POLITICAL 

INTELLIGENCE

Financial Market 

Value of Government 

Information Hinges on 

Materiality and Timing

Report to Congressional Committees

April 2013

GAO-13-389

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-389, a report to 

congressional committees 

April 2013 

POLITICAL INTELLIGENCE 

Financial Market Value of Government Information 

Hinges on Materiality and Timing

Why GAO Did This Study

Companies and individuals use 

political intelligence to understand the 

potential effects of legislative and 

executive branch actions on business, 

finance, and other decisions. The 

STOCK Act of 2012 directed GAO to 

report to Congress on the role of 

political intelligence in the financial 

markets. GAO reviewed (1) the legal 

and ethical issues, if any, that may 

apply to the sale of political 

intelligence; (2) what is known about 

the sale of public and nonpublic 

political intelligence, the extent to 

which investors rely on such 

information, and the effect the sale of 

political intelligence may have on the 

financial markets; and (3) any potential 

benefits and any practical or legal 

issues that may be raised from 

imposing disclosure requirements on 

those who engage in these activities. 

To answer these objectives GAO

examined federal guidance including

Securities and Exchange Commission 

Rule 10b-5 (related to insider trading), 

federal disclosure models including the 

Lobbying Disclosure Act, the 

Investment Advisers Act, and the 

Federal Election Campaign Act; and 

the extent to which data existed to 

measure the size of the political 

intelligence industry. GAO also 

interviewed individuals at political 

intelligence, media, financial services, 

and law firms; trade associations; 

advocacy organizations; and executive 

and legislative branch officials. 

Interviewees were selected based on 

research on the political intelligence 

industry, their experience with these 

activities and referrals. 

What GAO Recommends 

GAO is not making recommendations 

in this report.

What GAO Found

The Stop Trading on Congressional Knowledge (STOCK) Act of 2012 specifically 

defines political intelligence as information that is “derived by a person from 

direct communications with an executive branch employee, a Member of 

Congress, or an employee of Congress; and provided in exchange for financial 

compensation to a client who intends, and who is known to intend, to use the 

information to inform investment decisions.” While no other laws or ethics rules 

specifically govern political intelligence activities, securities laws and executive

and legislative branch ethics rules and guidance do provide guidelines for 

government officials to protect material nonpublic information (e.g., information 

that has not been disseminated to the general public or is not authorized to be 

made public). For example, insider trading laws apply to both the executive and 

legislative branches and prohibit the disclosure of material nonpublic information

derived from employees’ official positions for personal benefit. 

The prevalence of the sale of political intelligence is not known and therefore 

difficult to quantify. The extent to which investment decisions are based on a 

single piece of political intelligence would be extremely difficult to measure. This 

is in part because a firm’s information is often bundled with other information 

such as industry research and policy analysis, and because the flow of 

information does not readily lend itself to quantification or ongoing documentation 

for the purpose of measuring industry activity. Investors typically use multiple 

sources of information to influence their investment and business decisions. 

Even when a connection can be established between discrete pieces of 

government information and investment decisions, it is not always clear whether 

such information could be definitively categorized as material (would a 

reasonable investor find the information important in making an investment 

decision) and whether such information stemmed from public or nonpublic 

sources at the time of the information exchange (information has a higher value 

at a time when it is not widely known and thus has the potential to inform a 

profitable transaction). It is also difficult to determine the extent to which 

nonpublic government information is being sold as political intelligence. 

Specifically, it is not always possible to determine the timing of when nonpublic 

information becomes public. Representatives of most political intelligence firms 

interviewed said they have policies in place to ensure they do not knowingly sell 

material nonpublic information and potentially violate insider trading laws. 

Finally, if Congress chose to supplement existing guidance and laws with 

required disclosure of political intelligence information, the benefits (such as 

greater transparency) and costs (such as resources to administer) of disclosure 

would have to be balanced along with consideration of related practical and legal 

issues. For example, Congress would need to address the lack of consensus on 

the meaning of the terms “direct communication” and “investment decision” to 

provide clarity regarding the definition of political intelligence as well as guidance 

to specify the purpose of disclosure, who would be required to file, how often 

disclosures would be required, and who would manage the disclosure process. 

View GAO-13-389. For more information, 

contact Michelle Sager at (202) 512-6806 or 

sagerm@gao.gov. 
Page i GAO-13-389 Political Intelligence 

Letter 1 

Background 4

No Laws or Ethics Rules Specifically Govern Political Intelligence 

Activities, But Existing Laws and Ethics Rules Apply to the 

Misuse of Nonpublic Information 6

The Prevalence of the Sale of Political Intelligence Is Unknown, 

but Some Investors Use It to Inform Investment Decisions 8

Potential Disclosure Requirements Would Need to Balance 

Benefits and Costs while Also Considering Practical and Legal 

Issues 15

Concluding Observations 22

Appendix I Objectives, Scope, and Methodology 25

Appendix II GAO Contact and Staff Acknowledgments 29

Table

Table 1. Analysis of Three Federal Laws Relevant to Potential 

Political Intelligence Disclosure Requirements 18

Figures

Figure 1: FDA Employee Uses Material Nonpublic Government 

Information for Personal Gain 5

Figure 2: Investors Make Purchases in Companies Related to the 

Asbestos Trust Fund Prior to a Public Senate 

Announcement 5

Figure 3: Types of Government Information that Could Be 

Considered Political Intelligence 6

Figure 4: Illustration of Possible Flow of Political Intelligence 

Information 10

Contents 
Page ii GAO-13-389 Political Intelligence 

Abbreviations

FDA Food and Drug Administration

LDA Lobbying Disclosure Act

OGE Office of Government Ethics

SEC Securities and Exchange Commission

STOCK Act Stop Trading on Congressional Knowledge Act of 2012

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Page 1 GAO-13-389 Political Intelligence 

United States Government Accountability Office 

Washington, DC 20548

April 4, 2013

Congressional Committees

Companies and individuals use what has been called “political 

intelligence” to understand the potential impact of legislative and 

executive branch actions on business, finance, and other decisions. The 

financial market value of government information hinges on materiality 

(i.e., would a reasonable investor find the information important in making 

an investment decision) and timing (i.e., information has a higher value at 

a time when it is not widely known and thus has the potential to inform a 

profitable transaction). The Stop Trading on Congressional Knowledge 

(STOCK) Act of 2012,1

The STOCK Act directed GAO to study the role of political intelligence in 

the financial markets. To meet this mandate, the objectives of this report 

are to describe (1) the legal and ethical issues, if any, that may apply to 

the sale of political intelligence; (2) what is known about the sale of public 

and nonpublic political intelligence information, the extent to which 

investors rely on such information, and the effect the sale of political 

intelligence may have on the financial markets;

defines political intelligence as information that is 

“derived by a person from direct communication with an executive branch 

employee, a Member of Congress, or an employee of Congress; and 

provided in exchange for financial compensation to a client who intends, 

and who is known to intend, to use the information to inform investment 

decisions.”

