SEC TARGETS CORRUPTION IN THE STOCK MARKET LEADING TO POSSIBLY THE BIGGEST INSIDER TRADER SCANDAL IN HISTORY

BRIAN SUTTER

A frustrated Securities and Exchange Commission revealed that an investigation hindered by stonewalling government employees could balloon into the biggest insider trading case in history, implicating as many as 44 hedge funds and trading firms, new court documents show.

The SEC has unsuccessfully tried to subpoena information from the House Ways and Means Committee and a staffer, Brian Sutter, as part of an investigation into whether the funds traded on a tip about a change in Medicare reimbursements that resulted in a spike in share prices of big insurance companies.

Sutter, 34, set off a chain of events that could end up implicating some of the biggest hedge funds in the world in insider trading, according to the SEC’s memorandum for its inquiry.

At about 3 p.m. on April 1 last year, an hour before the markets closed, Sutter used his cell phone to call a lobbyist from Greenberg Traurig, where he allegedly talked about the upcoming Medicare rate changes, according to court documents.

The lobbyist then told an analyst at Height Analytics, a broker-dealer, who then sent a note to clients about how Medicare would increase payments to some companies ahead of the government announcing the change, according to the memorandum.

The inquiry, which the SEC has called the Humana investigation, concerns trading in four of the largest health-care companies in the US — Humana, WellCare Health Plans, UnitedHealth Group and Aetna.

The funds include “some of the largest hedge funds and asset management advisors in the nation,” according to a July 16 declaration letter from SEC lawyer Sanjay Wadhwa.

Sutter, as well as the Ways and Means committee, has refused to turn over documents or testify before the SEC, calling the subpoena “repugnant to public policy” and claiming they are “absolutely immune” from subpoenas from a federal regulator in an insider trading probe.

However, the SEC argues that Congress passed a law in 2012 that bars lawmakers from disclosing confidential nonpublic information about government matters that could move stock prices.

Should regulators pursue all the 44 funds that traded on the insider knowledge, the scope of the case would dwarf the next-biggest insider trading case against Steve Cohen’s SAC Capital.

A spokeswoman for the Ways and Means committee directed questions to House general counsel Kerry Kircher, who didn’t return multiple messages seeking comment.