Late last week, the U.S. Senate overwhelmingly passed by a 96-3 margin the Stop Trading on Congressional Knowledge Act (the "STOCK Act"). The House version of the STOCK Act, with its 282 co-sponsors, is expected to be considered on the House floor later this week. President Obama has said he will sign the STOCK Act "right away."
Among a variety of other provisions aimed at addressing practices alleged to constitute insider trading by Senators and Members of Congress, the Senate-passed version of the STOCK Act, includes a new provision that would effectively create a new category of lobbying registrant called a "political intelligence consultant." The bill then extends most of the registration and reporting obligations already imposed on registered "lobbyists" under the federal Lobbying Disclosure Act of 1995 ("LDA") to such "political intelligence consultants" and their employers. Consequently, registered "political intelligence" filers would then also be required to file quarterly activity reports (Form LD-2) and/or semiannual contribution reports (Form LD-203), just as lobbying registrants currently do under the LDA. We consider five aspects of the Senate's version of the STOCK Act to be particularly noteworthy:
- The STOCK Act's registration threshold for "political intelligence consultants" is stricter than the LDA's threshold for "lobbyists." Whereas the LDA deems individuals "lobbyists" only if they make two or more lobbying contacts and spend 20 percent of their time in any three month period on lobbying activities, the STOCK Act deems an individual a "political intelligence consultant" once he or she makes a single "political intelligence contact."
- Additionally, one of the principal exemptions to the legal definition of a "lobbying contact" (namely the exemption for any "request for the status of an action ... that does not include an intent to influence") does not apply to the newly defined concept of a "political intelligence contact." As a result, many common activities that have not triggered LDA registration to date will now trigger these newly-created LDA consequences for "political intelligence consultants" and their employers.
- "Political intelligence contacts" would most likely be made by financial services firms, but could be made by other businesses. A "political intelligence contact," which triggers "political intelligence consultant" status, includes any communication with a "covered official" regarding federal legislation, rules, regulations, programs, policies, or positions if the information obtained is "intended for use in analyzing securities or commodities markets, or in informing investment decisions." Financial services firms are obviously targeted by the "analyzing securities or commodities markets" clause. But any business might use political intelligence to "inform[ ] investment decisions," a term left undefined by the STOCK Act.
- For example, an energy company whose in-house employees gather political intelligence about the prospects of a "climate change bill" would likely need to register if the utility uses that political intelligence to inform its decision to invest in fossil-fuel exploration.
- In another instance, a telecommunications firm might be required to register if it uses political intelligence obtained from a Federal Communications Commission briefing of its in-house employees in deciding whether to secure additional wireless spectrum through a corporate acquisition.
- The STOCK Act's "political intelligence contacts" definition does not specify whether "intent to use" must coincide with a communication. The intent to "use" information "in analyzing securities or commodities markets, or in informing investment decisions" may well arise after an individual's communication with a "covered official." An employee gathering information for a company project, for example, might not have any intent to "use" it to analyze markets or inform investments when communicating with a "covered official." What if, however, the employee or someone else inside the company later uses that same information to analyze markets or inform company investments? Does that later intent transform the earlier communication into a "political intelligence contact"? The STOCK Act leaves these questions unanswered.
- The STOCK Act may cause "double registrations" and "double reports" for current LDA lobbying registrants. The STOCK Act does not exempt from its "political intelligence consultant" registration and reporting requirements those individuals and entities already registered under the LDA. Registered lobbyists and employers may therefore need to file new and separate "political intelligence consultant" registrations and reports, in addition to their existing filing obligations, even though the information disclosed in such reports may overlap considerably.
- The Obama Administration has not declared whether it will apply special "lobbyist" restrictions to "political intelligence consultants" if the STOCK Act is enacted and signed. The Obama Administration has placed special restrictions on registered federal lobbyists and their employers, including special limitations on "gifts" like hosting conferences and widely attended gatherings, and prohibitions on appointing lobbyists to Administration positions and federal advisory boards, among other things. It is unclear whether these special restrictions also will apply to "political intelligence consultants" if the STOCK Act is enacted and signed.
Caplin & Drysdale is following this legislation closely and
will update our clients on the latest legislative developments
regarding the STOCK Act and advise on the application of the STOCK
Act to their activities.
Trevor Potter at 202.862.5092 or
Kirk L. Jowers at 202.862.5057 or firstname.lastname@example.org
Joseph M. Birkenstock at 202.862.7836 or email@example.com
Matthew T. Sanderson at 202.862.5046 or firstname.lastname@example.org
Bryson B. Morgan at 202.862.5023 or email@example.com
This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.