SEC Sues House Committee|for Documents

     WASHINGTON (CN) – The SEC sued the House Committee on Ways and Means in Federal Court, demanding documents for the SEC’s investigation of alleged inside trading in Humana stock.
     The SEC also sued Brian Sutter, staff director of the Ways and Means Committee’s Health Subcommittee.
     The SEC is investigating whether changes in Medicare and Medicaid reimbursement rates were illegally leaked to the public, or traders, who jumped on the news to reap illegal gains by trading in stock of companies that would be affected.
     “The Commission is investigating whether material nonpublic information concerning the April 1, 2013 announcement by the U.S. Centers for Medicare and Medicaid Services (‘CMS’) of 2014 reimbursement rates for the Medicare Advantage program was leaked improperly to certain members of the public in advance of CMA’s announcement, and whether such action resulted in insider trading in violation of the federal securities laws,” the complaint states. “As part of its formal investigation, the Commission properly served respondents with the subpoenas, which seek documents and testimony critical to the Commission’s investigation.”
     The Committee and Sutter refused to comply with the subpoenas, claiming that they are “repugnant to public policy,” vague and overbroad, unconstitutional, “and that one agency of the federal government is somehow barred by sovereign immunity from fulfilling its statutory duty to investigate violations of the federal securities laws.”
     The SEC says that all of these objections “lack merit.”
     What Happened
     On April 1, 2013, about 20 minutes after the close of market trading, the Centers for Medicare and Medicaid Services released its final 2014 Medicare Advantage reimbursement rates. The rates were “far more favorable to certain health care insurers than preliminary rates CMS had announced on Feb. 15, 2013,” the complaint states.
     The Feb. 15 announcement anticipated that Medicare Advantage payments would decline 2.3 percent from the previous year. The April 1 announcement increased the rates by 3.5 percent from the previous year.
     About 20 minutes before the markets closed on April 1 – and 40 minutes before CMS announced the rate change – an analyst at Height Securities, a broker-dealer, sent a “flash report” alerting “dozens of clients, including prominent investment funds” of the rate change, the SEC says in the complaint.
     “Within five minutes after Height released this report, the prices and trading volumes of stocks of those health care insurers affected by these modified rates increased dramatically,” the complaint states. “For example, the price of Humana Inc. stock increased by as much as 7 percent in the last fifteen minutes of trading. Among those trading in these stocks were clients of Height.”
     The Height report claimed that the rate changes were made “to smooth the confirmation of Marylyn Tavernier (sic).”
     Marilyn Tavenner had been acting head of CMS since December 2011. She was confirmed to the post on May 15, 2013.
     The Height analyst wrote that he had received advance notice of the impending rate change from a lobbyist and attorney at Greenberg Traurig.
     “Approximately half an hour before the Height analyst distributed the flash report (and about 70 minutes before the rate announcement), he had received the following email from a lobbyist and attorney at Greenberg Traurig, LLP (‘Greenberg Traurig’) (the ‘GT Lobbyist’): ‘Our intel is that a deal was already hatched by [Sen.] Hatch to smooth the way for Tavenner as long as they address the MA rates in the final notice. We have heard from very credible sources that the final notice will adjust the phase in on risk adjustment and take into account the likelihood/certainty of an SGR fix.'” (Parentheses and brackets as in complaint.)
     On April 9, 2013, the SEC opened a formal investigation, In the Matter of Humana, to determine the source or sources of the information in the email the Greenberg Traurig lobbyist sent to Height, “the circumstances surrounding the transmittal of that information, and whether any conduct relating to the transmittal constituted insider trading.”
     The SEC wants the defendants ordered to comply with the subpoenas.

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