US appeals court skeptical of House claims in stock case

NEW YORK, N.Y. – Federal appeals court judges expressed skepticism Monday toward efforts by a powerful committee of the U.S. House of Representatives to shield itself from a regulator’s insider trading probe.

The 2nd U.S. Circuit Court of Appeals heard arguments but did not rule on the House Ways and Means Committee’s appeal. A lower-court judge had determined that the committee must produce documents for an investigation by the Securities and Exchange Commission.

Two judges on a three-judge panel expressed doubts about a lawyer’s claims that the committee and one of its former employees are protected by sovereign immunity.

The SEC is investigating whether secrets were improperly released surrounding an April 2013 announcement by the U.S. Centers for Medicare and Medicaid Services about a Medicare program.

Circuit Judge Richard Wesley questioned why the SEC would not be entitled to investigate whether phone calls made by a Ways and Means staff member led to a leap in the value of Louisville, Kentucky-based health care company Humana Inc. before information was announced to the public.

“I can appreciate your argument about sovereign immunity. I’m not sure if you’re winning,” he told William Pittard, a House lawyer.

He said if information dispersed by an employee of the committee led to insider trading, “it sure as hell doesn’t have anything to do with the Ways and Means Committee.”

Pittard told Wesley there were no allegations of insider trading and it was possible information could leak as part of consultations routinely occurring between the committee and businesses as work on legislation proceeds.

“If the allegation is criminal activity, it is still protected?” Wesley asked.

“Yes,” Pittard answered.

He said the SEC could get the information it needs by interviewing analysts, lobbyists, securities issuers and others without subpoenaing a Congressional committee.

SEC attorney Jeffrey Berger told the judges the agency needs the subpoenaed documents to proceed with its probe. He said there were no allegations yet.

“We’re still in an investigative phase,” he said. Berger added that the SEC wants to learn how information leaked from the committee to the public.

Brian Sutter, the health subcommittee’s staff director, disclosed in May 2014 to then-House Speaker John Boehner, a Republican, that he had received a subpoena from the SEC for documents and testimony along with a grand jury subpoena from federal prosecutors in Manhattan, according to the congressional record of that day.

In November, Judge Paul Gardephe set a procedure whereby the Ways and Means Committee would produce unprivileged documents, subject to redactions. He narrowed the category of documents that the SEC could pursue, allowing for documents that are merely administrative or personal in nature but excluding others pertaining to legislation.