Here’s a headline you don’t often expect to see: “Open-Government Laws Fuel Hedge-Fund Profits.”
It’s a fascinating article that opens with a story about SAC Capital Advisors LP – a hedge fund. Last December SAC Capital used Freedom of Information Laws (FOIA) to request preliminary results on a Vertex Pharmaceuticals drug being tested by the US Food and Drug Administration. The request revealed there were no “adverse event reports,” increasing the odds the drug might be approved. SAC Capital used this information – according to the Wall Street Journal – to snatch up 15,000 shares and 25,000 options of Vertex. In December – when the request was made – the stock traded around $40. Eight months later it peaked at $89 and still trades today at around $75. Thus, clever usage of government access to information request potentially netted the company a cool ROI of 100% in 9 months and a profit of roughly 1.2 million dollars (assuming they sold around $80).
This is an interesting story. And I fear it says a lot about the future of access to information laws.
This is because it contrasts sharply with the vision of access to information the media likes to portray: Namely, that access requests are a tool used mainly by hardened journalists trying to uncover dirt about a government. This is absolutely the case… and an important use case. But it is not the only usage of access laws. Nor was it the only intended use of the law. Indeed, it is not even the main usage of the law.
In my work on open data I frequently get pulled into conversations about access to information laws and their future. I find these conversations are aggressively dominated by media representatives (e.g. reporters) who dislike alternative views. Indeed, the one-sided nature of the conversation – with some journalists simply assuming they are the main and privileged interpreters of the public interest around access laws – is deeply unhealthy. Access to information laws are an important piece of legislation. Improving and sustaining them requires a coalition of actors (particularly including citizens), not just journalists. Telling others that their interests are secondary is not a great way to build an effective coalition. Worse, I fear the dominance of a single group means the conversation is often shaped by a narrow view of the legislation and with a specific set of (media company) interests in mind.
For example, many governments – including government agencies in my own province of British Columbia – have posted responses to many access to information requests publicly. This enrages (and I use that word specifically) many journalists who see it as a threat. How can they get a scoop if anyone can see government responses to their requests at the same time? This has led journalists to demand – sometimes successfully – that the requestor have exclusive access to government responses for a period of time. Oy vey. This is dangerous.
For certain types of stories I can see how complete transparency of request responses could destroy a scoop. But most stories – particularly investigative stories – require sources and context and understanding. Such advantages, I suspect, are hard to replicate and are the real source of competitive advantage (and if they aren’t… shouldn’t they be?).
It also suggests that a savvy public – and the media community – won’t be able to figure out who always seems to be making the right requests and reward them accordingly. But let’s put issues of a reputation economy and the complexity of reporting on a story aside.
First, it is worth noting that it is actually in the public interest to have more reporters cover a story and share a piece of news – especially about the government. Second, access to information laws were not created to give specific journalists scoops – they were designed to maximize the public’s capacity to access government information. Protecting a media company’s business model is not the role of access laws. It isn’t even in the spirit of the law.
Third, and worst, this entire debate fails to discuss the risks of such an approach. Which brings me back to the Wall Street Journal article.
I have, for years, warned that if public publication of access to information requests results are delayed so that one party (say, a journalist) has exclusive access for a period of time, then the system will also be used by others in pursuit of interests that might not be in the public good. Specifically, it creates a strong incentive for companies and investors to start mining government to get “exclusive” rights to government information they can put to use in advancing their agenda – making money.
As the SAC Capital Case outlined above underscores, information is power. And if you have exclusive access to that information, you have an advantage over others. That advantage may be a scoop on a government spending scandal, but it can also be a stock tip about a company whose drug is going to clear a regulatory hurdle, or an indication that a juicy government contract is about to be signed, or that a weapons technology is likely to be shelved by the defence department. In other words – and what I have pointed out to my journalist friends – exclusivity in access to information risks transforming the whole system into a giant insider information generation machine. Great for journalists? Maybe. (I’ve my doubts – see above.) But great for companies? The Wall Street Journal article shows us it already is. Exclusivity would make it worse.
Indeed, in the United States, the private sector is already an enormous generator of access requests. Indeed one company, that serves as a clearing house for requests, accounts for 10% of requests on its own:
The precise number of requests from investors is impossible to tally because many come from third-party organizations that send requests on behalf of undisclosed clients—a thriving industry unto itself. One of them, FOI Services Inc., accounted for about 10% of the 50,000 information requests sent to the FDA during the period examined by the Journal. Marlene Bobka, a senior vice president at Washington-based FOI Services, says a “huge, huge reason people use our firm is to blind their requests.”
Imagine what would happen if those making requests had formal exclusive rights? The secondary market in government information could become huge. And again, not in a way that advances the public interest.
In fact, given the above-quoted paragraph, I’m puzzled by the fact that journalists don’t demand that every access to information request be made public immediately. All told, the resources of the private sector (to say nothing of the tens of thousands of requests made by citizens or NGOs) dwarf those of media companies. Private companies may start (or already are) making significantly more requests than journalists ever could. Free-riding on their work could probably be a full time job and a successful career for at least a dozen data journalists. In addition, by not duplicating this work, it frees up media companies’ capacity to focus on the most important problems that are in the public good.
All of this is to say… I fear for a world where many of the journalists I know – by demanding changes that are in their narrow self-interest – could help create a system that, as far as I can tell, could be deeply adverse to the public interest.
I’m sure I’m about to get yelled at (again). But when it comes to access to information requests, we are probably going to be better off in a world where they are truly digitized. That means requests can be made online (something that is somewhat arriving in Canada) and – equally importantly – where results are also published online for all to see. At the very minimum, it is a conversation that is worth having.