Futures Markets Lavishly Court Washington to Protect Interests
Two years ago at a Florida resort, one of the commodity futures markets now rocked by scandal in Chicago may have made a wise investment in its future.
The Chicago Board of Trade treated Sen. Patrick J. Leahy (D-Vt.), Leahy’s son, Rep. Glenn English (D-Okla.) and English’s wife to three days of sun and fun at a futures industry conference where the legislators’ only work was participating in a panel discussion.
The board paid all plane, food and lodging expenses as well as hefty honorariums--$1,969 to Leahy and $1,000 to English--for their stay at the “world class” Boca Raton Resort and Club, which features golf, tennis and oceanfront rooms.
Leahy, chairman of the Senate Agriculture Committee, and English, chairman of a House Agriculture subcommittee, will now head investigations of the massive scandal in the Chicago futures markets and oversee any legislation to tighten regulation of commodity traders, who are suspected of defrauding investors of tens of millions of dollars.
The lawmakers are only two among legions who have been courted with campaign contributions and other largess by the Board of Trade and the Chicago Mercantile Exchange, which also is at the center of the investigation.
And like their colleagues, Leahy and English deny that the gifts create a conflict of interest.
“Do you think I could be bought with a trip to Florida?” Leahy asked indignantly in an interview. English dug out congressional hearing records to demonstrate that he has pushed for stronger policing of trading practices.
Whatever the case, the futures industry has built a warm relationship not only with Congress but with the Commodity Futures Trading Commission, a 14-year-old regulatory agency that is up for renewal by Congress this year.
The industry’s clout has apparently had its effect. The FBI undercover probe in Chicago centers on two gaps in federal regulations that have been known for more than a decade. One makes it easy for brokers to cheat customers; the other makes it almost impossible to catch those who cheat.
But attempts within Congress and the trading commission to ban “dual trading”--which allows brokers to trade for themselves and their customers at the same time--and to require recording the exact time of each commodity transaction have been unsuccessful.
Lobbying Defended
“With no public lobby to question trading practices, a weak press and a Congress that sees this industry only as its fund-raisers, it’s no surprise that blind deregulation has been the order of the day,” said James M. Stone, a former commission chairman who now heads Plymouth Rock Assurance Co. of Boston.
Commodity exchanges in Chicago and elsewhere defend their heavy lobbying of Congress as necessary to explain an arcane system in which traders, frantically shouting orders to each other in open pits, set present and future prices on everything from pork bellies to Swiss francs.
While the criminal investigation proceeds in Chicago, industry lobbyists are scrambling to head off a congressional crackdown on trading practices. They argue that improved self-regulation is the only way for American exchanges to ward off fierce competition from overseas marts.
The exchanges’ lobbying is highly regarded. As Agriculture Secretary Clayton K. Yeutter once boasted when he was president of the Chicago Merc: “We probably do our job as well as anybody in Washington.”
To bolster their advocacy, the futures industry has showered members of Congress with campaign contributions, honorariums and expense-paid trips to vacation meccas.
Over the last six years, political action committees, or PACs, representing traders at the Chicago Board of Trade and the Mercantile Exchange donated more than $1.7 million to Senate and House campaigns. Most of the congressional winners sit on panels that regulate trading practices or adjust tax laws of vital interest to traders’ wallets.
Top recipients from the two PACs were Rep. English, $27,000, and Senate Agriculture Committee member Thomas A. Daschle (D-S.D.), $25,250.
Other notable recipients, according to Federal Election Commission records, were House Agriculture Committee Chairman E. (Kika) de la Garza (D-Tex.), $24,500; Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.), $23,500; House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), $11,000, and Senate Minority Leader Bob Dole (R-Kan.), $10,000.
A study by Common Cause, the self-styled citizens’ lobby, found that individual commodity traders not only donated large sums to their PACs--which then distributed the money to candidates--but also gave extraordinary amounts on their own to congressional campaigns.
Tours, Speeches, Appearances
Records show that while Yeutter headed the Merc, from 1978 to 1985, he contributed at least $13,400 to congressional candidates, $4,000 to presidential hopefuls, $1,750 to Republican party committees and $1,000 to PACs.
Meanwhile, from 1982 through 1987, the two Chicago exchanges paid at least $90,800 in honorariums to members of the Senate and House Agriculture committees for speeches, seminar appearances and, in many cases, merely touring the exchanges’ trading pits and back room operations. Figures for 1988 will not be available until May.
Rep. Tony Coelho (D-Merced), the House Democratic whip as well as an influential member of the Agriculture Committee, hit the honorarium jackpot on a trip to Chicago in 1987. He picked up $1,000 apiece from the Board of Trade, the Mercantile Exchange and the Board of Options Exchange for conferring with officials and viewing the trading pits.
On the same two-day jaunt he also received $2,000 apiece from Waste Management Inc. and Thompson & Co., a lobbying firm--and then flew to Los Angeles for a $1,000 speech to a group of Latino county officials.
In an interview, Coelho said he had been alternately “supportive and hostile” toward the futures industry, depending on the concerns of farmers he represents. He added that he does not “desperately need honorariums to pay my mortgage because I give much of the money to charity.”
In addition to paying honorariums, the exchanges--like many other interest groups--entertain legislators and their families at prime vacation spots.
Leahy, English and their family members were not the only ones put up at the Boca Raton resort for the futures industry conference in March, 1987. Also present with spouses were seven other members of the Senate and House Agriculture panels that regulate commodity markets. Picking up the tabs were the two Chicago exchanges, the New York Commodity Exchange and the Futures Industry Assn.
