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Video Interview: Discussing Recent STOCK Act Developments with LXBN TV

Recent developments have brought once and future changes to the STOCK Act. Not surprisingly, these changes afford less transparency for public sector conduct and potentially far greater disclosure obligations for the private sector.

Moreover, the political intelligence community’s “close up”, which we warned about last week while wearing our best Little Orphan Annie dress, is upon us as the Securities and Exchange Commission just today announced issuance of the subpoenas we knew were “only a day away”.

I talk about it all with LexBlog here:


Video Interview: Discussing Recent STOCK Act Developments with LXBN TV

Is the “Political Intelligence” Community Ready for its Close Up? (It Better Be)

Some time ago, we alerted you to the STOCK Act and warned purveyors of “political intelligence” to prepare for some “enhanced scrutiny”. Think of it as akin to “enhanced interrogation” without the need for towels. (And for those for whom a talking head is worth a thousand words, I discuss all this here courtesy of my good friend Colin O’Keefe at LexBlog).

For those new to the issue, the Stock Act was a reaction to news reports appearing to demonstrate that some members of Congress and their staff were benefitting from stock trades based on nonpublic information. Specifically, as we wrote previously, the bill affirmed that Members of Congress are not exempt from insider trading laws and mandated comprehensive online disclosure of trading activities by Congress. Parallel language in the bill designed to mandate enhanced disclosure by “political intelligence” firms died in the House of Representatives.

In an election year, a bill like the STOCK Act made a good deal of sense. This year, it would appear, not so much. In case you missed it, the Senate recently slipped language through in the dark of night gutting the Act’s application to staffers and eliminating the requirement that mandated disclosures actually be searchable online. In a nice touch, the White House quietly announced that the President had signed the bill limiting the STOCK Act on the day your taxes were due. Commentators from the Sunlight Foundation to OpenSecrets to Jon Stewart voiced outrage.

Meanwhile, as Stewart and other political commentators are focused on what is happening with regard to the public sector, a real push towards enhanced disclosure on the part of “political intelligence” firms is proceeding at full steam.

First, the United States Government Accountability Office this month issued a comprehensive report analyzing the current market for political intelligence and examining potential impediments to expanded disclosure and reporting requirements designed to capture these activities. The implications of that report can be found in this excellent law firm client alert. While significant constitutional and practical impediments stand in the way of legislation designed to regulate the gathering, analysis and dissemination of public information (like the paytoplaylawblog!!!), the smell of cordite is clearly in the air and we should all remain alert.

Second, alarm bells went off in Washington last week as POLITICO reported that Senator Grassley issued a letter to a Washington law firm and a former aide seeking information on whether the law firm had tipped off a political intelligence firm about non-public Medicare Advantage rates. The resulting client memo, issued one hour before market close, triggered a surge in buying of health insurer stocks and resulting Congressional scrutiny. Just this week, the law firm in question announced it would no longer do business with political intelligence firms.

All of this leaves political intelligence and law firms – which appear in virtually all cases to be doing nothing illegal or unethical in analyzing and distilling public information better than the rest of us – reaching for the antacid.

This is definitely an issue to bookmark.

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Is the “Political Intelligence” Community Ready for its Close Up? (It Better Be)

The STOCK Act Explained (video interview)

Still have questions about what the STOCK Act really means?

In this interview with LexBlog Network Television, I explain the legislation, what drove it, and where it could be headed.

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The STOCK Act Explained (video interview)

Taking Stock of The STOCK Act. . . . Wither “Political Intelligence”?

Proponents of ethics reform and increased political transparency in Washington don’t often see reform proposals pass through Congress by overwhelming margins, and rarely does anyone bemoan an excess of “political intelligence” in Washington, but that’s exactly what happened on Capitol Hill this past week. While the reform community can’t quite be sure what version of reform will survive the ongoing tug of war between the U.S. Senate and U.S. House of Representatives, it is clear that those trading on “inside political knowledge” are clearly in the transparency crosshairs.

If you are a consultant, a lobbyist, a law firm, or simply a person with inside knowledge of how Washington thinks, this post pertains to you (but you already know that, of course).

