Taking stock in the statehouse
Last week a new source of cash fell into the laps of Springfield lobbyists. Several New York securities firms hired statehouse lobbyists, but not for their help with legislation. What stock traders wanted was information, which, in the right hands, could be worth millions.
Philip Morris has been rebelling against a court order to post a $12 billion bond before appealing its loss in a lawsuit over light cigarettes. The tobacco giant claimed the bond would force it into bankruptcy. It hired former governor Jim Thompson to convince the legislature to pass a bill that would drastically lower the state's bond requirements. All over the world, financial markets watched Illinois closely to track the bill's progress. But relying on financial wire service reports wasn't sufficient. Traders reached out to Illinoisans who were already "embedded" in the legislative process. Even I was approached by the manager of a hedge fund.
Philip Morris says it can't afford the $12 billion, but its after-tax net profits last year were a little over $18 billion. The company was getting nowhere, mainly because of the clout wielded by trial lawyers in Illinois but also because it's refused to offer a realistic alternative. At one point it wanted to post a paltry $25 million bond. That idea was laughed out of the statehouse.
Senate Democrats decided last week to craft a compromise bill that they conceded from the start would not be popular with anyone. Shortly before 1 p.m last Thursday afternoon, they announced their bill would go before the executive committee in a few minutes. The legislation would have allowed the company to post a $1 billion bond.
Cell phones must have been cranking out calls to New York, because if you look at the stock of Philip Morris' parent company, Altria, you'll see what happened.
Just before the hearing, Altria's stock spiked up, obviously on the news from the embedded reporters that Dems planned to run a bond-cap bill through a committee that almost always does whatever party leadership wants.
The stock price dropped a bit a few minutes later, but it went back up, where it stayed throughout the committee hearing.
Then something unexpected happened. The attorney general's office testified against the bill and did such a good job of picking it apart that the legislation died in committee. The state was awarded $3 billion as part of the judgment, and the attorney general's office doesn't want anything to happen to that dough. Plus there's a feeling in Springfield that Philip Morris ought to cough up some big bucks to help the state's ailing budget before the General Assembly allows it to proceed with its appeal.
Florida got $500 million when that state's legislature lowered its appellate bond requirements. If Philip Morris showed up with a billion dollars in hand, maybe they'd get what they want here too.
The second the vote was taken and the bill had died, the cell phone calls must have started again. Boom! Altria's stock price dropped like a rock.
Lots of money was made by people who had access to the real-time "news," and everyone semmed to have a good day, except, of course, Philip Morris and the folks who didn't have the money or foresight to buy their own reporter.