HHS Employees & the Potential of Insider Trading

Dept of Health and Human Services sealHundreds of Department of Health and Human Services employees had access to information about a Medicare decision, at least 436 employees to be exact, that could have been very useful in advance of a huge trading spike which was the result of the announcement.

The Washington Post broke the story:

Hundreds of federal employees were given advance word of a Medicare decision worth billions of dollars to private insurers in the weeks before the official announcement, a period when trading in the shares of those firms spiked. The surge of trading in Humana‘s and other private health insurers’ stock before the April 1 announcement already has prompted the Justice Department and the Securities and Exchange Commission to investigate whether Wall Street investors had advance access to inside information about the then-confidential Medicare funding plan.

Sen. Charles E. Grassley (R-Iowa) told The Washington Post late last week that his office reviewed the e-mail records of employees at the Department of Health and Human Services and found that 436 of them had early access to the Medicare decision as much as two weeks before it was made public. The number of federal employees with advance knowledge is surely higher; the figures Grassley’s staff compiled did not include people at the White House’s Office of Management and Budget who also saw the information. The e-mail records of those employees have not been made available to Grassley. The discovery that sensitive information was so widely disseminated could complicate the forensic task for investigators trying to determine who may have leaked confidential information, and it brings further attention to the government’s handling of policy details valued by Wall Street traders. “This should sound an alarm,” Grassley said. “It should result in better controls to avoid unfair access to information that the average investor could never tap.”

It is important to note that being in early receipt of the information does not make one a criminal. It’s how the information is used. But if out of 436 government employees, and their associates, you don’t think at least 1 person used this information for personal gain then you simply have not been paying attention.

insider%20tradingIt wouldn’t be surprising if there were several people who used this for personal gain, at least to the extent that they bought a few extra shares of Humana or Aetna. Even a small purchase of shares based on insider information is unethical. 10 shares may not get you prosecuted but that does not discount the fact that it is wrong and still illegal.

Also out early on this story is Hotair which explains how the information could have potentially been used:

A brokerage firm in D.C. announced late in the trading day on April 1 that a decision to boost funding for Medicare Advantage was forthcoming. Shares of Humana and Aetna skyrocketed. Later that day, after the markets had closed, the feds confirmed that, indeed, another $8 billion would be plowed into the program. So who at HHS blabbed? Maybe no one: Per WaPo and this WSJ report from a few weeks ago, the feds seem to be interested in a lobbyist who — ta da — used to work as a health-care policy advisor to Chuck Grassley himself and who now specializes in “political intelligence.” (He also had a “role” in writing ObamaCare, per the WSJ, and used to work on health-care legislation with someone who’s now a “senior official” at CMS, the division of HHS that made the decision on increasing funding for Medicare Advantage.) The SEC knows he was communicating with at least one current staffer in Grassley’s office; the question is whether that staffer slipped the information on the Medicare decision to the lobbyist or whether the lobbyist somehow “guessed” that Medicare funding would be increased based on tidbits of info he gleaned from various sources on the Hill. Even if it’s the latter, with no one having directly fed him confidential information, the surge in Humana/Aetna shares based on his analysis is a direct result of his access to government’s major players. When a former Grassley advisor and colleague of a bigwig at CMS tells you that he thinks a windfall’s coming, you listen. Big government takes care of its alumni.

For the record it was not just Humana and Aetna that surged on this news. An April 2nd CNN Money report states that, “ Shares of Humana (HUM), United Health Group (UNH), Aetna (AET), Cigna (CI), and WellPoint (WLP) rose between 4% and 8% Tuesday. Humana, which has the greatest exposure to Medicare Advantage, jumped nearly 10% at one point.”

Do not underestimate a 4% single gain as small. For most of us who have little investment capital it seems minor. At a 4% daily gain you would be able to double your money every 18 trading days. Many of us would be overjoyed to average a 4% yearly gain which allows our money to double every 18 years. See the difference?

So there we have it. 

The world continues to laugh at us and we are so divided as a people that it is going to be difficult to do anything about it.

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