Two relevant reform proposals emerged in the wake of growing public outrage generated by CBS’ “Sixty Minutes” and other reports highlighting the ability of elected officials and their staff to trade on otherwise “non-public” information for personal investment gains. Near universal public outrage is about the only catalyst for Congressional action these days but, despite bipartisan grass-roots calls for reform, no singular solution is ever presented by Congress…. Instead, as many might have predicted, Congress produced two competing visions of what problems need to be addressed and how to go about it.

The Senate set forth its vision last Thursday when it passed the Stop Trading on Congressional Knowledge (“STOCK”) Act of 2012 in a lopsided, 96-3 roll call vote. In addition to tackling the fundamental problem not so subtly referenced in its title, the STOCK Act seeks to implement a number of aggressive ethics rules and revisions to the Lobbying Disclosure Act aimed at further restricting legislative and executive branch conflicts of interest and mandating more transparency in the area of non-lobbyist political consulting.

Most significantly for “Establishment Washington”, included within the Senate proposal’s ban on “insider trading” is a controversial obligation that all “political intelligence” consultants register and disclose their activities as if they were federal lobbyists, and a contentious legislative fix to the poorly-written “honest services fraud” statute that was recently-deemed unconstitutional by the U.S. Supreme Court in contexts outside of bribery and kickback schemes.

The language of the Senate bill would reach individuals and entities who engage in “political intelligence contacts” for the purpose of obtaining information from officials of the executive and legislative branches of government “for use in analyzing securities or commodities markets, or in informing investment decisions.” Any organization employing or retaining an individual who engages in one such contact would be required to register and report in the same fashion as if they were a lobbyist-registrant under the Lobbying Disclosure Act (LDA).  As such, they would be subject to the same quarterly and semi-annual disclosure requirements that lobbyist-registrants currently meet.

On a quarterly basis, via a Form LD-2, “political intelligence” registrants would need to disclose the “issue areas” their organizations are discussing, the legislative body or federal agencies they are contacting, the employee(s)/consultant(s) that engage in such contacts, and the total expenses incurred with regard to the intelligence-gathering activities. On a semi-annual basis, via a Form LD-203, political intelligence registrants would also need to disclose political contributions and contributions to events honoring or recognizing covered executive or legislative branch officials. Such contribution reports would be required of both individual consultants and their employing organizations, effectively opening up a new segment of the Washington political class to public scrutiny of its campaign and non-campaign donations. Certain limited exemptions to these disclosure requirements do exist under the Senate version of the bill, but they are not nearly as broad as those carved out under the LDA for current lobbyist-registrants.

Reform and transparency are all well and good, but these requirements proved too much for the House (and legions of the suddenly activated “political intelligencia”) to accept.

Yesterday morning, the House followed the Senate’s lead by passing its own amended version of the STOCK Act by a similarly enormous voting margin – 417 to 2 to be exact – but without the requirement that non-lobbyist “political intelligence” consultants register and report their activities. Likewise, the House version of the bill refrains from amending the honest services fraud statute to allow for its use in non-bribery and non-kickback scenarios.

House Majority Leader Eric Cantor (R-VA) articulated the House rationale when he commented that the Senate’s disclosure requirements were something “outside of what we do” and that they were not part of the original purpose of the STOCK Act legislation. Also criticized was the “vagueness” of the political intelligence provisions as pertains to anything that happens in Washington.

Thus, in as sure an effort towards “assisted suicide” as Congress has in its arsenal these days, the amended House STOCK Act calls for a federal study of the “political intelligence” industry for the purpose of making future legislative recommendations and additionally prohibits lawmakers from receiving access to initial public offerings of stock. THAT always results in action, right?

Looking to the future, many believe that the political intelligence requirements of the Senate’s STOCK Act are yet another reformulation of recent efforts attempting to compel increased disclosure, and thus disincentivize, political spending by corporations and wealthy individuals. This blog has discussed similar efforts by the SEC, Congress, the ABA, and the Obama Administration in the past. And as such, it is easy to understand the negative reaction that has come from these House Members and many on K Street. Particularly when coupled with the drastic effect the expansion of registration and reporting requirements would have on business activities in and around Washington, D.C moving forward.

