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URGENT Feds Subpoena New York Futures Traders, Search Offices

May 4, 1989

NEW YORK (AP) _ Federal agents escorted at least four traders from the floors of the New York Commodities Exchange and the New York Mercantile Exchange today and subpoenaed others as part of a criminal investigation of the markets, officials said.

The U.S. Postal Service confirmed it was executing a criminal search warrant at an office in a World Trade Center building where the commodities exchange is based.

John Slavinski, head of the New York office of the U.S. Postal Inspection Service, said inspectors were executing two search warrants for documents at the Comex and the Merc.

″A criminal investigation is underway and I’m not allowed to comment further on it,″ he said.

The raid came during a federal investigation of alleged widespread illegal trading activity at Chicago’s two futures exchanges, which are the nation’s largest.

Market sources who asked not to be named said three silver traders were taken from the Comex pits while at least one trader was taken from the floor of the New York Merc.

Comex spokesman Robert McGrath said subpoenas were being issued to an unspecified number of commodities and oil traders who belong to the Commodities Exchange Center, where the five New York futures exchanges are based.

″We understand that per an order of investigation by the Commodity Futures Trading Commission ... that a number of subpoenas are being issued to CEC members,″ he said.

McGrath said some of the subpoenas were being delivered to Comex members but did not specify how many.

″We have been asked to assist and cooperate with the CFTC, which we are doing. We also understand that the exchange itself along with other exchanges will be receiving a subpoena, which obviously we will be immediately responsive to,″ he said.

It was not immediately clear whether any traders were arrested, nor what information was being sought. The Commodity Futures Trading Commission is an independent federal agency charged with regulating the nation’s commodities markets.

Robert Mignogna, a mail fraud section team leader for the Postal Service in New York, said a criminal search warrant had been executed at a World Trade Center office but said no arrest warrant had been issued.

Allegations of widespread fraud and cheating of customers at the Chicago futures markets, the nation’s biggest, surfaced in January after disclosure of a two year federal undercover investigation at the Chicago Board of Trade and Chicago Mercantile Exchange.

Futures are agreements to buy or sell a commodity, such as wheat, frozen orange juice or Treasury bills, at a specified future date for a specified price. Investors use the futures markets to speculate on price movements.

The federal probe of the Chicago markets concerns allegations that as many as 100 brokers at the two exchanges systematically cheated investors out of millions of dollars through illegal trading practices.

No indictments have been announced but as many as 200 subpoenas reportedly have been issued to traders and firms at the exchanges.

CFTC spokeswoman Kate Hathaway in Washington would neither confirm nor deny there was an ongoing investigation of the New York exchanges. She said the agency, like the SEC, cannot bring criminal charges.

In the past, the CFTC usually has utilized FBI agents or postal inspectors in its investigations.

Joseph Valiquette, a spokesman for the FBI in New York, denied that FBI agents were involved in the incident.

Assistant U.S. Attorney Anne C. Ryan also declined comment on whether an investigation was under way or whether her office, the securities and commodities frauds section, was involved.

Three separate commodities traders said a Merc trader was escorted from the floor of the exchange and questioned by federal agents. Other sources said three silver traders from a New York commodities brokerage house were taken from the Comex floor.

Other traders said floor activity was unaffected by the probe. At midday, gold, silver and platinum prices were down, while crude oil prices were mixed.

″I think things are getting blown all out of proportion,″ said one New York trader who asked not to be named. ″One trader who supposedly was taken out and put in a paddy wagon is trading in the ring.″

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