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.


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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.