In the end, it will be interesting to see whether the overarching goal of banning “insider trading” by Members of Congress and congressional staff becomes collateral damage in the battle over establishing political intelligence registration and reporting requirements. Stranger things have happened on Capitol Hill. Anyone selling information or access in Washington needs to be closely watching Congress in the coming weeks to see how this tug of war ends.

But you already know that.

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Taking Stock of The STOCK Act. . . . Wither “Political Intelligence”?

CalPERS Chooses Not to Follow the Chamber’s Advice on Transparency

Last year (coincidentally, almost to the day), this blog was all atwitter (you’re following us, right?) about CalPERS’ announcement that it would now require contractors to reveal whether they are using placement agents to seek business with the pension fund. Now, one year later, CalPERS has announced that its governing board approved new corporate governance principles calling upon corporations to detail all yearly political and charitable donations — including those made through trade associations and tax-exempt groups.

As we have noted, the pressures faced by CalPERS to respond to recent Supreme Court authority allowing unfettered corporate independent expenditures, are not at all unique. Transparency advocates are rightfully concerned about an environment in which secret corporate and union political advocacy can possibly run amok. Here, the revisions to the CalPERS guidelines were sought by California State Treasurer Bill Lockyer, a Democrat and member of the CalPERS governing board. In his letter calling for action, Treasurer Lockyer noted (without apparent empirical or anecdotal support) that a lack of transparency harms “corporate value” and that:

Increasingly, corporations are using [trade associations and tax exempt groups] in an attempt to cloak massive political spending in secrecy through “independent expenditure” campaigns, many of which are notorious for making unfair and unfounded personal attacks with which no company or its investors would want to be publicly associated.

The California Chamber of Commerce was not amused:

The new proposed policy amounts to “forcing publicly held corporations to show their competitors and political adversaries their political investment strategy, without receiving the same information in return,” Barrera said.

The CalChamber is leading a coalition to oppose the change to the corporate governance principles, specifically the section dealing with charitable and political contributions. In a letter to CalPERS, the coalition noted that the new section “is an unfair and discriminatory mandate on corporate boards of directors, designed to chill the ability of businesses to defend themselves from political attacks by competitors, overzealous regulators, labor unions or no-growth advocates.”

If the publicly traded companies are unable to defend themselves against the political attacks of their adversaries, the proposal will have massive unintended consequences for the very people CalPERS is obligated to protect and support.

In addition, the CalChamber noted the general invalidity of the premise behind the CalPERS proposal:

The CalChamber has pointed out that the premise of Lockyer’s proposal—that corporate value is negatively correlated with corporate political transparency—is not true.

Professor Lawrence Ribstein of the University of Illinois notes that the negative correlation “may be because firms hurt most by government regulation must engage in more political activity.”

Professor Roger Coffin of the University of Delaware has found that companies “that signed the ‘anti-Citizens United pledge’ in the aftermath of the decision did not see a material increase in firm value. Nor did the value of several industry-specific indexes go down. This represents good news for shareholders and the companies themselves.”

Notwithstanding this opposition, on November 14, the proposed revision to CalPERS’ Global Principles of Accountable Corporate Governance passed as follows:

6.5 Charitable and Political Contributions: Robust board oversight and disclosure of corporate charitable and political activity is needed to ensure alignment with business strategy and to protect assets on behalf of shareowners. We recommend the following:

a. Policy: The board should develop and disclose a policy for approving that outlines the board‘s role in overseeing corporate charitable and political contributions, the terms and conditions under which charitable and political contributions are permissible, and the process for disclosing charitable and political contributions annually.

b. Board Monitoring, Assessment and Approval: The board of directors should monitor significant charitable and political contributions (including trade association contributions

directed for lobbying purposes) made by the company. The board should ensure that only contributions consistent with and aligned to the interests of the company and its shareowners are approved. The terms and conditions of such contributions should be clearly defined and approved by the board.

c. Disclosure: The board should disclose on an annual basis the amounts and recipients of significant monetary and non-monetary contributions made by the company during the prior fiscal year. If any expenditures earmarked or used for political or charitable activities were provided to or through a third-party to influence elections of candidates or ballot measures or governmental action, then those expenditures should be included in the report.

