Transparency is a favorite word of NY Senator Chuck Schumer. Schumer has called for transparency for every situation from Facebook’s privacy rules, Ticket Scalping, and the Apple’s I-phone 4 signal drop-off problem. But as the old saying goes, people who live in glass houses shouldn’t call for transparency. The Washington Examiner is reporting that Senator Schumer is into hedge funds, not as an investment but more like a “racket.”

Back in 2007 Schumer pushed the hedge funds to spend more on lobbying. So the funds complied by hiring his banking staffer to do their lobbying.  That new hedge fund lobbyist started to raise money for Senator “Transparency.” The Senator is following up by introducing legislation that will help those hedge funds (boys and girls can you say “quid pro quo?”)

Three years ago, Sen. Chuck Schumer, D-N.Y., leaned on hedge funds to lobby more. The funds soon hired his banking staffer as a lobbyist. She began raising money for Schumer. Now he’s championing financial regulation that would benefit these hedge funds. “Racket” might be the right word here.

Here’s the story: In January 2007, the month Democrats took control of Congress, Schumer invited hedge funds executives to dinner, where, the New York Times reported, he “had some simple advice for the billionaires in his midst: If you want Washington to work with you, you had better work better with one another.”

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Until then, hedge funds had largely minded their own business. But in the 2008 elections, they tripled their previous contributions to politicians, with Schumer and Barack Obama as their favorites, along with other Senate Democrats (Schumer was head of the Democratic Senatorial Campaign Committee).

But of course the donations had no relationship to Schumer’s actions.

But more to Schumer’s point, the hedge funds shifted their lobbying into high gear. After spending less than half a million in 2006, they spent more than $6 million in 2007.

In a June 2007 banking committee hearing, Schumer used his chairman privileges to praise a staffer: “This is the last hearing for somebody who has served this committee and me and the people of New York and America extremely well, and that’s Carmencita Whonder, my banking person, who’s going on to other things.”

Ms Whonder’s “other things,” were lobbying Congress on behalf of hedge funds, and raising money for Senator Schumer from those hedge funds.

When the K Street firm Brownstein, Hyatt, Farber, Schreck announced Whonder’s hire, they quoted Schumer’s on-the-record praise in the press release — including his telling description of her as “my banking person” — which couldn’t have hurt Whonder’s client recruitment.

Within days of Whonder’s hire, she registered three private equity firms as clients. By the time Obama came to office, her clients included the Private Equity Council and seven private equity or hedge fund firms.

Then, in March 2009, with financial overhaul looming, the hedge funds’ main lobby group, the Managed Funds Association, retained Whonder.

Can’t blame the hedge fund’s lobby group, Schumer told them what to do and told them who to use.

But how did Schumer benefit from his January 2007 meeting with the hedgies? How does Schumer always benefit? Fundraising. Democrats in 2008 brought in $11.7 million from hedge funds, nearly twice the GOP haul.

One asset in this effort: lobbyist Carmencita Whonder. According to documents on file with the Federal Election Commission, Whonder has raised $18,200 for Schumer. Other hedge-fund lobbyists, such as Steven Elmendorf and Barry LaSala, representing the MFA, are official bundlers for Schumer’s DSCC.

And what did the hedge funds get, besides a wonderful lobbyist in the name of Carmencita Whonder? They got beneficial legislation, which includes stricter regulation that will make it much harder for “little guys” to enter and stay in the hedge fund market.

The MFA supports requiring hedge funds to register with the Securities and Exchange Commission. As the Wall Street Journal reported, “Executives of smaller hedge funds are scrambling to hire compliance chiefs and otherwise prepare for SEC audits. They are expecting months of work ahead to register, adding new costs to starting or continuing to run a firm.” But many of the bigger hedge funds have already voluntarily registered with SEC, “because investors demand it,” according to the Journal. So mandatory registration helps the big guys by imposing new costs on the small guys.

But it gets better for the big hedge funds: New regulations could force banks to spin off some trading operations. Banking analyst Dick Bove told Crain’sthat “hedge funds and the nontraditional banking sector will explode in size” from these rules. Last month Citigroup sold its $4.2 billion hedge fund operation. JP Morgan is reportedly looking to unload its $21 billion fund if “reform” passes. Amid the regulatory debate, Citigroup and Goldman are also losing talent to the hedge funds.

Thanks to Senator Self-Serve Schumer, the hedge fund business will have less transparency, the big hedge funds will make much more money and those profits will be shared with the Democratic party to elect more “transparent” Senators, and hire more of their staffers to lobby for the hedge fund industry. Just call it Chuck Schumer’s Circle of Swindle.