is SEC v. The Committee on Ways and Means of The U.S. House of Representatives and Brian Sutter. 14-mc-00193. U.S. District Court Southern District of New York (Manhattan).