For journalists, STOCK Act could lead down troubling path

AP Photo by J. Scott Applewhite

Iowa Sen. Charles Grassley

A recent law banning insider trading by members of Congress and other government employees could affect journalists in a roundabout way.

Signed into law in April 2012, the STOCK Act bans such trading and prohibits those individuals from using nonpublic information for their personal gain.

The law has drawn public support after its overwhelming bipartisan passage, but journalists might get swept up if the law grows to regulate “political intelligence.”

Loosely, political intelligence refers to knowledge and information about government action that is passed along to investment firms and hedge funds, a practice that is legal in most instances.

Investors, especially hedge funds, mutual funds and pension funds, pay significant amounts of money to gather information about government policy and then use that information to make investment decisions.

Under the STOCK Act, the Government Accountability Office is researching investor reliance on political intelligence; how much information being sold would be considered “nonpublic;” and the benefits, legal issues and practical considerations raised by imposing disclosure requirements on political intelligence gatherers. A report is due in April.

This provision of the law, merely requiring a study, was weakened from a version that passed the Senate.

The Senate version initially required political intelligence purveyors to register with the government, including the disclosure of their clients’ identities, what they charge for their research and what issues they gather political intelligence on.

This disclosure requirement was stripped from the House version of the bill by Rep. Eric Cantor (Va.), the second-ranking Republican in the House. The Senate eventually passed the House’s version of the bill, which was then signed into law.

The language of the earlier version was put into the bill by Sen. Chuck Grassley (R-Iowa). His provision required “registration for lobbyists who seek information from Congress in order to trade on that information,” he said.

Cantor said Grassley’s amendment was too sweeping. Through a spokesman, he said the amendment could impose restrictions on diverse groups ranging from “local rotaries to national media conglomerates.”

Grassley intended his amendment to apply narrowly. In a floor speech, he said “journalists won’t need to register,” and the amendment included an exception for “disseminating news and information to the public.”

The registration requirement did not pass, and, ironically, now that the study proceeds, there is renewed concern over the line between a purveyor of political intelligence and a journalist, which is not so clearly drawn.

“We are reaching out to media organizations,” said Chuck Young, a GAO spokesman, although he declined to identify “which specific ones.”

The GAO contacted POLITICO Pro, calling the publication a “subscription-based media outlet” and asking the statutorily suggested questions about how it handles political intelligence. POLITICO Pro declined to respond to the GAO’s requests.

If the GAO, without a congressionally mandated exception for journalists, categorizes an organization like POLITICO as a seller of political intelligence, a possible next step is for the government to regulate it, through registration requirements or something potentially more serious.

It is also possible that the study will languish and have no real effect on journalism.

“It’s only a report,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington, who has studied the STOCK Act. “It doesn’t actually do anything.”

“I don’t think there’s any danger,” Sloan said. “I think that’s what political intelligence people tried to say in order to kill the [Grassley] amendment. I think it was mostly just an effort to make sure there was no regulation of political intelligence.”

Effects of GAO Study

To cooperate with the GAO study, a journalistic entity may disclose reporting techniques or internal policies, with an attendant danger that their proprietary techniques might become the basis for regulations on journalism.

Such regulations might also require a news organization to bog down its news content with disclaimers. Or worse yet, government sources would be hesitant or unwilling to speak to journalists for fear of punishment for talking to someone trafficking in “political intelligence.”

If regulations do infringe on the media, then they run up against Supreme Court precedent holding that government action punishing the publication of truthful information seldom satisfies constitutional standards.

Journalists can also argue that even though POLITICO Pro is a subscription service — and many other news organizations have paywalls — once it publishes information, that information becomes public.

Supreme Court cases have protected bona fide publications from securities regulation, because they are engaged in the publishing business and therefore not dealing with “nonpublic” information.

Journalists also report on securities dealings, and courts have been sympathetic to individuals in securities cases whose actions have brought fraud to light.

The results of the GAO’s study are due this April, and the potential for journalists to get swept up in the regulation of political intelligence awaits resolution.