2

To answer these objectives, we examined existing federal guidance on 

the disclosure of nonpublic information and securities laws (related to 

insider trading). We also reviewed several federal disclosure models to 

determine the types of requirements that would likely need to be 

and (3) any potential 

benefits and any practical or legal issues that may be raised from 

imposing disclosure requirements on those who engage in these 

activities.

 

1

Pub. L. No. 112-105, 126 Stat. 291 (April 4, 2012).

2 Generally, public information is information that has been disseminated to the general 

public, and nonpublic information is information that has not been disseminated to the 

general public or is not authorized to be made public.

 
 

Page 2 GAO-13-389 Political Intelligence 

considered for any potential disclosure model developed for political 

intelligence. We selected three laws that require the filing of disclosure 

reports: the Lobbying Disclosure Act (LDA), the Investment Advisers Act, 

and the Federal Election Campaign Act. These models were selected 

based on a database search of other disclosure models to ensure their 

potential applicability, as well as suggestions from external parties such 

as congressional staff and officials at regulatory agencies. To seek 

economic data on the size of the political intelligence industry, we 

searched for political intelligence in the industry classification systems 

used by federal statistical agencies to collect economic data on U.S. 

business establishments, the North American Industry Classification 

System and the Standard Industrial Classification system.

We conducted 34 semi-structured interviews with entities including 

political intelligence firms, law firms that conduct political intelligence, 

legal experts who specialize in the LDA, securities law or ethics laws; a 

media organization; trade associations representing both pension funds 

and businesses; a financial services firm; non-governmental citizen 

advocacy or protection organizations that cover public policy issues such 

as government transparency and openness; an academic researcher 

specializing in law reform efforts focused on securities fraud; and 

regulatory bodies including the SEC, Commodity Futures Trading 

Commission, and Financial Industry Regulatory Authority. We selected 

these entities and individuals based on database searches using key 

terms related to political intelligence and referrals from firms we 

interviewed. The semi-structured interviews with these firms and 

individuals included questions about the nature of the services they 

provide; their processes for gathering and disseminating information; the 

types of clients they represent; their understanding of terms such as 

lobbying, political intelligence, and policy research; legal and ethical 

issues related to potential political intelligence disclosure requirements; 

existing statutes and regulations that cover political intelligence activities; 

and potential benefits and practical issues that could be raised by 

imposing disclosure requirements on those who engage in political 

intelligence activities.

In addition, we conducted interviews about political intelligence with three 

individuals with broad public policy experience, two of whom were former 

government officials. We also met with staff from the Senate and House 

Committees on Ethics to discuss the laws and ethics rules for protecting 
 

Page 3 GAO-13-389 Political Intelligence 

government information and corresponded with the Office of Government 

Ethics. We consulted with the Congressional Research Service and the 

National Academy of Public Administration as we conducted our work. 3

We identified two illustrative examples of the use of government 

information linked to investment decisions. We used these examples, one 

involving actions in the legislative branch and another in the executive 

branch, to frame discussions with executive and legislative branch staff 

regarding the guidance, policies and procedures in place for protecting 

and disseminating information that could be defined as political 

intelligence. In the first example, a longtime congressional debate about 

legislation regarding the Asbestos Trust Fund litigation led to an instance 

in 2005 where investors profited prior to an asbestos liability speech on 

the floor of the Senate.4 In the second example a Food and Drug 

Administration (FDA) chemist used material nonpublic information to 

make stock trades (i.e., insider trading).5

We conducted this performance audit from April 2012 to April 2013 in 

accordance with generally accepted government auditing standards. 

We selected these two 

examples based on referrals from external parties interviewed for this 

report, a database search of political intelligence cases with the potential 

to illustrate the protection and dissemination of government information, 

and individuals with expertise in matters related to these issues. For 

these cases we reviewed relevant legal documentation and executive and 

legislative branch guidance on protecting information. In addition, we 

interviewed executive branch officials from the FDA and a congressional 

staff member about current policies and procedures in place for protecting 

government information.

 

3

For additional information see Congressional Research Service, The STOCK Act, Insider 

Trading, and Public Financial Reporting by Federal Officials (Washington, D.C.: Revised 

December 2012); The STOCK Act, Insider Trading, and Public Financial Reporting by 

Federal Officials (Washington, D.C.: April 2012); and National Academy of Public 

Administration, The STOCK Act: An Independent Review of the Impact of Providing 

Personally Identifiable Financial Information Online (Washington D.C.: Mar. 2013).

4

There are no published reports finding wrongdoing by any of the parties in the 2005 

Asbestos Trust Fund litigation case.

5

The FDA chemist pled guilty to insider trading and making false statements and was 

sentenced to serve five years in prison and ordered to repay the $3.7 million in profits 

gained and losses avoided while using confidential government information to make stock 

trades.
 

Page 4 GAO-13-389 Political Intelligence 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. For more details on our 

methodology, see appendix I.

The STOCK Act includes several provisions affecting executive and 

legislative branch employees. For example, the Act makes clear that

executive branch employees, Members of Congress, and employees of 

Congress are not exempt from insider trading prohibitions under 

securities laws. In addition, the STOCK Act requires that certain financial 

disclosure forms be made available to the public via official websites,6

and that some financial transactions that exceed $1,000 be filed within 30 

to 45 days for certain executive and legislative branch employees, as well 

as Members and employees of Congress.7

Generally, government information can be characterized as public or 

nonpublic and material or nonmaterial. The definition of political 

intelligence in the STOCK Act includes public or nonpublic and material or 

nonmaterial information. Political intelligence information can be collected 

through briefings, meetings, committee hearings, public or non-public 

documents, personal conversations, and other communications between 

an employee of a political intelligence firm and an executive branch 

employee, a Member of Congress, or a legislative branch employee. The 

following examples describe two instances where individuals used 

government information to make investment decisions. These examples 

 

6

Under existing law, the Internet publication of certain financial disclosure forms will be 

made available to the public on April 15, 2013.

7 Section 6 of the STOCK Act amends Section 103 of the Ethics in Government Act of 

1978 (5 U.S.C. app. 103) by requiring that executive and legislative branch employees 

who file public financial disclosure reports also promptly report any purchase, sale, or 

exchange of any stock, bond, commodities future, or other covered security that exceeds 

$1,000. Section 8 of the STOCK Act requires the Secretary of the Senate and the Clerk of 

the House of Representatives to ensure that financial disclosure forms filed by Members 

of Congress, candidates for Congress, and employees of Congress pursuant to title I of 

the Ethics in Government Act of 1978 are made available to the public on the respective 

official websites of the Senate and the House of Representatives not later than 30 days 

after such forms are filed. 

Background
 

Page 5 GAO-13-389 Political Intelligence 

provide context for understanding the potential use of political 

intelligence.