As a final tease, blogger Keith Paul Bishop of Allen Matkins wrote of the change: “Interestingly, the Chamber has completely overlooked the most obvious legal infirmity of the guideline, but I’ll save that discussion for a future post.” Argghh! Don’t you hate it when that happens? I guess we’ll have to stay tuned. (For the record, my vote on the “obvious legal infirmity” is that this policy completely misses the fundamental Citizens United distinction between corporate independent expenditures and contributions).


CalPERS Chooses Not to Follow the Chamber’s Advice on Transparency

Deficit “Super Committee” Transparency – Will We Get to See the Budgetary Sausage in Production?

Whether you agree with Justice Brandeis that sunlight is the “best of disinfectants” or with former American League of Lobbyists president Dave Wenhold that “too much sunlight causes cancer”, it should be readily apparent to the readers of this blog that public officials of all stripes have increasingly begun to listen to the chorus of voices calling out for more transparency in all levels of government. At PaytoPlayLawBlog, we often write about how the push for greater transparency at the federal, state and local levels is affecting the operation of government, as well as the interaction of the public with government officials. As strictly objective, rational observers (ahem), it seems to us that disclosure alone generally trumps both inaction and punitive regulation in the pay-to-play space. Over the past month or so, we have come to see new evidence of this welcome push for openness at the federal level, particularly with regard to the activities of the newly-formed Joint Select Committee on Deficit Reduction (or the so-called Deficit “Super Committee”).

For those who have spent all of their time recently tracking satellite orbits and running calculations on their chance of having to make a potentially uncovered homeowners claim, the Super Committee is a balanced delegation of six Democrats and six Republicans (split evenly between members of the U.S. House of Representatives and U.S. Senate) formed in August of this year as a means of permitting Congress and the White House the opportunity to avoid responsibility for identifying an additional $1.5 trillion in federal budgetary cuts over the next decade. Whether one agrees with the premise of granting 12 Members of Congress such extraordinary authority over federal, fiscal decision making, it is readily apparent that the ongoing work of the Super Committee has drawn a great deal of attention from political organizations and commentators across the ideological spectrum. Given the nature of the current (entirely justified) cynicism with the political process, and the enormity of the task before the Super Committee, it should not surprise readers of this blog to learn that much of this attention across the political continuum has been focused on increasing the political transparency of the Committee’s activities.

One of the more prominent efforts to accomplish this goal has been organized by the Sunlight Foundation, a non-profit organization dedicated to using the “power of the Internet to catalyze greater government openness and transparency.” On August 3, 2011, the Foundation issued a letter to congressional leadership urging them to adopt a series of recommendations that the Foundation believes will ensure the Super Committee operates in a fully open and transparent manner. Those recommendations included: (1) holding live webcasts of all official Committee meetings and hearings; (2) posting the Committee’s draft recommendations for at least 72 hours prior to a final committee vote; (3) promoting disclosure of every meeting held by Committee members with lobbyists and other “powerful interests”; (4) ensuring the immediate disclosure of all campaign contributions received by Committee members during their service on the Committee; and (5) demanding additional financial disclosure standards for Committee members and their staffers. In addition, the Foundation has teamed up with various transparency activists and supporters to launch a grassroots campaign designed to encourage greater accountability and openness from the Super Committee. The movement’s allies in this endeavor include such left-leaning organizations as The Brennan Center for Justice, the Project on Government Oversight, and Public Citizen.

Although not necessarily backing each of the Sunlight Foundation’s specific recommendations, many organizations and individuals on the conservative and libertarian end of the political spectrum have also echoed the Foundation’s calls for transparency in Super Committee activities. For example, Jim Harper of the CATO Institute and Rob Bluey of The Heritage Foundation’s Center for Media and Public Policy have both recently demanded that the Super Committee permit open public access to Committee meetings and legislative proposals as a means of ensuring that all citizens are kept abreast of the activities of this uniquely powerful legislative panel. Along those same lines, Harper and Bluey have also called for Committee transparency as a safeguard against the passage of expansive legislation that is subject to little or no debate or public input.

