Last updated on: 6/25/2008 11:47:00 AM PST
What are some examples of how “political intelligence” can be acquired and used for investment decisions on Wall Street?
General Reference (not clearly pro or con)
[Editor's Note: Political intelligence firms or people who have special relations with government officials can obtain nonpublic legislative information or learn about pending legislative decisions by attending lobbying sessions, having private meetings with lawmakers, or communicating directly with lobbyists and Congressional representatives. "Political Intelligence" refers to legislative information that is potentially market-moving, is nonpublic or not easily accessible to the public, and is gathered, analyzed, and sold to or shared with interested parties by firms or people with access to such information. "Political intelligence" is typically sold to independent companies or third parties whose business demands knowledge of upcoming market and industry affecting legislative decisions.]
Brody Mullins and Kara Scannell, reporters for The Wall Street Journal, in the newspaper's Dec. 8, 2006 article "Hedge Funds Hire Lobbyists to Gather Tips in Washington," wrote:
"Hedge funds are finding that Washington can be a gold mine of market-moving information, easily gathered by the politically connected. The funds are hiring lobbyists -- not to influence government, but to tell them what it's going to do. Several lobbying firms are ramping up their 'political-intelligence' units and charging hedge funds between $5,000 and $20,000 a month for tips and predictions...
A handful of hedge-fund firms -- including Elliott & Associates, D.E. Shaw & Co. and Angelo Gordon & Co. -- arranged to receive invitations to lobbyists' meetings with lawmakers starting in late 2003. They paid about $80,000 in annual membership fees to join a lobbying coalition, the Financial Institutions for Asbestos Reform, which advocated on behalf of financial institutions that owned large stakes in firms with asbestos liabilities...
Wealthy traders on Wall Street have long been able to gain an advantage in the market by getting access to better information. In the 1980s, stock arbitrageur Ivan Boesky hired a team of lobbyists in Washington to tell him if Congress would block Standard Oil Co.'s takeover of Gulf Corp. When told that the merger would be approved, Mr. Boesky cashed in. Mr. Boesky later pleaded guilty in one of Wall Street's biggest insider-trading scandals for paying for inside information about upcoming corporate mergers.
But prosecutors didn't pursue Mr. Boesky over tips received in Washington, which lobbying firms contend are legal."
Dec. 8, 2006 - Kara Scannell
Kristin Jensen, Michael Forsythe, and Jonathan D. Salant, MS, reporters for Bloomberg News, in their Mar. 16, 2005 article "Hedge Funds Hire Lobbyists for Inside Tips on U.S. Legislation," wrote:
"Former U.S. Senator John Breaux, who retired in January, is still walking the halls of Congress. Instead of brokering deals with lawmakers, he's serving as a pipeline for a New York hedge fund.
Breaux, a Louisiana Democrat, is one of a growing cadre of lobbyists being hired by U.S. hedge funds to provide instant tips on the progress of potentially market-moving legislation, from the settlement of asbestos lawsuits to allowing oil drilling in an Alaskan refuge. It's a legal way of letting investors benefit from information gleaned from private conversations with lawmakers and aides. And it's a new twist in Washington lobbying because it has nothing to do with influencing laws or policy.
Hedge funds, which often pursue high-risk, high-yield investments for wealthy clients, are taking on lobbyists such as Breaux to provide political intelligence that allows the funds to buy and sell company stock on information before it's widely known...
'It's a burgeoning area of work,' says Tony Podesta, 61, a Democratic strategist, lobbyist and the brother of John Podesta, a former chief of staff to President Clinton. Tony's firm, PodestaMattoon, has a hedge-fund client he won't name...
Federal rules prohibit Breaux from lobbying former colleagues for at least a year. There's nothing stopping him from a lunch, cocktail, workout or phone call to Capitol Hill that might yield a tradable tip for a hedge fund...
Lobbyists such as Breaux and Podesta use the connections they made while working in the government to get information or insight that's not readily available to most investors, such as whether a bill is going to reach the Senate floor or whether lawmakers are far from a compromise...
The hedge funds that have contacted lobbyist Steve Elmendorf, 44, who helped run Senator John Kerry's campaign for president, have told him they don't care which way the settlement goes, as long as they are prepared.
'They want to know whether to buy or sell,' says Elmendorf, who has a hedge-fund client he won't disclose. He works for Bryan Cave Strategies LLC, a unit of Bryan Cave LLP, a St. Louis-based law firm."
Mar. 16, 2005 - Jonathan D. Salant, MS
Alan J. Simpson, President of Communication Links, Inc., in his Dec. 3, 2005 article "Political Intelligence for Hedge Funds," posted on his website The Simpson Report, wrote:
"At a recent reception I mentioned to a prominent politician that we were working closely with Hedge Fund Managers to develop early warning political intelligence networks to give them early warning of political trends and upheavals.
A little bemused he pointed out that Hedge Funds were for the very rich, and invested in high gain high risk stocks, why would they need political intelligence about boring politicians in Washington. The answer is of course that they really need an independent resource to give them 'Heads Up' on upcoming rule changes, legislation and the direction of the political body, especially in international affairs. It is no accident that one of the Hedge Funds participating is in Beijing, China.
The Chinese are finding that what seems good business, such as the proposed purchase of Unocal can be derailed by the lobbyists in Washington, DC. The same with many other international investments, the funds need to know the lay of the political landscape before they lay out money to invest in the project."
Dec. 3, 2005 - Alan J. Simpson
Jeffrey Young and Jim Snyder, staff writers for The Hill, in the newspaper's Apr. 25, 2006 article "Regulators Investigate Key Leak to Wall Street," reported:
"Citigroup analyst Paul Heldman had obtained a leaked document offering a detailed preview of a hotly anticipated regulation that meant big money to Wall Street investors.
Heldman's report, complete with quotations from Medicare, carried bad news for specialty hospitals and the device makers and good news for hospitals in rural areas. Sources stressed that Medicare had already hinted it would move in that direction.
Nevertheless, the case highlights what securities attorneys say is a gray area in insider-trading laws: the practice of Washington insiders' — lobbyists or analysts — funneling political intelligence to Wall Street clients."
Apr. 25, 2006 - Jeffrey Young
Jessica Holzer, Staff Writer for The Hill, in the newspaper's Apr. 23, 2008 "Wall Street Goes Bargain Hunting in the Farm Bill," reported:
"Money managers, including hedge funds looking to scoop up battered stocks on the cheap, have told their Washington-based consultants to keep close tabs on the farm bill...
[T]he talks have grabbed their attention, according to sources in the political intelligence business, because the legislation could prove a boon to ethanol producers, timber companies and farm equipment manufacturers...
Investors are also watching a provision in the tax package, named the Tree Act, that would aid the timber industry, which is currently suffering from the housing downturn. The one-year incentive would cut taxes on traditional timber companies like Weyerhaeuser as well as clear up rules surrounding timber real estate investment trusts.
'I get a lot of people asking about legislation who appear to be monitoring it rather than lobbying it,' a Senate tax staffer said about the Tree Act."
Apr. 23, 2008 - Jessica Holzer