Figure 1: FDA Employee Uses Material Nonpublic Government Information for 

Personal Gain

In 2011, an SEC enforcement action alleged that a former FDA chemist made $3.7 

million in illegal profits and losses avoided by using nonpublic government information 

for personal gain. The employee worked for an office that evaluates applications to sell 

new drugs and had access to highly confidential information. According to the SEC’s 

complaint the FDA employee had conducted unlawful insider trading in advance of at 

least 28 different announcements concerning FDA decisions on drug applications. 

Using material, nonpublic information, the chemist purchased stock for a profit; short 

solda stock for a profit; and sold stock to avoid losses. The FDA chemist pled guilty to 

insider trading in a parallel criminal action.

Source: Amended Complaint for Plaintiff, SEC v. Cheng Yi Liang (Civil No. 8:11-cv-00819-RWT) (filed 6/03/11); Criminal Complaint, 

U.S. v. Liang (Case No. 11-1236WC) (filed 3/29/11); Judgment in a Criminal Case (Case No. DKC-8-11-CR-00530-001) (filed 3/05/12).

a

 A “short sale” is the sale of a security that the seller does not own or any sale that is consummated 

by the delivery of a security borrowed by, or for the account of, the seller. In general, short selling is 

used to profit from an expected downward price movement, provide liquidity in response to 

unanticipated demand, or hedge the risk of a long position (i.e., ownership) in the same or related 

security. 

Figure 2: Investors Make Purchases in Companies Related to the Asbestos Trust 

Fund Prior to a Public Senate Announcement

A 2005 incident illustrates one way investors may have used government information. 

In November 2005 the Senate Majority Leader announced that the Senate would vote 

on a bill to create a trust fund to compensate asbestos victims (S.852, Fairness in 

Asbestos Injury Resolution Act of 2005), which would have reduced expensive 

asbestos-related liabilities for a small group of companies. The day before the 

announcement, day traders noticed increases in the volume of trading in these 

companies’ stocks. Press sources speculated that investors were likely using nonpublic 

information from congressional staff to make stock purchases, believing the stocks 

would gain value after the announcement. Ultimately, no enforcement action was taken 

by the SEC, and the Senate did not pass the bill.

Source: Eamon Javers, “Washington Whispers to Wall Street,” BUSINESSWEEK, Dec. 25, 2005 and Brody Mullins and Kara Scannell, 

“Hedge Funds Hire Lobbyists to Gather Tips in Washington,” Wall Street Journal, Dec. 8, 2006.
 

Page 6 GAO-13-389 Political Intelligence 

There are no laws or ethics rules that specifically govern the sale of 

information by a political intelligence firm. However, as illustrated in figure 

3 and the discussion that follows, there are laws and ethics rules that may 

govern the purchase and sale of material nonpublic information in the 

executive and legislative branches, and ethics rules that govern nonpublic 

information in the executive and legislative branches of government.

Figure 3: Types of Government Information that Could Be Considered Political 

Intelligence

Executive branch employees, Members of Congress, and their 

employees and staff are subject to ethics rules and insider trading 

prohibitions. The STOCK Act affirmed that executive branch employees, 

Members of Congress and their employees are not exempt from insider 

trading prohibitions and that a duty of trust and confidence is owed to the 

Congress, the government, and the citizens of the United States. Insider 

trading prohibitions stem from Section 10(b) of the Securities Exchange 

Act of 1934 and SEC Rule 10b-5, as well as a long line of judicial 

No Laws or Ethics 

Rules Specifically 

Govern Political 

Intelligence Activities, 

But Existing Laws and 

Ethics Rules Apply to 

the Misuse of 

Nonpublic 

Information
 

Page 7 GAO-13-389 Political Intelligence 

decisions.8

Guidance issued by the House of Representatives Committee on Ethics 

defines material nonpublic information as any information concerning a 

company, security, industry or economic sector, or real or personal 

property that is not available to the general public and which an investor 

would likely consider important in making an investment decision and is 

not widely disseminated to the public. Senate ethics rules also define

nonpublic information as confidential or not widely disseminated to the 

public. Both the House and the Senate ethics committees may impose 

penalties other than ones allowed under securities laws.

SEC investigates cases of insider trading by examining the 

existence and nature of the duty being breached and both the materiality 

and nonpublic nature of the information. If material nonpublic 

governmental information is improperly disclosed to a political intelligence 

professional in breach of a duty, and that professional sells the 

information to an investor who trades based on the information, then the 

government employee or Member of Congress, the political intelligence 

professional, and the investor could all be liable for potential insider 

trading violations. According to SEC officials, any party may defend 

against a claim of insider trading by arguing that the information lacked 

materiality, the information was public, there was no breach of duty, or 

there was no act of bad faith. With regard to the legislative branch, 

attorneys we interviewed for this report explained that Members of 

Congress may also be able to assert the Speech or Debate privilege of 

the U.S. Constitution as a defense to any potential charge of insider 

trading. Such a defense would be based on the principle that the 

information being shared constituted a legislative act—an integral part of 

the deliberative and communicative processes by which Members 

participate in legislative activities. To date, according to the SEC, no 

Members of Congress have been prosecuted for insider trading based on 

material nonpublic information learned in the course of their work in 

Congress under Section 10(b) or Rule 10b-5.

Executive branch employees are prohibited from using or allowing the 

use of nonpublic government information to further their own private 

 

8 Section 753 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (DoddFrank Act) amended the Commodity Exchange Act to prohibit manipulation and fraud in 

connection with any swap, or a contract of sale of any commodity in interstate commerce. 

The Commodity Futures Trading Commission has promulgated a rule under Section 753 

that is modeled on the SEC’s Rule 10b-5 and aimed at conduct akin to insider trading. 
 

Page 8 GAO-13-389 Political Intelligence 

interests or the private interests of others, and can be subject to penalties 

for doing so. The Office of Government Ethics (OGE) defines nonpublic 

information as information that the employee gains by reason of federal 

employment and that he or she knows or reasonably should know has not 

been made available to the general public. According to OGE, nonpublic 

government information includes, but is not limited to:

• information that is exempt from disclosure under the Freedom of 

Information Act,

• information that the agency has designated as confidential, or

• information that has not actually been disseminated to the general 

public and is not authorized to be made available to the public upon 

request.

The prevalence of the sale of political intelligence is not known and is 

therefore difficult to quantify, as political intelligence information gathering 

and dissemination is often bundled with other information sources, 

financial compensation is usually not tied to specific sources of 

information or investment decisions, and consensus among political 

intelligence firms does not exist regarding some terms used in the 

STOCK Act definition of political intelligence. It is especially difficult to 

make a determination that a sale of nonpublic information has occurred, 

in part because it is not always known when information is exchanged or 

the timing of when nonpublic information becomes public. Nonetheless, 

investors do sometimes use political intelligence information and two 

examples that we reviewed illustrate the use of government information to 

gain advantage in the financial markets.

