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, 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. 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 provide context for understanding the potential use of 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. 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 decisions.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. SEC investigates cases of insider trading by examining the 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. Executive branch employees are prohibited from using or allowing the use of nonpublic government information to further their own private 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 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. 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. 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 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.