FBI Investigating Fraud Allegations at Chicago Commodity Exchanges
CHICAGO (AP) _ The FBI is looking into allegations of widespread fraud involving millions of dollars at the nation’s two largest futures exchanges, law enforcement officials said Thursday.
FBI agents working undercover posed as traders in the investigation, which focuses on 50 to 100 brokers, floor traders and commodity executives at the Chicago Board of Trade and the Chicago Mercantile Exchange, the Chicago Tribune reported in Thursday’s editions, quoting unnamed sources.
FBI spokeswoman Diane Rivers and Assistant U.S. Attorney Daniel Gillogly in Chicago would neither confirm nor deny such an investigation was under way.
But a law enforcement official in Washington, who spoke on condition of anonymity, confirmed the Justice Department was investigating allegations of fraud at the two exchanges.
Chicago Merc officials said they were aware of the probe.
″We are now aware of an investigation and we intend to cooperate with it,″ said Merc spokesman Andrew Yemma.
Chicago Merc attorney Jerrold Salzman said he was contacted late Wednesday by several traders who had been subpoenaed by the FBI.
But the Board of Trade ″had and has no knowledge of surveillance activities of any nature being conducted on the trading floors or any other Board of Trade location,″ Chairman Karsten Mahlmann said in a statement released Thursday.
Over a two-year period, investigators secretly tape-recorded hundreds of conversations on the exchanges’ trading floors, the Tribune said.
Investigators believe the traders cheated customers out of millions of dollars in the execution of buy-and-sell orders at the exchanges, which deal in a variety of contracts for future delivery of grains, livestock, Treasury bonds, foreign currencies and other commodities, the newspaper reported, citing unnamed sources familiar with the inquiry
″This is going to hurt,″ Gabriel Kain, a Treasury bond trader on the frenzied floor of the Board of Trade said Thursday. ″It’s not good for business.
″It hurt the New York Stock Exchange last year and this is basically the same thing,″ he said, referring to the insider trading scandal that rocked some of the nation’s largest brokerage houses.
″I just hope people realize that 99.9 percent of the people who trade at the Chicago Board of Trade are honest and honorable businessmen and do not engage in unethical behavior,″ said Charles Pollock, who has been trading Treasury bonds at the exchange for eight years.
Several subpoenas were served Wednesday, but arrests or indictments were at least a month away, the Tribune reported.
Investigators believe some trades were rigged to prevent customers from getting fair-market prices, and that some brokers sent false reports to customers to hide the skimming of profits of overcharges on commissions, the Tribune said, quoting unnamed sources.
″We’re talking about a ton of money on this thing,″ the newspaper quoted one unidentified source as saying.
Officials of the Commodity Futures Trading Commission, the federal agency that regulates futures trading, would not ″comment or acknowledge the existence of an investigation,″ said spokesman David Gary in Washington.
Kain said he hoped the investigation would not lead to increased government regulations on the futures exchanges.
″The problem people should be eliminated, but further regulations will hamper business,″ he said.
The newspaper said U.S. Attorney Anton Valukas went to Washington last Friday to brief Attorney General Dick Thornburgh on the investigation.