According to interviewees at seven of eight political intelligence firms and 

all four law firms who provide political intelligence, this information is often 

bundled and provided to clients with other information such as research, 

opinions, and policy analysis. Figure 4 illustrates the possible flow of 

political intelligence information. For example, one firm we interviewed 

provided us with a product it sent to all of its subscribers which analyzed 

recent developments in federal health care programs. The analysis cited 

information from rulemaking in the executive branch, past and current 

legislative activities in Congress, publicly available documents, relevant 

trade publications, and the firm’s analysis of government actions. We 

were also told by five of six investors that investment decisions are most 

likely to be based on an overall analysis of the political climate for specific 

issues and not necessarily a single piece of political intelligence. For 

The Prevalence of the 

Sale of Political 

Intelligence Is 

Unknown, but Some 

Investors Use It to 

Inform Investment 

Decisions

Political Intelligence 

Information Gathering and

Dissemination Is Often 

Bundled With Other 

Information Sources
 

Page 9 GAO-13-389 Political Intelligence 

example, according to sixteen of thirty-four interviewees, investors often 

rely on multiple sources of information to make an investment decision. 

As a result, it is difficult to link the sale of political intelligence and an 

investment decision to a single piece of information obtained from 

executive or legislative branch officials. Even when a connection can be 

established between discrete pieces of government information and 

investment decisions, it is not always clear whether such information 

could be definitively categorized as material or nonmaterial and whether 

such information stemmed from public or nonpublic sources at the time of 

the information exchange.
 

Page 10 GAO-13-389 Political Intelligence 

Figure 4: Illustration of Possible Flow of Political Intelligence Information
 

Page 11 GAO-13-389 Political Intelligence 

In addition to bundling information, the nature of compensation structures 

for political intelligence firms is another factor complicating efforts to 

determine the prevalence of the sale of political intelligence. Financial 

compensation is usually not tied to specific sources of information or 

investment decisions. Consequently, there is not a reliable, consistently 

used data source to measure economic activity for political intelligence. In 

the absence of such data, we asked firms how they track the sale of 

information. Interviewees at six of eight political intelligence firms and 

three of four law firms who provide political intelligence told us that they 

do not specifically track the sale of political intelligence. In addition, the

compensation structure for services provided by firms varies. For 

example, interviewees from five of the eight political intelligence firms and 

two of four law firms who provide political intelligence firms do not charge 

investors for single pieces of information. Instead, political intelligence 

clients generally pay firms for an overall analysis of a topic or a particular 

issue. Specifically, three of eight political intelligence firms and three of 

four law firms who provide political intelligence told us they charge a 

monthly retainer for provision of their products and services, and six of 

eight political intelligence firms and all four law firms who provide political 

intelligence reported that they charge hourly as services are provided, ask 

clients to pay an upfront fee for specific analyses, or charge a flat rate for 

newsletters.9

Attempts to quantify the prevalence of the sale of political intelligence are 

further complicated by a lack of consensus on the meaning of some of the 

terminology in the STOCK Act definition, including “direct 

communication,” and someone “who is known to intend to use information 

to inform investment decisions.” Seven of eight political intelligence firms

and three of four law firms who provide political intelligence stated that 

they had direct communication with executive branch officials or 

congressional staff when needing clarification or additional details on 

specific issues. Five of thirty-four interviewees said it was unclear if 

information shared by executive or legislative branch officials providing a 

legislative or regulatory update at an event such as a town hall meeting 

could be considered direct communication. Not knowing whether 

 

9 Two of eight political intelligence firms and three of four law firms who provide political 

intelligence charge clients both a monthly retainer and hourly rates. 

Financial Compensation Is 

Usually Not Tied to 

Specific Sources of 

Information or Investment 

Decisions

Quantifying the Sale of 

Political Intelligence Is 

Complicated by Lack of 

Consensus on Definition of 

STOCK Act Terms
 

Page 12 GAO-13-389 Political Intelligence 

information is gathered by direct communication can make it difficult for 

firms to determine whether an exchange of political intelligence occurred.

The phrase “who is known to intend to use information to inform 

investment decisions” is also unclear and difficult to interpret, because 

investor’s intentions are not always known. For example, an investor can 

make a range of decisions, including a decision to take no action, in 

response to receipt of information. According to five of eight political 

intelligence firms and all four law firms who provide political intelligence, 

they do not know how their clients use information they provide in their 

investment decision-making process or if they use it at all. Specifically, 

some firms provide information to their clients through mass

communication such as newsletters, thus making it difficult to know the 

extent to which, if at all, a client used their product when making an 

investment decision. Similarly, representatives of trade associations were 

unsure how their members used political intelligence information in 

making investment decisions. Interviewees at four of five trade 

associations told us that they provide guidance and information to their 

members when new legislation is filed or when regulations are issued that 

could have an impact on their members’ investment or business 

decisions, but are unaware of the decisions that are made based on the 

information provided.

Another challenge related to the definition is that firms do not always 

characterize their information gathering activities as political intelligence. 

For example, some individuals described political intelligence as policy 

analysis, market research, or information gathering that results from the 

exchange of information that could be included as a part of lobbying 

activities.

While it is challenging to determine the prevalence of the sale of political 

intelligence information as a whole, we found that it is especially difficult 

to determine the extent to which nonpublic government information is 

being sold as political intelligence. This is due in part to uncertainty about 

when a piece of nonpublic information becomes public. It is important for 

a political intelligence firm to know exactly when a piece of material 

nonpublic information becomes public so it can pass that information 

along to an investor in a timely fashion, while at the same time being 

cautious not to violate insider trading laws. Interviewees from six of eight 

political intelligence firms and one of four law firms who provide political 

intelligence said that they have policies in place to ensure they do not 

knowingly sell material nonpublic information, which would be a violation 

Timing of Information 

Exchange Makes It 

Difficult to Determine the 

Extent to Which Nonpublic 

Information Is Sold
 

Page 13 GAO-13-389 Political Intelligence 

of insider trading laws. As noted earlier, federal guidance defines material 

nonpublic and nonpublic information to include any information that is not 

available to the general public which would likely be considered important 

in making an investment decision or information that a federal employee 

gains that is reasonably known to be important and therefore should not 

be disclosed to the general public. Because of the potential risk to their 

reputation as well as the possible imposition of penalties, interviewees at 

six out of eight political intelligence firms told us that if they suspect that 

information is material and nonpublic, they would not sell or distribute it 

until after it is known to be public.

According to ethics guidance from the House of Representatives, if 

information about the work of Congress is obtained during public briefings 

or hearings, it is then considered public information. Examples of material 

nonpublic information gained during the course of government service 

could include legislation and amendments prior to their public 

introduction. House guidance further provides that a good rule of thumb to 

determine whether information may be material nonpublic information is 

whether or not the release of that information to the public would have an 

effect on the price of a security or property.

