Political intelligence firm admits wrongdoing in SEC probe

A political intelligence firm admitted to breaking the law and will pay a $375,000 fine for improperly vetting potentially private information.

The Securities and Exchange Commission announced Tuesday it struck a settlement with the Marwood Group. The regulator said the firm failed to follow its own procedures to ensure clients were not receiving illegal insider information, even as analysts worked to cultivate relationships with government sources.

The settlement marks one of the first actions taken against a political intelligence firm after the industry came under heavy scrutiny in recent years for its efforts to obtain critical legislative and regulatory information to serve up to investment clients.

The SEC said that in 2010, Marwood analysts received information regarding potential drug approval pending before the Food and Drug Administration. The regulator said firm employees should have known the information could be “material nonpublic information” that would be illegal to disseminate to financial traders.

And while the firm had policies that required employees to bring information to its compliance department if it suspected it was confidential, that didn’t happen in 2010, and the information was shared with clients in a research note.

Marwood agreed to pay the fine and admit to wrongdoing. The firm will also bring on an independent compliance consultant to beef up its oversight.

Marwood bills itself as a “healthcare-focused advisory and consulting firm” on its website and has offices in Washington, New York and London. The firm was founded by Ted Kennedy, Jr., son of the late Sen. Ted Kennedy (D-Mass.).

The government is probing several political intelligence firms in an effort to determine if investment clients like hedge funds were receiving unfair and illegal access to critical government information ahead of the general public.

A New York judge ruled earlier this month that the government can continue an insider trading probe, and compelled the House Ways and Means Committee and a former staffer to comply with subpoenas from the Justice Department, according to The Wall Street Journal.

In that case, the firm Height Securities is under scrutiny for informing clients of a policy change favorable to large insurance companies. Stocks in relevant companies surged after the note went out, which came before the government announced the policy shift.

Congress has also mulled a crackdown on political intelligence firms, including requiring them to publicly register in a form similar to lobbyists. Such a provision was considered as part of the Stop Trading On Congressional Knowledge (STOCK) Act that barred insider trading by lawmakers, but it did not make it into the final version.

A Marwood representative said the firm cooperated completely with the investigation and is “pleased that this settlement finally puts this matter behind us.”

This post updated at 3:08 pm.