K StreetA small story appeared in the December 15th issue of Roll Call indicating that K Street Lobbyist Steve Elmendorf was hosting a fundraiser at his Washington offices for Ohio Congressman and candidate for Senate Sherrod Brown.

Elmendorf is one of the Beltway’s most influential Democratic insiders. Before serving as Deputy Campaign Manager on the Kerry Presidential Campaign, Elmendorf was Congressman Dick Gephardt’s Chief of Staff for over a decade. Many in Washington were stunned when Elmendorf joined forces with Jack Oliver, the Vice Chair in charge of the Bush-Cheney ‘04 $240 million national finance plan, to form a new lobbying arm of the St. Louis law firm Bryan Cave.

The story received little attention except in several local blogs critical of Sherrod Brown for hooking up with a lobbying firm made up primarily of Republicans, especially given the recent Abramoff/Delay scandals.

So we know that Sherrod Brown was given a lot of money at a DC fundraiser. Nothing technically wrong in that. Part of doing business in Washington. But at what cost? What do they get in return for their money? We know what the quid is, but what’s the quo?

A big clue in finding the answer to that question is to examine what the people want who are giving the money. In order to do that, we have to go back to 1996.

Owens Corning Innovates

In 1996 Owens Corning Corporation, the world’s largest manufacturer of fiberglass related products, had decided to try a radical new method to reduce the burden of the companies pension plan. Called a variable compensation plan, the idea was instead of a pension they would give employees a stake in the company in the form of stock and options that were based upon their performance. There was just one problem… four years later Owens Corning would declare Chapter 11 bankruptcy because of asbestos related litigation.

GMAX = R*

Fast forward to this year.

Last week The New York Times reported on the big battle in Congress to create a $140 billion trust fund for victims of asbestos exposure. The stakes are huge:

In the first six months of 2005 alone, more than 25 lobbying firms reported fees of more than $8 million for working on the asbestos legislation, according to Political Money Line, a nonpartisan research group that studies reports filed with Congress by lobbyists and their clients.

The largest chunk, $4.7 million, went to the Washington law firm of Swidler Berlin from the Asbestos Study Group, an organization of companies advancing the legislation. All told, Swidler has received more than $23 million representing the Asbestos Study Group. Its team is led by Thurgood Marshall Jr., a former White House official in the Clinton administration and Brian Fitzgerald, a former counsel to the Senate Judiciary Committee.

The other lobbyists listed in the most recent disclosure filings represent an array of makers and users of asbestos, insurers, trial lawyers and venture funds, which are placing bets on the winners and losers of the legislative battle.


With such high stakes the value of insider information, or what they call “political intelligence”, is at a premium: The Hill first wrote about the new practice of “political intelligence” back in February of last year:

Lobbyist Elliott Portnoy knew his inside information would have an effect on Wall Street before he hung up the phone.

The New York-based client on the other end listened a few seconds and then excitedly translated Portnoy’s news.

“Go short!” the client yelled to his trading staff, according to Portnoy, who heads up the public policy practice at Chicago-based Sonnenschein Nath & Rosenthal.

If a bit shadowy - Portnoy wouldn’t disclose the client’s identity or the specifics of the information passed on - the conversation was perfectly legal. The tip concerned Congress, not a private company. No insider-trading rules were broken.

Rather, the exchange was a function of Sonnenschein’s “political intelligence” practice - a budding subset of a growing lobbying shop that exploits a long-standing fact: The invisible hand of the market sometimes takes cues from the long arm of Washington.

Wall Street often turns to K Street to lobby Capitol Hill. Less well-known is the financial sector’s reliance on lobbyists not to advocate for outcomes but to predict them.


Representatives Brian Baird (D-WA) and Louise Slaughter (D-NY) have been fighting the practice of “political intelligence”. In November Rep Baird sent a letter to the House Ethics Committee requesting a formal investigation into the practice. In January Rep. Slaughter alleged that traders were working out of the offices of Senator Frist and Congressman Delay relaying insider information on the prospects of a pending asbestos bill.

While the practice of taking advantage of insider information is illegal in the business community (Martha Stewart), there are no such restrictions on Capitol Hill, even though it is a clear violation of fair market principals.

So what’s the quo?

Bloomberg spelled it out last year:

Right now, investing in the bonds of one of the bankrupt asbestos-products makers such as Toledo, Ohio-based Owens Corning, the largest U.S. insulation producer, is risky because there’s no guarantee the bonds will pay out. A hedge fund might take the gamble, for example, of buying an Owens Corning note, due in 2009, that Friday was selling for 63 cents on the dollar on a bet that a settlement will allow companies to recover and pay their debts.

The hedge funds that have contacted lobbyist Steve Elmendorf, 44, who helped run Senator John Kerry’s campaign for president, have told him they don’t care which way the settlement goes, as long as they are prepared.

“They want to know whether to buy or sell,” says Elmendorf, who has a hedge-fund client he won’t disclose. He works for Bryan Cave Strategies LLC, a unit of Bryan Cave LLP, a St. Louis-based law firm.


So what we’ve learned is that the man who is raising thousands of dollars from corporations to fuel Sherrod Brown’s Senate campaign is being paid an undisclosed amount of money by an undisclosed group of people, not to lobby politicians, but to practice the highly questionable activity of providing clients with insider information garnered from his contacts on Capitol Hill. Insider information that will bring profits to his clients at the expense of the holders of Owens Corning stock, including hundreds of workers we received the shares instead of a pension.

Sherrod… we know that you’re getting a lot of money thanks to Steve Elmendorf. We also know that you sit on the House Energy and Commerce Committe that saw the Fairness in Asbestos Injury Resolution Act of 2005. We also know that you’ve accepted thousands of dollars from George Soros, who isn’t only a Democratic activist, but also runs one of the largest hedge funds in the world. The very type of fund that would be easily able to leverage “political intelligence” related to such things as the asbestos bill.

What is it, Sherrod. What are they getting in return for all that K Street money? What’s the quo?

* GMAX = R is a radical formula by Mathmetician John L Kelly that states that the maximum rate of return is equal to the flow of “insider information”.