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 The order by U.S. District Judge Paul Gardephe in New York covers
both the committee and Brian Sutter, staff director for its
healthcare subcommittee, and came at the SEC's request.
The SEC said it is examining whether material nonpublic information
concerning an April 1, 2013 announcement by the Centers for Medicare
and Medicaid Services of 2014 reimbursement rates for a Medicare
program was leaked improperly, and whether anyone traded on that
information.
The case could prompt a courtroom showdown between the SEC's
authority to enforce U.S. securities laws against Congress' power to
manage its own affairs.
"This cannot be good for inter-governmental relations between the
SEC and Congress," said Bradley Bondi, a partner at Cadwalader,
Wickersham & Taft and former counsel to two SEC commissioners.
The House committee has resisted the subpoenas, in part by arguing
that the U.S. Constitution shields lawmakers from having to testify
or turn over documents.
"The SEC subpoenas run seriously afoul of the Constitution’s Speech
or Debate Clause, and we expect to respond in due course on that
ground, among others," Kerry Kircher, general counsel for the House
of Representatives, said in an email.
Sutter's lawyer declined comment.
The court filings followed earlier reports of an insider trading
investigation into whether congressional staff helped tip traders
about the CMS announcement.
"Immunity will be the focal point of the legal controversy," said
Karl Manheim, a professor at Loyola Law School in Los Angeles.
HEALTH STOCKS
The initial SEC subpoena to the House committee was previously
disclosed by the committee's chairman, Rep. David Camp (R-Michigan),
according to the May 9 Congressional Record.
That same day, Sutter disclosed receiving subpoenas from the SEC and
a grand jury in Manhattan.
In court papers on Friday, the SEC said it was looking into an email
a lobbyist at the law firm Greenberg Traurig sent to broker-dealer
Height Securities regarding a deal struck in Congress about the
Medicare rates.
It said that email was 70 minutes before CMS announced the rates
after U.S. markets closed, and about 30 minutes before Height issued
a report suggesting that the change could help companies such as
Humana Inc and Health Net Inc.
The SEC said the share prices of both companies jumped after the
report, with Humana's rising 7 percent in the last 15 minutes of
trading.
Sutter, meanwhile, had on the day of the announcement been emailing
the Greenberg Traurig lobbyist about the termination of a client
from the Medicare program, the SEC said. Both then spoke on the
phone for three minutes, which was 10 minutes before the lobbyist
emailed Height, the SEC said.
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Greenberg Traurig spokeswoman Jill Perry said: "We are cooperating
with the inquiry and will continue to do so." A Height spokesman did
not respond to a request for comment.
STOCK ACT
The SEC's investigation marks what is likely the first ever to
invoke provisions of a 2012 law called the STOCK ACT, which seeks to
prevent people from using "political intelligence" to illegally
trade on material, non public information.
The SEC in its motion called the House's decision to resist turning
over documents "particularly odd" and "unwarranted" in light of the
STOCK Act's passage.
Andrew Ceresney, the head of the SEC's enforcement division, was
among a group of lawyers who penned a legal memo analyzing the
impact when he previously worked at Debevoise & Plimpton in 2012.
In that memo, Ceresney and the other attorneys conceded that despite
the passage of the law, there is still some ambiguity over what
constitutes "material nonpublic information" in this context.
Harvey Pitt, a former SEC chair, said he believed even before the
STOCK Act, the agency could have subpoenaed documents from Congress
that might relate to securities law violations.
"After the STOCK ACT, I don't doubt the SEC is well within its right
to obtain information of possible insider trading violations," he
said, calling the lack of production "startling."
The case is SEC v. Committee on Ways and Means of the U.S. House of
Representatives et al, U.S. District Court, Southern District of New
York, No. 14-mc-00193.
(Reporting by Nate Raymond and Jonathan Stempel in New York, and
Sarah N. Lynch and Emily Stephenson in Washington, D.C.; Editing by
Chris Reese, Bernard Orr)
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