The Washington-based firm Height Securities is a small player in a burgeoning financial field where companies seek to acquire valuable information about even the most minor of federal actions and provide it to investors.

Yet a stock brokerage with only $7 million in reported annual revenue, a pittance by Wall Street standards, was apparently able to provoke a major surge in market trading. After Height Securities alerted clients to a pending government decision favoring health-care insurers, trading spiked in the shares of major health-care firms. With a federal investigation under way into these events, the activities have gained public attention.

But largely out of public view, the “political intelligence” industry has doubled in size over the past decade, by some estimates. What was once primarily a side business for law firms and lobby shops has grown so lucrative that it has spawned dozens of stand-alone firms that cater to hedge funds and other powerful corporate clients.

That has drawn escalating concern from the Obama administration and Congress. The Securities and Exchange Commission and the Justice Department are probing the trading activity spawned by Height’s April 1 alert to its clients, according to people familiar with the matter, and Sen. Charles Grassley, a Republican from Iowa, is investigating the political intelligence field and preparing legislation requiring greater disclosure of firms’ activities.

In a letter seeking information about the events surrounding the surge in trading of major health-care firms, Rep. Louise Slaughter, a Democrat from New York, said, “Congress and the public deserve to know who is conducting political intelligence activities, what those activities are and the extent to which lobbying firms . . . participate.”

Political intelligence is “extremely pervasive,” said Mike Mayhew, chairman and director of research at Integrity Research Associates, which tracks the industry. “To name all of the lobby firms and the law firms that are doing this is very difficult because, first of all, it’s not clear they’ll admit to it. . . . They don’t advertise it on their websites.”

As the hedge fund industry has grown, the demand for valuable information from Washington has become more intense and smaller boutique firms have sprouted up. Major legislation such as the health-care overhaul and the Dodd-Frank revamp of financial regulations have also driven demand higher.

The appetite for this information — and the willingness to pay handsomely for it — is based on the realization among traders that decisions in Washington move markets and can shape entire industries for years. Understanding how Washington works has become so important for investors that it is hard for hedge funds and banks to do their research without stumbling upon some political angle.

The definition of “political intelligence” can be so murky that people in Washington disagree over what it is exactly. Many longtime observers view it as any activity in which information is collected from Washington insiders and then used for investing purposes.

This could be as specific as a firm learning that regulators want to approve a blockbuster drug and then telling its hedge fund clients. Or it could be something broader: a research analyst releasing a report for clients explaining the country’s health-care overhaul — and how it might affect the performance of certain stocks.

Height’s SEC filings show that the firm, along with an affiliated firm called Height Analytics, is principally owned by managing partners Andrew Parmentier and John Akridge IV, who used to work at FBR, an Arlington, Virginia-based investment bank.

Officials at Height did not return phone calls or emails Thursday.

Height reported 2012 revenue of $7 million, with $1.4 million in assets and $461,000 in liabilities, records show. While the majority of its several dozen employees have banking and asset management experience, the firm has employed former CIA agents and even a former professional lacrosse player, according to company information found on LinkedIn.

The SEC investigation centers on activities on April 1. Height alerted its clients that the government would soon make a decision favoring private health insurers who participate in a Medicare program. Coming only 18 minutes before the trading day ended, the alert sparked a surge in trading in the shares of several major health-care firms, including Humana and Aetna. Height was proved right; the government decision was announced after trading ended.

Employees at publicly traded companies have long been subject to strict insider-trading laws. The Stock Act, passed by Congress in April 2012, makes explicit that these laws also apply to members of Congress, their staffs and other federal officials. It also adds that there is a “duty of confidentiality and trust” that all of these employees have with information that is not public and that is “material,” meaning it could affect the price of a security.

This law, in theory, should transform how valuable information is exchanged in Washington, a place practically built on people constantly trying to figure out what happened in the latest closed-door meeting.

Yet Mayhew said that not much has changed. “That’s already the law, and no one’s talking about it,” he said. “They’re acting as if the Stock Act never passed.”

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