30 Suspects to Help in Fraud Probe
The threat of prison and other penalties encouraged at least 30 suspects to cooperate with federal agents in their massive investigation of alleged fraud at two major futures exchanges, a newspaper reported today.
Traders and brokers who agreed to cooperate are expected to name alleged co-conspirators and broaden the potential targets of the two-year investigation, the Chicago Tribune reported.
“No one wants to be left holding the bag,” the newspaper quoted an unidentified source as saying.
Subpoenas to appear before a grand jury have been served on more than 200 prominent brokers, traders and trading firms associated with the Chicago Board of Trade and the Chicago Mercantile Exchange.
One defense attorney told the Tribune that his client offered to provide the FBI with evidence that 20 associates cheated customers on their trades at the exchanges.
Prosecutors and the FBI repeatedly have refused to comment on the investigation.
The suspects who are cooperating, believed to number at least 30, could escape racketeering charges in exchange for guilty pleas to lesser offenses, the newspaper reported. A racketeering conviction could result in the federal government confiscating a trader’s seat on the exchange, as well as other assets. Exchange seats can be worth hundreds of thousands of dollars.
Industry Under Scrutiny
In addition to the brokers and traders, the futures industry itself is under scrutiny, although federal regulators caution against any hasty reforms.
“The best way to make mistakes is to try to fix something before you know what’s wrong,” Kate Hathaway, spokeswoman for the Commodity Futures Trading Commission, said Thursday.
The CFTC, the independent federal agency established to regulate the commodities markets, has come under criticism by traders and others following disclosure last week of the investigation in which undercover FBI agents posed as traders, secretly recording floor conversations.
Some knowledgeable observers say the investigation is likely to result in restrictions on some kinds of trading, closer monitoring of traders and a more precise audit trail. They also suggest that the CFTC has been lax in preventing abuses and catching violators from the outset.
“I don’t think it (the investigation) calls the system into question as much as it does the controls on the system,” said Fred White, who once worked for the CFTC and is now an attorney representing trading firms.
The Chicago Mercantile Exchange on Wednesday appointed a panel of industry and non-industry representatives to review all transaction rules there and recommend revisions and improvements. Officials of the Chicago Board of Trade have announced no plans for a review.