All of this makes perfect sense. As we have previously observed here, efforts to govern matters such as this from behind closed doors can lead to embarrassing exchanges.

Bi-partisan support for greater Super Committee transparency has even begun to emerge within Congress itself. In fact, in early September, Representatives Mike Quigley (D-IL), Dave Loebsack (D-IA), and Jim Renacci (R-OH) introduced H.R. 2860, the Deficit Committee Transparency Act, which would implement six transparency reforms along the lines of those recommended by the Sunlight Foundation. Similarly, Senators David Vitter (R-LA) and Dean Heller (R-NV) have also introduced two separate bills, S. 1501 (the Budget Control Joint Committee Transparency Act) and S. 1498  (the Super Committee Sunshine Act), that are designed to ensure the openness of Super Committee meetings and greater transparency in the political fundraising of Committee members.

At present, none of the aforementioned bills have been acted upon in Congress, but there does appear to be growing support on both sides of the political aisle for a more open and forthright framework for Super Committee action. Recognizing the growing momentum in support of such transparency, the Committee has taken the initial step of keeping its three preliminary meetings open to the public (and also available for video review over the Internet). It remains to be seen, however, whether this policy will continue as the Committee gets deeper into the task of formulating its deficit-reduction proposals. Likewise, it remains to be seen whether any of the other aforementioned transparency proposals will gain any traction with the Committee itself. Stay tuned in the coming months to find out.

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Deficit “Super Committee” Transparency – Will We Get to See the Budgetary Sausage in Production?

Pay-to-Play Disclosure For Government Contractors – UPDATE Strong Reactions and a Not-Too Transparent White House

Our last post focused on the trial balloon being floated by the White House to impose corporate political disclosure obligations on government contractors.  At the time of that post, all we had was a White House press secretary description.  Subsequently, draft orders have been floating around the internet.

If I do say so myself, I thought our firm’s government contracts department provided a pretty comprehensive analysis of the issue for our clients in a recent client alert.

Notably, that alert observed:

The proposed executive order would require every federal contracting department and agency to require all entities submitting offers for federal contracts to disclose certain political contributions and expenditures made within two years of the submission date of the offer.  The disclosures would include all contributions to or on behalf of federal candidates, parties or party committees by the bidding entity, its directors or officers, or by any affiliates or subsidiaries.  Any contributions to third party entities (such as trade associations or industry groups) made with the expectation or intention that the parties would use those contributions to make independent expenditures or electioneering communications would have to be disclosed.  The FAR Council would be directed to adopt rules and regulations that would, among other things, require bidders to certify that the accuracy of the information disclosed as a condition of award.

Reaction from all ends of the political spectrum has been immediate and prolific with objections to the proposal being found from Senator Collins in today’s Washington Post,others in the Senate, and the US Chamber of Commerce.  Most concerns surrounding the proposed executive order track those raised by the Chamber (and, of course, this blog which raised them first – wink) in observing that the order is of dubious constitutionality and a relatively clear effort to circumvent political challenges in getting Congress to pass the DISCLOSE ACT in the wake of Citizens United v. FEC:

The executive order would make every company that tries to contract with the federal government disclose spending that is confidential and used to fund core, First Amendment-protected political speech. Also troubling is the executive order’s reach beyond companies to their individual officers and directors, who would be forced by the executive order to disclose personal political spending undertaken with their own assets. This aspect of the order will both impair individuals’ First Amendment freedoms and interfere with the relationships between companies and their employees.

On the other hand, public interest groups such as Democracy21 rose in defense of the proposed order and against the Chamber’s efforts to stifle it.  Groups like Care2 have pointed out:

Its [sic] easy to see why the Chamber of Commerce would want to stop the order; it would effect a large number of their big business clients. Corporations often want to keep their political spending quiet, hoping to avoid the negative press and boycotts like the one Target was hit with after their donation to an openly anti-gay candidate was leaked to the public.