Nonetheless, our review of economic literature and interview responses 

suggests that individuals and firms value political intelligence and 

sometimes respond to such information through investment and business 

decisions. Investment decisions could narrowly include an individual 

investor’s decision regarding investments in the stock market or could be 

broader and also include business decisions made by a company, such 

as whether or not to expand existing operations or where to locate new 

operations.

Some economists believe that the onset of the recession in late 2007 and 

subsequent events in the world economy and financial markets have 

increased uncertainty about the direction of U.S. economic policy. A firm’s 

finances can be affected by federal legislative and regulatory actions that 

alter its revenues or its costs. Uncertainty regarding the future direction of 

government policy may complicate firms’ attempts to estimate future 

profitability. Firms may respond to such uncertainty by delaying 

investment in future productive capacity (i.e., hiring or opening a new 

office) while awaiting resolution of policy uncertainty. Similarly, 

uncertainty about a firm’s profitability may also affect the price of its stock. 

Financial market investors may then have a comparable interest in 

gaining knowledge about potential government action that could affect a 

Investors Sometimes 

Respond to Political 

Intelligence
 

Page 14 GAO-13-389 Political Intelligence 

firm’s profitability. Three of eight political intelligence firms and two of four 

law firms who provide political intelligence confirmed that they have seen 

a rise in demand for their services in recent years, in part due to interest 

in policy issues such as the nation’s budget uncertainty and health care 

reform legislation.

The asbestos liability trust fund example illustrates one instance where 

investors responded to government information and used this information 

to trade stocks. In 2005, a small group of investors used information 

obtained from the legislative branch about a pending announcement on 

the Senate floor that could affect the value of companies with asbestosrelated liabilities. Investors used the information to make stock purchases 

in those companies before the announcement was made and the 

information—that the Senate would vote on a bill creating an asbestos 

liability trust fund—became public. In this example, investors anticipated 

making profitable trades by buying firms’ stocks at lower prices than 

would prevail once all market participants knew that firms would benefit 

from the creation of a liability trust fund. No charges were filed, and the 

Senate did not pass the bill.

In another example, an FDA chemist bought, sold, and short-sold stock 

based on pieces of material nonpublic information, which he could access 

due to his position at FDA. The information allowed him to judge the 

direction that stock prices would change when information about a 

pending regulatory decision became public. The SEC investigated this 

case and filed a civil complaint, while the Department of Justice filed a 

parallel criminal case in federal court alleging violation of insider trading 

laws. In cases such as these, the possession of material nonpublic 

information provides the potential for profitable trading in anticipation of 

price changes once the information becomes public. When political 

intelligence is material and public and is disseminated through the 

market, its influence on prices may be evident in immediate price 

changes (as with the announcement of a drug approval) or may be 

difficult to isolate (as with a general increase in defense spending). This 

explains why it is difficult to determine the effects, if any, of political 

intelligence on financial markets.
 

Page 15 GAO-13-389 Political Intelligence 

If Congress chose to require disclosure of the exchange of political 

intelligence information, then the benefits and costs of disclosure would 

have to be balanced while at the same time considering practical and 

legal issues. For example, interviewees discussed the potential benefit of 

increasing the transparency of political intelligence firms’ activities. 

However, the cost of administering and enforcing disclosure of 

government information (such as staff and information technology 

resources) would also need to be considered. In addition, there are a 

number of practical issues regarding the structure and form of disclosure 

that would need to be resolved. Specifically, key definitional terms such 

as direct communication would need to be clarified, and the required 

disclosure elements—such as what the elements of disclosure include, 

what political intelligence information needs to be disclosed, who should 

file, and how often—would need to be determined. There could also be 

legal challenges to requiring such disclosure (based on perceived 

restrictions on First Amendment rights).

Some individuals we interviewed cited potential benefits of disclosing 

political intelligence activities.10

In addition to transparency, another potential benefit cited by SEC 

officials was that disclosure could potentially lead to investor protections 

as the nature and timing of the flow of information between a government 

official, a political intelligence firm, and an investor is made public through 

disclosure. SEC officials told us that access to information promotes 

investor confidence and maintains the integrity of markets. However, for 

According to three of eight public 

advocacy groups, a benefit of political intelligence disclosure could be the 

transparency of a political intelligence firms’ activities such as the source 

of political intelligence (executive or legislative branch), disclosure of who 

(investor) purchases such information, and what information was shared. 

However, all three interviewees with broad public policy expertise 

questioned whether requiring disclosure would be a matter of promoting 

transparency without a compelling public purpose and were not certain 

what specific problem disclosure would resolve. They pointed out that the 

information being disclosed would most likely be public information and 

there are already laws in place governing the protection of nonpublic 

information.

 

10The benefits of disclosure would depend on which activities would be required for 

reporting purposes. If the requirements were minimal then not all benefits discussed in this 

section might be realized. 

Potential Disclosure 

Requirements Would 

Need to Balance 

Benefits and Costs 

while Also 

Considering Practical 

and Legal Issues
 

Page 16 GAO-13-389 Political Intelligence 

political intelligence it is uncertain how helpful disclosure would be to an 

investor given the pace of market movements. For example, a firm’s 

disclosure that it shared political intelligence with a large pension fund 

would only be helpful to other investors if the disclosure was filed and 

made available almost instantaneously. 

Finally, according to SEC officials, disclosure could help them accomplish 

their mission. For example, SEC officials told us that disclosure of more 

information could allow enforcement staff to identify relationships or make 

connections between the various individuals involved in an investigation 

of potential insider trading. According to those officials, SEC analyzes 

investigative information and builds its insider trading cases by, among 

other things, looking for relationships between people and events that are 

related to a suspicious trade. SEC officials suggested that political 

intelligence disclosure legislation could include the name of the filer’s 

former employer, dates of prior employment, and the dates of contact 

between the filer and government source.

Disclosure of political intelligence activities would also involve incurring 

costs for the entity processing the disclosure as well as for individuals 

required to disclose their activities. Congressional staff we interviewed 

stated that without knowing the requirements of political intelligence 

disclosure they could not speculate on the potential cost. However, based 

on their experience with administering the LDA, congressional staff said 

that disclosure costs most likely would include staff to administer the 

disclosure process, the creation and maintenance of an information 

technology infrastructure for disclosure, and the administrative support 

necessary to track registration and compliance. In addition, individuals 

required to disclose their activities would also likely bear the cost of 

compiling such information for filing.

There are also practical issues regarding the requirements and potential 

form of disclosure that would need to be resolved. These issues include:

• Clarifying key terms: Although the STOCK Act defines political 

intelligence, some terms in the definition are unclear. Specifically, 

agreement does not exist on the meaning of the phrases “direct 

communication” and someone “who is known to intend to use 

information to inform investment decisions” making it difficult for firms 

to determine whether an exchange of political intelligence occurred, 

and, as a result, uncertain as to whether they would be required to 

register. For example, a clear description of what constitutes direct 

communication would be necessary to help potential filers determine 
 

Page 17 GAO-13-389 Political Intelligence 

whether a disclosure requirement applied to them. As a point of 

comparison, state lobbying laws define direct communication as, but 

not limited to, contact in person, on the telephone, by telegraph, by 

letter, or using electronic media. With regard to investment decisions, 

disclosure rules would also need to clarify whether disclosure is 

required for the range of decisions that an investor can make 

including internal business decisions and a decision to do nothing.

