The researcher whose report prompted a spike in health stocks last month appears to have relied on lobbyists rather than U.S. government insiders who had direct knowledge of a pending healthcare decision, according to emails reviewed by Reuters.
The messages could help bolster Height Securities LLC's claim that its analyst was essentially doing what reporters, lobbyists and others in Washington do every day: trying to figure out what the government is going to do next.
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The small research shop is among the brokerages, law firms and other "political intelligence" operations that have drawn scrutiny over concerns that they may have facilitated insider trading by passing along tips that moved markets.
Height Securities has drawn inquiries from the Securities and Exchange Commission and Iowa Republican Senator Charles Grassley since it correctly predicted on April 1 that President Barack Obama's administration would keep certain medical payment rates in place, prompting a spike in healthcare stocks before the official announcement came out.
The analyst who prepared the report, Justin Simon, reached out to a healthcare lobbyist shortly before he issued his market-moving research bulletin, the emails show.
"I'm tracking down a rumor ... any chance you have heard that POTUS/WH have stepped in" to keep the Medicare rates in place, Simon asked, using shorthand for Obama and the White House.
Other documents indicate the lobbyist, whose name was redacted from the report, is Stacey Hughes, a founding partner of the Nickles Group who used to work for several Republican senators. She could not be reached for comment.
"That is the rumor," Hughes responded, adding that it was "a little more likely" that the Centers for Medicare & Medicaid Services would not cut payment rates for healthcare providers after the acting head of the agency that oversees the two programs, Marilyn Tavenner, met with staffers of the Senate Finance Committee.
Hughes wrote that the White House could decide to keep the current payment rates for the popular health programs as a way to convince lawmakers in the Senate to make her post permanent.
"Just my opinion," Hughes wrote.
Simon released his report about an hour later, prompting a spike in health stocks that stood to benefit from the decision.
"Did you see what I did to the stock in the final 30 min of trading?" Simon wrote Hughes after his report came out. "We heard the same story from like 30 people so we went with it."
A Height spokesman said the emails reviewed by Reuters confirm that Simon based his report on multiple sources of information, rather than a single Obama administration insider who would have had direct knowledge of the decision.
"We appreciate the fact that the released documents validate our claim all along - Height did not receive or disseminate material non-public information," the spokesman said.
That appeared unlikely to satisfy Grassley, who wants "political intelligence" firms to be subject to the same disclosure laws as lobbyists.
Grassley's office said Height was not cooperating as much as they would like and appeared to be giving inconsistent information.
"Senator Grassley continues to try to unwind the events leading up to the stock spike on April 1 and previous trading anomalies in the prior two weeks," spokeswoman Jill Gerber said.
Michael Asaro, a lawyer who represents Simon, declined to comment.