Court Fight Bares SEC Insider-Trading Probe

NEW YORK — Federal investigators rarely disclose details of insider-trading probes before decisions on what — if any — charges are publicly filed.

But that's exactly the scenario unfolding in a newly escalated legal showdown between the Securities and Exchange Commission and the influential House Committee on Ways and Means. The fight focuses on an investigation that could involve a 2012 law that said congressional members and their aides aren't exempt from insider-trading prohibitions.

SEC investigators are probing whether anyone on Capitol Hill improperly leaked information about the federal Centers for Medicare & Medicaid Services' final decision on 2014 rates the federal government would pay insurers that offer private Medicare plans.

Formally issued at 4:15 p.m. on April 1, 2013, the rates increased by 3.5%. The surprise decision scrapped the 2.3% rate decline in a preliminary government plan that drew bipartisan congressional opposition.

Approximately 15 minutes before the 4 p.m. market close that day, trading volume and stock prices of some health insurers likely to benefit from the increase "rose precipitously," SEC attorney Amanda Straub wrote in Manhattan federal court papers filed on Friday.

For example, shares of Humana, the for-profit managed health care giant based in Louisville, "rose from $70.40 at 3:40 p.m. to $75.46 at 3:52 p.m., an increase of approximately 7%," Straub wrote. The increase preceded the official rate announcement.

The SEC, the Department of Justice and the Department of Health and Human Services' inspector general launched investigations. The probes ultimately focused in part on Brian Sutter, staff director of the Ways and Means health subcommittee. He "may have documents and information highly relevant to the Humana investigation," Straub wrote.

A lobbyist at international law firm Greenberg Traurig told investigators that he and Sutter talked about the pending rate announcement during an April 1, 2013, phone call that took place at approximately 3 p.m., the court filings show.

Sutter told investigators he did not recall such a discussion, the filings show.

Reports inThe Wall Street Journal identified the unnamed lobbyist as Mark Hayes. A Greenberg Traurig biography says Hayes spent more than seven years as chief health counsel for the Senate Committee on Finance. His duties there included negotiations with the federal Centers for Medicare & Medicaid Services.

In a 3:11 p.m. email to a Height Securities financial analyst, Hayes wrote that "we have heard from very credible sources that the final notice will adjust the phase in on risk adjustment" involving the Medicare payment rates, the court filings show.

Less than a half hour later, the financial analyst sent a "flash report" to nearly 200 clients, including some prominent investment funds, the filings show. In part, the email stated "we now believe that a deal has been hatched to protect Medicare Advantage rates from the -2.3% rate update issued in the advanced notice mid-February," Straub wrote.

"The Commission staff also has additional information indicating that Sutter may have been a source of the information" in the lobbyist's email, she added.

The SEC subpoenaed the Ways and Means committee and Sutter in January seeking certain 2013 documents from Feb. 10 to April 10. The documents included records of any communications between Sutter and "any member or employee of Greenberg Traurig" as well as the Centers for Medicare & Medicaid Services.

William Pittard, the House deputy general counsel, objected to the SEC subpoenas in a May 19 responding letter. He wrote that they were barred under the U.S. Constitution, as well as immunity provisions that cover the subcommittee and its staff.

Sutter "may not be compelled to testify absent extraordinary circumstances, not present here," wrote Pittard, who characterized the subpoenas as "vague, confusing, overbroad, unduly burdensome and unlikely to lead to the discovery of admissible evidence."

The SEC said those arguments "lack merit." The agency's court filings, in a case now assigned to U.S. District Judge Paul Gardephe, asks that the House panel and Sutter be required to show cause "why they should not be ordered" to produce the subpoenaed records.

Gardephe directed attorneys for the Ways and Means panel and Sutter to file written opposition responses to the subpoenas by July 4.