• Establishing who would administer and enforce registration and 

reporting requirements: Interviewees also raised practical issues 

regarding the structure and function of disclosure requirements with 

respect to who should administer a potential political intelligence 

disclosure requirement for both the executive and legislative 

branches. Specifically, two of eight attorneys and interviewees from 

two of eight advocacy groups discussed the importance of deciding 

which agency should administer political intelligence disclosure, and 

that disclosure should not be modeled after or be made to fit into the 

LDA as a default disclosure model. One of the two attorneys stated 

that political intelligence does not fit cleanly into the LDA and there is 

no public rulemaking in place to address uncertainties that may arise. 

The attorney suggested that the SEC, OGE or another executive 

branch agency that regularly handles disclosure should administer 

political intelligence disclosure. In addition, potential disclosure 

requirements would also need to identify which agency would be 

responsible for political intelligence enforcement.11

• Identifying the elements and characteristics of disclosure: According 

to the STOCK Act definition of political intelligence three parties are 

involved in the exchange of political intelligence: the source of the 

information (e.g., the executive or legislative branch employee), the 

person or firm collecting the information, and the client that receives 

the information. Twelve of thirty-four interviewees said that who 

should file is a key element that would need to be determined. A 

representative from a media organization and two of eight attorneys—

one from a law firm that gathers political intelligence—expressed 

concern regarding the number of contacts that might need to be 

disclosed, especially if a firm has hundreds or thousands of clients.

 

11Disclosure under the Lobbying Disclosure Act is enforced by the Department of Justice 

(DOJ); insider trading of securities is enforced by DOJ and SEC; and insider trading of 

contracts of commodities and options, under the Dodd-Frank Act, is enforced by the 

CFTC. 
 

Page 18 GAO-13-389 Political Intelligence 

We analyzed three federal laws that require disclosure of information to 

explore what elements may need to be considered in establishing political 

intelligence disclosure requirements. These laws were the LDA,12 the 

Federal Election Campaign Act,13 and the Investment Advisers Act.14

Table 1. Analysis of Three Federal Laws Relevant to Potential Political Intelligence 

Disclosure Requirements

From our analysis we found that there are at least 24 elements that would 

likely need to be considered, as shown in table 1. All of the elements 

identified were requirements in at least one of the three models we 

reviewed.

Requirement Type Elements for consideration

Purpose • Purpose of Disclosure Requirement (establish a 

clear definition)

Filing procedures • What forms to file

• Where to file

• Allows or requires electronic registration or 

reporting

• Termination of registration (e.g., if filer no longer 

fits requirements, a request may be made to no 

longer file reports)

Filing requirements • Who must file

• Who is exempt from filing

• Threshold requirements (only if a threshold is met) 

• Records maintained (e.g., a record of contributions 

to a government official is kept and the location is 

reported)

• Registration fees

Filing time frame and deadline • When to file

• Filing deadline

• Frequency of filing reports

 

12 The Lobbying Disclosure Act of 1995, as amended, 2 U.S.C. §§ 1601-1614.

13 The Federal Election Campaign Act of 1971, as amended, 2 U.S.C. §§ 431-442.

14 The Investment Advisers Act of 1940, as amended, 15 U.S.C. §§ 80b-1-80b-21. 
 

Page 19 GAO-13-389 Political Intelligence 

Requirement Type Elements for consideration

Filing content • Information about the filer’s communications or 

contacts made on behalf of the client

• Information about the client

• A list of individuals who acted on behalf of the 

client during the reporting period (applicable if the 

lobbyist was engaged in political intelligence)

• Expenditures or income

• Campaign contributions (contributions paid by filer 

to a government official’s election)

• Gifts (from filer to a government official )

Oversight • Training or ethics course (e.g., education on new 

requirements and procedures for those required to 

report)

• Restriction provisions on what filers can and cannot 

do

• Enforcement, fines, and penalties

• Audits (to monitor compliance with requirements 

and procedures of disclosure reports)

• Public access to filer’s data (e.g., timing and format 

for providing information)

Source: GAO analysis of elements contained in the Lobbying Disclosure Act, Federal Election Campaign Act, and Investment Advisers 

Act. 

Additional practical issues and concerns that would need to be 

considered include:

• A robust enforcement effort may be necessary to ensure compliance:

Specifically, interviewees from four of eight political intelligence firms 

said firms could be less willing to register and report political 

intelligence activities because of concerns that public disclosure could 

result in a loss of their competitive advantage. In addition, seven of 

thirty-four interviewees stated that once political intelligence is defined 

some firms may attempt to avoid having their activities categorized or 

identified as political intelligence in order to avoid registration 

requirements. For example, firms may more discretely and informally 

provide services, may advertise their services in a way that does not 

indicate that they provide political intelligence information, or may join 

other types of businesses, such as lobbying firms, and bundle political 

intelligence services with other services so that they are not detected 

as political intelligence firms.

• Concern about exposure of clients and clients’ interests may need to 

be considered: Seven out of thirty-four interviewees had concerns 

regarding their clients’ interests being exposed. For example, an 

official from one political intelligence firm said that some of their 
 

Page 20 GAO-13-389 Political Intelligence 

clients include a clause in their contracts with political intelligence 

firms requiring that the firm not disclose that the political intelligence 

firm is working for the client because they do not want their 

competitors to find out who gathers information for them.

• The potential need for, and scope of, a media exemption would need 

to be considered: Of the seventeen interviewees who said an 

exemption from disclosure may be necessary for media organizations, 

eight stated that an exemption from registration for and reporting on 

political intelligence should be established for media organizations 

because of the First Amendment press protection.15 However, other 

interviewees questioned the need for a media exemption. For 

example, three political intelligence firms, and one attorney from a law 

firm said that there should not be an exemption for media 

organizations because they engage in the same activities as political 

intelligence firms, and ask the same type of questions about the same 

issues that their subscribers and clients are interested in. 

The definition of “media” could further complicate a possible media 

exemption. For example, in 2006 the Federal Election Commission 

(Commission) amended its campaign finance rules to clarify the 

applicability to the Internet. The Commission acknowledged the 

expansion of the Internet and noted that bloggers and others who 

communicate on the Internet are entitled to the media exemption in 

the same way as traditional media.16 The Commission did not change 

its rules to specifically exempt all blogging activity. Instead, it 

amended the media exemption to use the terms “website” and 

“Internet or electronic publication” with the purpose of encompassing 

a wide range of existing and developing technologies.

