The Wall Street Journal continues to investigate the fuzzy intersection between Congress and insider trading, with a good page-one story yesterday on how investors are lining up to meet with Congress and coming away with potentially market-moving information that’s not yet publicly disclosed.
The Journal looks at a firm called JNK Securities that sets up meetings between hedge funds and congresspeople and their staffers. It used to charge $10,000 bucks to do so, but a controversy over a meeting led it to drop that. It’s still making money, though, of course, organizing dozens of meetings a year between investors and Congress: It collects commissions when investors trade off information they get from their meetings.
Like this one, in the heat of the Dodd-Frank financial reform sausagemaking:
At the time, investors assumed Mr. Dodd would support legislation from Sen. Richard Durbin (D., Ill.) to cap fees that Visa Inc. and MasterCard Inc. collect on debit-card purchases. The possible fee cap weighed on the share price of the two credit card giants because it would shrink revenues.
Mr. Dodd signaled to the hedge funds that he wouldn’t include Mr. Durbin’s provision in his bill, a position favorable to Visa and MasterCard that didn’t surface for weeks, according to people at the meeting.
Among the funds attending was Conatus Capital Management, with $2.5 billion under management. In the first quarter of 2010, the hedge fund added more than 300,000 shares of Visa, according to public filings, a 50% hike that brought its holding to 950,000 shares.
The main anecdote is on how Senators Lieberman and Carper met with hedge funds and confirmed that the health care law would not include a public option, a day before that was confirmed publicly.
Viking, a hedge fund that manages $13.8 billion, bought six million shares of Aetna in that fourth quarter of 2009, according to regulatory filings. Karsch, which manages $2.4 billion, bought half a million Aetna shares during the same period, according to regulatory records. Shares of Aetna rose 14% in the fourth quarter.
The Journal also reports that Stevie Cohen’s SAC Capital, which is under investigation for insider trading, was one of twenty investors to meet with a senior Democrat, Representative Carolyn Maloney, who was negotiating on the Durbin amendment that capped debit-card swipe fees. JNK also set up that meeting
I’m not sure, and the Journal doesn’t say, whether there’s anything illegal going on here. SAC, for instance, cut its positions in some bank stocks after the meeting, but added to others. But would it be illegal to trade off information given to you by a member of Congress, or is that somehow not nonpublic information? Why wouldn’t it be insider trading?
Even if it isn’t illegal, it sure looks bad, and it’s easy to see how this kind of thing is ripe for corruption. Think you could ring up and get a meeting with Congress? As David Cay Johnston said the other day:
These and other companies have access to lawmakers and regulators that are unavailable to ordinary Americans.
Doubt that? Dial the Capitol switchboard at 1 (202) 224-3121, ask for your representative’s office and request a five-minute audience, in person, at the lawmaker’s convenience back in the home district.
I also wonder how many campaign donations representatives and senators get out of these kinds of meetings. That has to be at least part of their motive. I’d guess that meeting with folks who have lots of money and giving them inside information they can use to make money equals campaign donations. The better the dope, the more likely the donation.
The incentives are all out of whack here, which means it’s a good place for a newspaper to be sniffing around.
So, how is this not insider trading? Having access to information the rest of us cannot get? I hate all these articles which posit the premise whether something "may not be illegal" but is unethical. Hey - what do YOU think, Mr./Ms. Writer? If you are going to do a story on this, take a goddamned stand!
#1 Posted by Oscarwildedog, CJR on Sat 24 Dec 2011 at 10:53 AM
"Material, non-public information," I believe, is the legal term of art. That the infomation comes from the ultimate regulators instead of company executives doesn't matter.
#2 Posted by Edward Ericson Jr., CJR on Sat 24 Dec 2011 at 01:41 PM
From the WSJ article:
“Some lawmakers seek to crack down on the practice, described by Mr. Painter as ‘buying information from members of Congress in a perfectly legal way.’ A bill sponsored by Rep. Louise Slaughter (D., N.Y.) would bar lawmakers and staff from disclosing market-moving, nonpublic information about pending or prospective legislation if they believe it will be used in Wall Street trades.”
I.e., it's legal.
#3 Posted by Confused Reader, CJR on Tue 27 Dec 2011 at 01:05 PM
Ryan wrote: "The incentives are all out of whack here, which means it’s a good place for a newspaper to be sniffing around."
padikiller responds: As long as they don't go sniffing around George Soros, that is... Or Solyndra.. Or LightSqaured...
#4 Posted by padikiller, CJR on Tue 27 Dec 2011 at 01:24 PM
padikiller,
Try to add somethiing intellogent to the conversation. Your ideologically driven BS is getting worn out and isn't in any way convincing. That is, other than being a convincing portrayal of your personal ignorance and absurdity.
#5 Posted by Jack, CJR on Tue 27 Dec 2011 at 04:45 PM
@Jack:
What have you added to the "conversation" other than you don't like what I'm saying?
Huh?
Here's what Ryan had to say about Solyndra (in the face of the company's execs taking the Fifth to avoid testimony):
"One firm going bust doesn’t mean that the program is a failure. Indeed, firms going bust was baked into the cake here: DOE knOne firm going bust doesn’t mean that the program is a failure. Indeed, firms going bust was baked into the cake here: DOE knew from the beginning that some of the firms it funded would go bust. That’s the nature of what it’s doing.ew from the beginning that some of the firms it funded would go bust. That’s the nature of what it’s doing."
See? You win some, you lose some. Nothing to see here, people! Move on!
The Gubmint should expect to lose taxpayer money when it lends money to private companies! Who thinks this is bad? Shut up! Let's talk about "Wall Street"!
#6 Posted by padikiller, CJR on Tue 27 Dec 2011 at 10:31 PM
Ryan posts a story about lawmakers and hedge funds sharing private information unethically, or at worst illegally.... what on earth does Solyndra have to do with this??
Do you even read these posts, or do you just immediately go to the comment form?
And you wonder why people bitch at you for spamming up the threads.
#7 Posted by Hardrada, CJR on Wed 28 Dec 2011 at 04:09 PM
Like George Soros has nothing to do with hedge funds or politics...
Get off the Gubmint bandwagon, Hardrada...
#8 Posted by padikiller, CJR on Wed 28 Dec 2011 at 07:54 PM
Failure of the press to pursue legal but plainly unethical doings of Washington and the State governments has earned it the disgust of the sentient public. The first amendment was not created so that Larry Flynt could sell porn. It is there to give journalists a reasonable degree of protection from blowback when they expose wrongdoing by the potent. Too much partsianship and/or pusillanmimity have vitiated that power among most press outlets.
#9 Posted by mrrunangun, CJR on Sun 1 Jan 2012 at 09:44 PM