In 2009, an unusual meeting took place at a federal government agency in Baltimore. For around 90 minutes, a group of financial industry professionals grilled staffers at the Centers for Medicare and Medicaid Services, seeking information about an obscure policy question: whether CMS, which oversees the two massive federal health programs, planned to change the reimbursement policies under Medicare for a class of medical devices. The decision stood to affect the bottom line of several companies that produce versions of the device, and the bankers wanted to use what they learned to make investment decisions.

"They hammered us for an hour and a half to try to figure out where we were headed, what our process was, how we'd done things like this in the past," one CMS staffer at the meeting told Yahoo News. "It was theater of the obscene."

The Wall Street crowd didn't learn whether the reimbursement policies would change, but they still got something out of the meeting. "They learned a great deal about the process," said the source. "So they had an enormous competitive advantage over others in the marketplace."

After the meeting was first reported by the Project on Government Oversight, a good-government group, Sen. Charles Grassley, an Iowa Republican, sent a stern letter to CMS questioning whether the confab had served taxpayers' interests. The agency told POGO the meeting was "consistent with agency rules on contacts between CMS staff and members of the public."

Still, this wasn't the kind of meeting that any concerned citizen could have set up. It was arranged by the Marwood Group, a "strategic advisory and financial services firm" focused on health care policy and founded in 2000 by Edward Kennedy Jr., son of the late Massachusetts senator. Marwood is one of an increasing number of players in the fast-growing "political intelligence" industry, which provides information or analysis about legislative developments or policy decisions to clients—usually Wall Street hedge funds or other financial institutions—whose business decisions are affected by what happens in Washington. And lately, it's attracted the attention of some federal lawmakers, who fear that it gives insiders an unfair leg up.

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The concept isn't new. Back in the 1980s, stock trader Ivan Boesky hired lobbyists whose main goal wasn't to convince lawmakers to act in a certain way—as most lobbyists aim to do—but rather to gather intelligence on whether Congress planned to block a proposed takeover of Gulf Corp. by Standard Oil. Boesky learned that the merger would be approved, and used that information to make some profitable trades.

But observers say that over the last decade, as hedge funds have proliferated, creating a larger number of institutional money managers, the political intelligence business has boomed. Integrity Research Associates, which monitors the investment research industry, estimates that around 300 separate firms perform political intelligence services, and that the industry does around $400 million of business per year worldwide.

"The amount of money institutional investors make from understanding what's going on in Washington is astronomical," Integrity Research chairman Michael Mayhew told Yahoo News.

That growth raises some thorny issues. Consider that Raj Rajaratnam, who ran a top Wall Street hedge fund, was sentenced in October to 11 years in prison after being found to have used a network of experts to gain inside information about publicly traded companies, then make trades based on that information. But if Rajaratnam's intelligence had concerned legislative or policy-making developments, and he had picked it up from a member of Congress or agency staffer, he'd likely have broken no laws. That's because lawmakers and their aides, unlike employees of publicly-traded companies, generally have no fiduciary duty to keep that information confidential. Indeed, though Boesky was later convicted of insider trading, the information he got from Washington wasn't part of the case.

Earlier this year, Grassley introduced a measure that would have required purveyors of political intelligence to register and disclose their clients, just as lobbyists must do. But after an outcry from lobbying firms, who feared that it could force them to disclose every casual conversation with lawmakers and their aides, the measure was removed by House Republicans from a larger bill to ban insider trading by members of Congress.

It's not hard to see why the political intelligence industry could view disclosure requirements as a threat. One leading political intelligence firm, the Open Source Intelligence Group, touts as a major selling point the anonymity it offers clients. "Providing this service for clients who do not want their interest in an issue publicly known is an activity that does not need to be reported under the Lobbying Disclosure Act (LDA), thus providing an additional layer of confidentiality for our clients," it declares prominently on its website.

Still, there's a wide range of practices—with varying degrees of secrecy and sophistication—that fall under the political intelligence umbrella. Many of its practitioners are plugged-in law, lobbying and consulting firms that regularly pick up inside information from lawmakers, Capitol Hill aides or staffers at regulatory agencies, and run a side business passing that information on to Wall Street clients trying to figure out how developments in Washington will affect a given industry or company. Others are policy research firms, which generally specialize in one field—energy policy, say—and gather information from those same sources, then mix it with their own analysis to compile reports. Then there are investment banks themselves, including Goldman Sachs and Morgan Stanley, that have in-house staff who gather political intelligence for their own and their clients' use. There are individual operators—academics, policy specialists, lawyers or lobbyists—who sell analytic expertise, as much as raw information, to Wall Street. Some firms even operate as middlemen, connecting these experts to financial industry clients.

In some cases, Wall Street isn't paying for specific information, but rather for expert analysis or judgment. Kevin Kinser, an associate professor of educational policy at SUNY Albany who focuses on the for-profit college sector, told Yahoo News he helps financial industry clients interpret publicly available data on for-profit colleges, as they try to game out where federal policy is heading and how that might affect specific companies.

Kinser isn't privy to any inside dope—his role is more that of a guide or interpreter than an informant. "I have a particular expertise that comes from my scholarship, and I'm sharing that expertise with people who want that information," he said.

Still, many political intelligence practitioners depend on direct contact with lawmakers or government officials in a position to at least offer educated guesses about issues of major significance to a company's bottom line. And that's why the growth of the industry could make those lawmakers or government officials wary of holding conversations with stakeholders.

"When you talk to a lobbyist, you know their background and agenda," Mayhew said. "When you're talking to someone who has another agenda, which is undisclosed, you want to know that—particularly if that's to inform the decision-making of a hedge fund."

But some supporters of the industry argue that, with a growing number of ordinary people counting on Wall Street to manage their money, it's in everyone's interest for Wall Street to be able to make the best-informed decisions it can.

"We all just sort of hand our retirement funds over to professional investors, so these places are managing average Americans' retirement money," said one senior executive involved in the business. "Shouldn't they be required to do the best research?"

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