• “Chilling” effect or slowing of communication between government, 

media, and political intelligence firms: Twenty-one of thirty-four 

 

15 In determining whether a disclosure requirement violates the First Amendment, courts 

generally review the relation between the disclosure requirement and the governmental 

interest. See Citizens United v. Federal Election Commission, 558 U.S. 310 (2010) 

(holding that the government may regulate corporate political speech through disclaimer 

and disclosure requirements, but it may not suppress that speech altogether); Nat’l Ass’n 

of Manufacturers v. Taylor, 582 F.3d 1 (D.C. Cir. 2009) (upholding registration and 

disclosure requirements on lobbyists, even though Congress has no power to ban 

lobbying itself).

16 71 Fed. Reg. 18,589 (April 12, 2006).
 

Page 21 GAO-13-389 Political Intelligence 

interviewees said that disclosure of political intelligence activities 

could result in a potential chilling effect among government officials, 

the media, and political intelligence firms. For example, a political 

intelligence firm and an attorney from a law firm that gathers political 

intelligence stated that firms would likely be reluctant to share or 

request government information because disclosure could expose 

them to potential liability from an allegation of insider trading or would 

risk damage to their reputation from negative media coverage. 

Similarly, a slowdown of communication could also affect Congress as 

they often consult with interested parties when crafting legislation 

which could in some cases be considered political intelligence.

In addition, some interviewees said that they foresee legal challenges to 

political intelligence disclosure stemming from potential or perceived 

restrictions on First Amendment rights, attorney-client privilege, and an 

attorney’s duty of confidentiality. Specifically, sixteen out of thirty-four 

interviewees stated that those who challenge disclosure could contend 

that their First Amendment rights have been violated. Four of four 

attorneys at law firms that gather political intelligence stated that this 

could be an issue because under the First Amendment there is a 

constitutional right to participate in the political process and that 

disclosure could impede that process. However, three of four attorneys at 

these law firms and an academic researcher said that political intelligence 

is not different from gathering any other kind of information and there is 

nothing wrong with gathering information from the government. One 

attorney said that gathering information is what any thoughtful individual 

does to analyze or form conclusions about policies, regulations, or the 

law.

Thirteen of thirty-four interviewees stated that a political intelligence 

disclosure requirement could be challenged on the basis that it 

contradicts the attorney-client privilege and the attorney’s duty of 

confidentiality to his client.17

 

17 See Rule 1.6 of the American Bar Association Model Rules of Professional Conduct, 

governing the client-lawyer relationship.

Under this rule, keeping client confidences 

applies not only to matters communicated to the lawyer in confidence but 

also to all information relating to the representation, no matter the source. 

However, one of eight citizen advocacy groups and one of three legal 

experts suggested that this argument is likely to be rejected as a similar 

concern was raised during consideration of the LDA. The LDA requires 
 

Page 22 GAO-13-389 Political Intelligence 

lobbyists, many of whom are attorneys, to report identifying information 

about their clients. For example, the LDA requires lobbyists to report the 

names of their clients, physical address, principal place of business, a 

general description of the client’s business or activities, and the issue 

areas the attorney is lobbying for on behalf of the clients.

Government information helps companies and individuals understand and 

anticipate the potential effects of executive and legislative branch actions 

on business, finance, and other decisions. The financial market value of 

government information can hinge on the materiality and timing of such 

information. What is most difficult to measure is the extent to which 

investment decisions are based on a single piece of government 

information or political intelligence. Even when a connection can be 

established between discrete pieces of government information and 

investment decisions, it is not always clear whether such information 

could be definitively categorized as material or nonmaterial and whether 

such information stemmed from public or nonpublic sources at the time of 

the information exchange. This is in part because government information 

is often bundled with other information which collectively influences an 

investment decision and in part because the flow of information does not 

lend itself to quantification or ongoing documentation for the purpose of 

measuring industry activity.

While no laws or ethics rules specifically govern the political intelligence 

industry, executive and legislative branch ethics guidance and securities 

laws provide parameters for government officials to protect material 

nonpublic information. Specifically, SEC’s Rule 10b-5, which applies to 

both the executive and legislative branches of government, prohibits the 

use of material nonpublic information. The SEC can open an investigation

if it is suspected that a person has used material nonpublic information to 

trade stocks. If Congress chose to supplement existing guidance and 

laws with required disclosure of political intelligence information, the 

benefits and costs of disclosure would have to be balanced along with 

consideration of related practical and legal issues.

We are sending copies of this report to the Secretary of the Senate, Clerk 

of the House of Representatives, Senate Select Committee on Ethics, 

House Committee on Ethics and other interested congressional 

committees and members. This report is available at no charge on the 

GAO website at http://www.gao.gov. If you or your staff have any 

questions about this report, please contact me at (202) 512-6806 or 

Concluding 

Observations
 

Page 23 GAO-13-389 Political Intelligence 

sagerm@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

GAO staff who made key contributions to this report are listed in appendix 

II.

Michelle Sager

Director, Strategic Issues
 

Page 24 GAO-13-389 Political Intelligence 

List of Committees

The Honorable Thomas R. Carper

Chairman

The Honorable Tom Coburn, M.D.

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Darrell E. Issa

Chairman

The Honorable Elijah Cummings

Ranking Member

Committee on Oversight and Government Reform

House of Representatives

The Honorable Bob Goodlatte

Chairman

The Honorable John Conyers, Jr.

Ranking Member

Committee on the Judiciary

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 25 GAO-13-389 Political Intelligence 

The Stop Trading on Congressional Knowledge (STOCK) Act of 2012 

(P.L. 112-105) directed us, in consultation with the Congressional 

Research Service (CRS), to report on the role of political intelligence in 

the financial markets. The objectives for conducting our work were to 

describe

• the legal and ethical issues, if any, that may apply to the sale of 

political intelligence;

• what is known about the sale of public and nonpublic political 

intelligence, the extent to which investors rely on such information, 

and the effect the sale of political intelligence may have on the 

financial markets; and

• any potential benefits and any practical or legal issues that may be 

raised from imposing disclosure requirements on those who engage in 

these activities.

To address these objectives, we conducted key word searches of 

relevant databases and literature for studies that included political 

intelligence and policy research and analysis. In addition, we conducted 

34 semi-structured interviews with entities that were selected to provide a 

range of views from those involved in providing, regulating, researching, 

analyzing, and receiving political intelligence.1

• eight political intelligence firms,

Individuals provided their 

own perspectives rather than the official view of their firm or organization. 

Specifically we interviewed individuals from:

• eight non-governmental citizen advocacy or protection groups that 

cover public policy issues such as government transparency and 

openness,

• five trade associations representing pension funds and businesses

(investors) 

• four law firms that conduct political intelligence,

• three legal experts that specialized in the Lobbying Disclosure Act 

(LDA), securities law or ethics law;

• three regulatory entities—the Securities and Exchange Commission 

(SEC), Financial Industry Regulatory Authority, and the Commodity 

Futures Trading Commission

• one financial services firm (investor),2

 

1

We selected forty-seven entities to interview and thirteen either declined or did not 

respond to our request for an interview.

