US: Boom of 'Corporate Espionage' Predicts Stock Market Trends

Financial analysts and companies have launched a new business. Congressmen and governmental authorities are formulating new laws to combat it.

Pay attention to this term: “political intelligence.” It is a type of corporate espionage that attempts to predict stock market trends. We are discussing a very lucrative business that is booming in the U.S. and that has already provoked congressmen and regulatory organizations, like the Securities and Exchange Commission, to call for investigations and to formulate new laws to counter it.

Even back in 1993, when he was nominated to lead the CIA, R. James Woolsey warned that industrial espionage would one day become a principal business. Then 9/11 happened and many resources were diverted, but the battle with China for economic information, as an example, remained a high priority for Washington. Now, U.S. intelligence officers are beginning to fight on another front, combating a different type of espionage that is domestic. New companies have been created to conduct a type of espionage that is not only after corporate secrets but that, moreover, seeks to predict political decisions: What will the government decide regarding healthcare? Energy? Transport? Defense? Finance? The number of tables on which you can bet are limitless because there is an array of decisions that would have a direct effect on many economic sectors and, therefore, on the actions of businesses that operate in those sectors. A glimpse into these decisions, a few minutes before others can get to them, is enough to orchestrate the gain or loss of billions of dollars in the frenzy of today’s markets.

According to The Washington Post, the incident that caught the attention of U.S. authorities involved Height Securities, a small company based in Washington, D.C. and New York that operates in the financial sector and produces an annual revenue of $7 million. On April 1, it informed its clients — 18 minutes before the markets closed — that the government was about to make a decision that would be favorable for health insurance companies. That brief period of time was enough to allow those investors to move an enormous amount of capital to the companies involved, like Humana and Aetna. In fact, when the negotiations were finished, the government announced that it would increase funding to Medicare Advantage, a program managed by private insurers.

The SEC, the regulatory government agency responsible for the American Stock Exchange,* has opened an ongoing investigation. In the meantime, newspaper reporters have discovered that Height Securities employs not only good financial analysts, but also a former CIA agent. Until recently, this type of activity — bordering on insider trading — was conducted directly between brokers and legal departments, although their operations were not very refined. Today, the professionals have come to play: There are agencies, like Cypress Advisory, LLC or Washington Research Group, dedicated entirely to collecting policy information and sharing it with investors. Aside from the SEC’s investigation, Sen. Charles Grassley, R-Iowa, the ranking Republican on the Judiciary Committee, is already preparing a law to combat these abuses. “Political intelligence” is the new specter haunting Washington.

*Editor’s note: The current name of the AMEX is the New York Stock Exchange (NYSE MKT LLC).