Six months ago, W.R. Grace & Co. was the hottest stock in town.

Up more than 400 percent last year, Grace shares were surfing a wave of confidence that Congress would soon pass legislation limiting the liability of companies facing asbestos lawsuits, enabling Grace to come out of bankruptcy, put the asbestos business behind it and get on with life as a chemical and building-supplies company.

But the controversial asbestos bill hasn't even come up for a vote in the Senate and shares of Columbia-based Grace have plunged 40 percent since the first of the year.

Betting on what Congress will do has always been a risky Washington gamble, but that is not the only reason Grace's stock has done so poorly.

Grace's bankruptcy case has turned out to be far more complicated -- and time-consuming -- than buyers of its stock were counting on. And instead of fading into the background, Grace's asbestos problems have taken center stage.

The stock price dropped 8 percent in February after a criminal case was filed accusing Grace of exposing miners and residents of Libby, Mont., to asbestos and then covering up the danger.

Grace stock started skidding again in June when the New Jersey attorney general sued, accusing Grace of falsely claiming that it had cleaned up a site in the suburbs of Trenton where material mined in Libby was processed.

Grace has denied wrongdoing in the Montana and New Jersey cases. A company spokesman did not return calls seeking comment for this column.

The two new cases blindsided speculators who decided last year that companies in the asbestos business were a mother lode of opportunity. All asbestos stocks were a buy, they proclaimed, because they all would benefit from legislation creating a $140 billion fund to pay the claims of people who got sick from working with the mineral, which is no longer widely used because of its risks.

The fund was supposed to take asbestos firms off the hook. They would have to pay into it for years to come, but doing so would limit their future exposure. They would no longer have to fight hundreds of thousands of lawsuits.

The asbestos issue is so highly politicized that asbestos stocks jumped -- Grace shares by 15 percent -- the day after the November election.

With a Republican in the White House and Republicans controlling both houses of Congress, the asbestos bill would be on the fast track, the speculators gambled.

Wrong.

The bill made it out of the Senate Judiciary Committee a few weeks ago, but stalled in the face of potent opposition from both pro-worker Democrats and business-oriented Republicans.

With Congress getting ready to flee Washington for the summer break, Senate Minority Leader Harry M. Reid (D-Nev.) recently gave a blunt assessment: "If anyone thinks they can bring up the asbestos bill and get it passed, I think we can get them in a magic show in Las Vegas."

Reid and many Democrats oppose the bill because they say it would shortchange victims. Some Republicans argue that it doesn't go far enough to curtail lawsuits against asbestos companies and therefore wouldn't put the issue to rest.

That is one of the objections made by the Coalition for Asbestos Reform, an industry group that will make its case today at a National Press Club forum.

"Advocates of the bill have preached finality, certainty, predictability. This bill is anything but," said the coalition's chairman, Thomas O'Brien, a New Jersey lawyer who is former general counsel of Foster Wheeler Corp., one of the companies being sued over asbestos.

O'Brien said the bill is unfair to smaller firms that have managed their asbestos issues without being forced into bankruptcy. They would have to pay millions of dollars a year into the asbestos fund under the legislation, which he described as "clearly for the benefit of a handful of big businesses."

Grace, U.S. Gypsum Corp. and Owens Corning Inc. -- all in bankruptcy reorganization -- are the best known of more than a dozen big names whose stocks have been picked as winners by speculators.

Because of its own problems, Grace's stock is no longer tracking with other asbestos bets, which by and large are holding their own. Though the stocks trade actively and move sharply in response to legislative developments, the asbestos companies have largely been abandoned by analysts because they are considered too risky for individual investors.

Unlike most companies that restructure their finances under Chapter 11 of the bankruptcy code, those three are projected to salvage something for their shareholders, who usually are wiped out in bankruptcy settlements.

But what happens to shareholders ultimately depends on what happens to the legislation, said analyst James Barrett of C.L. King and Associates, who follows U.S. Gypsum. Barrett would not comment directly on Grace, which he does not follow. Neither he nor his firm own USG stock or does investment banking work for firms involved in the asbestos issue.

If the asbestos bill passes in its present form it would be "very, very big for USG," he said. Barrett, who once had a "buy" rating on USG, has downgraded the stock to "neutral."

"It's too difficult for me to handicap what's going to happen in Congress," he said. "If the outcome is positive, the stock will go up a lot. If negative, USG will have to reorganize." That, he said, "would not be an outcome shareholders would want to see."

Barrett said one of his clients recently told him that "playing asbestos stocks is like buying biotechnology stocks -- you're going to either get very rich or very poor."

Actually, some speculators have been getting rich on the decline of Grace stock -- short-sellers who bet on stocks to fall. Short-sellers borrow shares and then sell them. If the stock price falls, they buy it back at the lower price, return the borrowed shares and pocket the profit.

The shorts made almost 13 percent betting against Grace stock from June 10 and July 12, Bloomberg News calculated last week. Grace was among the 20 most-shorted stocks during that period, with 7.8 million shares -- 11.7 percent of the total outstanding -- sold short.

Over that month, the short-sellers grossed $9.6 million in profit on the decline of Grace stock.

During that same period, people who owned Grace shares lost about $82 million. Since the first of the year, the market value of their Grace shares has fallen by $382 million.

Even at Friday's $8.26 closing price, Grace stock is still worth 50 percent more than it was a year ago, but the smart money got out months ago.