2

In total we spoke to six investors. 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 26 GAO-13-389 Political Intelligence 

• one academic researcher specializing in law reform for securities 

fraud, and

• one media organization.

We selected the interviewees because they were the most frequently 

mentioned in the results of our database and literature searches of 

research reports, articles, and studies. In addition, we included 

interviewees that were referred by one or more participants from other 

interviews. As such, our results may not reflect the opinions of firms not 

publicly identified as political intelligence firms.

We used the interviews to obtain the following types of information 

(depending on the type of individual or organization we interviewed):

• range of services provided by the respondent,

• differences in the use of the terms lobbying, political intelligence and 

policy research,

• process for collecting information,

• client relationships and services,

• legal questions pertaining to direct communication,

• legal and ethical issues that may arise from the sale of political 

intelligence,

• any statutes and regulations that cover political intelligence activities,

• compliance mechanisms in place to deal with legal, ethical, or 

regulatory issues,

• information shared that would be considered material nonpublic 

information,

• any benefits to requiring registration and reporting of political 

intelligence activities, and

• any disadvantages to requiring registration and reporting of political 

intelligence activities.

The information we obtained from these interviews cannot be generalized 

to all parties that are knowledgeable about political intelligence. Prior to 

conducting the semi-structured interviews, the questions were pretested 

with five firms and questions were reframed based on the findings from 

these pretests.

In addition to the semi-structured interviews, we separately interviewed 

ten entities including staff from the Senate Select Committee on Ethics, 

the House of Representatives Committee on Ethics, the Secretary of the 

Senate, the Clerk of the House of Representatives, the Senate Judiciary 

Committee, the House of Representatives Financial Services Committee, 

three individuals selected based on their broad expertise as private sector 
Appendix I: Objectives, Scope, and 

Methodology

Page 27 GAO-13-389 Political Intelligence 

leaders and their experience from previous positions in the executive and 

legislative branches of government, and officials from the Food and Drug 

Administration (FDA). The interviews were conducted to discuss legal and 

ethical issues that could arise if disclosure of political intelligence 

activities was required, as well as any compliance mechanisms in place 

to safeguard the disclosure of material nonpublic information. We also 

consulted with the Congressional Research Service and the National 

Academy of Public Administration as we conducted our work.

We identified executive and legislative branch examples of the prior use 

of government information with a resulting effect on financial markets or 

individual portfolios based on literature reviews, media reports, and 

referrals by political intelligence practitioners. For purposes of this report 

we focused on two examples. One example is a 2011 FDA case where a 

chemist misused government information and pled guilty to insider 

trading. The other example was a 2005 case where the Senate proposed 

a bill to create an asbestos trust fund. Investors traded stock based on 

information about the proposed bill which had not been publicly released. 

No wrongdoing was found. We selected the two cases and highlighted 

the issues associated with them in order to show potential problems that 

could result from the exchange of government information. In addition, we 

used these examples to discuss and illustrate the guidance, policies, and 

procedures in place for protecting and disseminating information with the 

potential to be defined as political intelligence from the two branches of 

government. For these cases we reviewed relevant legal documentation 

and executive and legislative branch guidance on protecting information.

We interviewed FDA officials concerning the FDA case and a 

congressional staff member about the asbestos trust fund case.

To determine the laws and ethics rules that govern the sale of political 

intelligence and to determine the extent to which information being sold 

would be considered nonpublic information we examined legislative and 

executive branch ethics guidance and the interpretation and application of 

SEC Rule 10b-5 (related to insider trading) to identify and summarize the 

distinctions between public and nonpublic information. Interviews were 

used to obtain opinions on what information shared by Members of 

Congress or executive or legislative branch employees would be 

considered material nonpublic information. In addition, we obtained 

opinions about the statutes and regulations that cover political intelligence 

activities, and the compliance mechanisms in place to deal with legal, 

ethical, and regulatory issues that may arise regarding the use of political 

intelligence. We also met with staff from the Senate and House ethics 
Appendix I: Objectives, Scope, and 

Methodology

Page 28 GAO-13-389 Political Intelligence 

committees to discuss the laws and ethics rules for political intelligence 

activities and contacted the Office of Government Ethics.

To determine what is known about the sale of political intelligence and 

assess the extent to which investors rely on such information and what is 

known about the effect the sale of political intelligence may have on the 

financial markets, we used the semi-structured interviews to 

systematically collect testimonial evidence from the various interviewees 

potentially engaged in political intelligence activities. We asked 

interviewees about the role of various parties involved in the collection 

and dissemination of political intelligence, the process through which 

information is gathered and disseminated, client relationships and 

services, the types of information used to make an investment or 

business decision, and the extent to which political intelligence 

information affects financial markets. To seek economic data on the size 

of the political intelligence industry (i.e. measure the size of the industry), 

we searched for political intelligence in the industry classification systems 

used by federal statistical agencies to collect economic data on U.S. 

business establishments, the North American Industry Classification 

System and the Standard Industrial Classification system.

To describe any benefits or practical and legal issues that could arise 

from the imposition of disclosure requirements on those who engage in 

political intelligence activities, during the semi-structured and open-ended 

interviews we asked interviewees to describe any benefits or costs, as 

well as potential legal and practical issues, that could be raised by the 

imposition of disclosure requirements on those who engage in political 

intelligence activities. We also reviewed three federal disclosure 

models—the LDA, the Investment Advisers Act, and the Federal Election 

Campaign Act—to determine the types of requirements that would likely 

need to be considered for any potential disclosure model developed for 

political intelligence. We selected these models based on a database 

search of other disclosure models to ensure their potential applicability, 

as well as suggestions from external parties such as congressional staff

and officials at regulatory agencies. Further, we selected these models 

because they all included a requirement to publicly disclose information, 

financial and non-financial data about the filer’s activities, and elements 

that could provide useful investigative data. The elements in each of the 

models were ranked based on relevance, independently reviewed for 

objectivity, and then selected as possible elements that could be relevant 

for consideration of political intelligence disclosure.
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 29 GAO-13-389 Political Intelligence 

Michelle Sager, (202) 512-6806 or sagerm@gao.gov

In addition to the contact named above, Lisa M. Pearson (Assistant 

Director), Pawnee A. Davis, Rebecca S. Heimbach, Hayley Landes, Lou 

V. B. Smith, and Katrina D. Taylor made key contributions to this report.

Assisting with the review were Seto J. Bagdoyan, Amy R. Bowser, A. 

Nicole Clowers, Lawrance L. Evans, Jr., Philip G. Farah, Kirsten B. 

Lauber, and Susan E. Offutt

Appendix II: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Acknowledgements

(450983)
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