In a past blog post, “Humana Insurance Insider Trading Investigation Includes 44 Funds,” we relayed the details of an investigation by the Securities and Exchange Commission (“SEC”). The investigation alleged that before the Centers for Medicare and Medicaid Services (“CMS”) made an announcement regarding reimbursement rates for the Medicare advantage program, a senior aide in the House of Representatives leaked information about the rates to a privately held broker-dealer, Height Securities, LLC (“Height”), which provides research, advisory, and investment banking services to institutional investors, financial sponsors and corporations. The SEC claimed that Height passed on the information to its clients. Heights’ clients were then able to buy a great deal of shares in healthcare insurance companies, which substantially increased trading for healthcare stocks right before the announcement. When the share price increased due to the positive announcement from CMS, these investors profited and allegedly did so as a result of receiving illegal information.
Developments in the investigation were disrupted by the House Ways and Means Committee because it insisted a D.C. Circuit ruling supported its view that the SEC cannot question a former aide, Brian Sutter (“Sutter”), in a health care insider-trading probe. The D.C. Circuit found in Rangel v. Boehner, 20 F. Supp. 3d 148, 159-83 (D. D. C. 2013), that the Speech and Debate Clause of the U.S. Constitution, which protects legislative activity, also protects a committee’s members and staff from testifying. The House argued that the Speech and Debate Clause serves as an absolute bar to judicial intervention for respondents who are engaged in legislative activity, such as investigative activity. Although Sutter resigned, the House maintained that he should still be exempt from being deposed.
In December 2014, the SEC urged U.S. District Judge Paul Gardephe to grant its subpoena request after Sutter resigned and because he has personal knowledge of the insider-trading case. The subpoena sought to determine whether Sutter or anyone else tipped off Mark Hayes, a lobbyist for Greenberg Traurig LLP (“Greenberg”), about an important healthcare policy change, which was sent to an analyst at Height.
This week, Judge Gardephe granted in part and denied in part the SEC’s subpoena, reasoning that the Speech and Debate Clause does not provide protection for information communicated by a legislative member or aide to a member of the public. Therefore, any of Sutter’s statements to members or employees of Greenberg are not protected and must be produced. However, any instances when the committee was seeking information from Greenberg are protected.
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Salvatore, Cara. “House Panel Can’t Nix SEC Subpoena In Insider Trading Probe.” Law360. Last modified November 16, 2015.
Salvatore, Cara. “House Panel Says DC Circ. Is On Its Side in SEC Fight.” Law360. Last modified May 18, 2015.