From a process standpoint, there is a delicious irony in the fact that the White House is currently unwilling to discuss publicly its internal discussions concerning the need for an Executive Order imposing political transparency on government contractors.  The nature of trial balloons in politics is that one does not want one’s fingerprints on something until one is willing to take ownership of it.  This political phenomenon resulted in the following exchange during a May 12 joint Oversight and Small Business Committee hearing on the proposed Order:

“Does it strike you at all as being ironic to invoke confidentiality and not answering questions when we’re having a hearing about transparency?” – Rep. Trey Gowdy (R-SC)

“It does not, sir. I think there are discussions, even about transparency and developing rules about transparency that we need to be able to have quietly and behind closed doors.” – Hon. Daniel Gordon, Administrator of the Office of Federal Procurement Policy, Office of Management and Budget, Executive Office of the President

Let’s go to the videotape!

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Pay-to-Play Disclosure For Government Contractors – UPDATE Strong Reactions and a Not-Too Transparent White House

President Obama (Again) Looks to Impose a Form of Federal Pay-to-Play Disclosure on Federal Contractors

Last year, we reported that certain elements of the Executive Branch have been looking into ways to impose federal pay-to-play restrictions and disclosure requirements on those doing business with the federal government. Today, the White House confirmed that President Obama is strongly contemplating issuing an executive order designed to impose pay-to-play disclosures on federal contractors in a big way.

As announced by the White House, the President is examining an order that would mandate that all federal contractors disclose any and all contributions to groups that engage in political activities. This is contemplated, the White House says, in direct response to the Supreme Court’s opinion in Citizens United v. FEC and Congress’ failure to enact the DISCLOSE Act.

To learn more about what, exactly, the President has in mind, one needed to be on board Air Force One (headed to California on a Presidential and DNC fundraising swing, ironically enough) to hear White House Press Secretary Jay Carney say the following:

Q Jay, there was — there were reports this morning that the administration is considering an executive order requiring companies seeking government contracts to disclose their contributions to groups that under current law would be secret. Is that correct?

MR. CARNEY: Well, what I can tell you is there is a draft — there’s a process, and it’s in the — it’s part of a process. There’s a draft, and the particular specifics of that executive order could change over time, so I can’t talk about the specifics. What I can tell you is the President is committed to improving our federal contracting system, making it more transparent and more accountable. He believes that American taxpayers deserve that, and that’s what he intends to pursue through this executive order.

Q Is there any political goals behind this?

MR. CARNEY: Quite the contrary. He believes very strongly that taxpayers deserve to know whether or not the contractors that their money is going to is being used — how they’re spending their money, and how — whether they’re — how they’re spending in terms of political campaigns. And his goal is transparency and accountability. That’s the responsible thing to do when you’re handling taxpayer dollars.

Q Is he likely to go ahead with the executive order? Or is there another way to accomplish it?

MR. CARNEY: I can’t — there’s an executive order in the draft process. I can’t give you any specifics on it because the specifics could change. That’s the nature of the process.

Q Jay, on a trip like this that combines presidential events with campaign events, can you talk about how it’s funded? For example, there are no presidential events in Los Angeles. Is that entire part of the trip funded through the campaign?

MR. CARNEY: Ari, you know the — when there is travel like this that involves official travel and also political travel, this administration very diligently follows all the same rules that the Bush administration did. And as far as the specifics on how that breaks down, I’ll have to get back to you. I don’t have that. But we’re very careful about making sure that all those rules are followed.

“Diligently [following] all the same rules that the Bush administration did” and breaking substantial new ground all at the same time. That’s a pretty impressive two-step.

One immediate challenge comes to mind: if all federal contractors and bidders are required to disclose their contributions to groups of any kind that engage in political or issue advocacy, how does one prevent federal contract officers from demonstrating bias against bidders supporting unpopular views or the party out of power? This is a decent enough effort at transparency that strikes me as having the potential to trod all over our constitutional rights to free expression and freedom of association. To quote David Wenhold, immediate past president of the American League of Lobbyists, “Sunlight is good, but sometimes too much sunshine can cause cancer.”

This is definitely one to stay tuned to.

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President Obama (Again) Looks to Impose a Form of Federal Pay-to-Play Disclosure on Federal Contractors