Three months later, the Chicago Board of Trade staked Leahy and his wife to five days in London, where the senator made a speech to another futures industry conference.
Leahy said recently that he took his daughter along, too, and paid her expenses as well as others that “cost me $5,200 out of pocket.” He is not required to say in his Senate financial disclosure statement how much he was reimbursed by the Board of Trade for the London and Boca Raton trips.
Before considering legislative action on the scandal, Leahy said, he wants to see if the FBI investigation turns up only “a few bad apples” or wider problems. He is being guided, he said, by his experience as a former prosecutor: “If they’re breaking the law, throw their butts in jail, then tighten the law.”
The honorariums and expense-paid trips to fun places are particularly alluring to many members of Congress who claim they have difficulty living on $89,500-a-year salaries. Critics assert that the fees and trips cause greater ethical problems than campaign contributions because the money goes directly into lawmakers’ pockets.
But John M. Damgard, president of the Futures Industry Assn., denies that the torrent of favors influences legislation. “Congressmen are not for sale,” he insisted.
He particularly defends honorariums as a means of getting badly distracted legislators to focus on the complexities of commodities markets.
‘Arcane Concept’
“Take a Southern California congressman,” Damgard said. “His vote against the futures markets is a cheap one because we have no grass-roots support, though I could make a strong case that every housewife is a hell of a lot better off from the standpoint of paying taxes and buying coffee because of derivative markets.
“But that’s a fairly arcane concept, and most congressmen have 5,000 other things to worry about when I walk into their office. We think it is entirely appropriate to get them out to Chicago to view how those exchanges work.”
Damgard also defends what he calls lawmakers’ “extended stays” at resorts.
“Do we try to make it pleasant for them? Of course,” he said. “Do we invite Sen. Leahy because he is the chairman of the committee that regulates us? You betcha; we would be stupid if we didn’t. But it insults Sen. Leahy and us if that indicates a relationship where we buy influence.”
John C. White, a Merc lobbyist and former Democratic Party chairman, said that “the PAC and honorarium program gives you the opportunity to make your case. But I don’t know that it would get a guy to vote with you or do something he felt was wrong.”
Rep. English, who has pledged a “thorough inquiry” into government and industry efforts to prevent illegal trading practices, said he will attend the futures industry conference in Boca Raton again next month but will not accept a fee.
“I might give ‘em a give-’em-hell speech,” he said, “but no honorariums until the investigation is over and the reauthorization (of the Commodity Futures Trading Commission) is done.”
Staff writer Brian J. Couturier contributed to this story.
INVESTING IN THE FUTURE
Leading recipients of political action committee contributions and honorariums from two commodity futures markets regulated by the recipients’ committees. PAC figures are for 1983-88; honorariums are for 1983-87.
CHICAGO BOARD OF TRADE PACs HONORARIUMS Senate Agriculture Committee Thomas A. Daschle (D-S.D.) $9,250 $1,000 Patrick J. Leahy (D-Vt.) 7,500 5,700 Richard G. Lugar (R-Ind.) 10,000 1,000 Howell Heflin (D-Ala.) 9,000 4,000 Jesse Helms (R-N.C.) 10,000 0 Pete Wilson (R-Calif.) 8,000 1,000 Thad Cochran (R-Miss.) 3,000 2,750 Wyche Fowler Jr. (D-Ga.) 6,000 0 Tom Harkin (D-Iowa) 3,500 1,500
House Agriculture Committee Glenn English (D-Okla.) $13,500 $3,750 E. (Kika) de la Garza (D-Tex.) 8,500 1,500 Dan Glickman (D-Kan.) 7,000 0 Charlie Rose (D-N.C.) 4,900 500 Tony Coelho (D-Merced) 2,000 3,000 Robin Tallon (D-S.C.) 3,300 2,000 E. Thomas Coleman (R-Mo.) 5,000 1,500 Bill Emerson (R-Mo.) 2,750 1,500 Edward R. Madigan (R-Ill.) 2,500 0 Bill Schuette (R-Mich.) 2,000 1,000 Arlan Stangeland (R-Minn.) 3,000 500 Charles Hatcher (D-Ga.) 3,950 500
California members Leon E. Panetta (D-Carmel Valley) 3,000 0 George E. Brown Jr. (D-Colton) 250 0 Wally Herger (R-Yuba City) 600 500
CHICAGO MERCANTILE EXCHANGES PACs HONORARIUMS Senate Agriculture Committee Thomas A. Daschle (D-S.D.) $16,000 $1,000 Patrick J. Leahy (D-Vt.) 10,000 2,750 Richard G. Lugar (R-Ind.) 10,000 1,000 Howell Heflin (D-Ala.) 9,000 0 Jesse Helms (R-N.C.) 10,000 0 Pete Wilson (R-Calif.) 5,000 2,000 Thad Cochran (R-Miss.) 8,000 2,000 Wyche Fowler Jr. (D-Ga.) 6,500 0
Tom Harkin (D-Iowa) 5,000 1,500 House Agriculture Committee Glenn English (D-Okla.) $13,500 $1,750 E. (Kika) de la Garza (D-Tex.) 16,000 4,500 Dan Glickman (D-Kan.) 7,200 0 Charlie Rose (D-N.C.) 8,075 500 Tony Coelho (D-Merced) 4,500 4,000 Robin Tallon (D-S.C.) 4,050 2,000 E. Thomas Coleman (R-Mo.) 3,000 1,500 Bill Emerson (R-Mo.) 5,500 1,000 Edward R. Madigan (R-Ill.) 6,000 0 Bill Schuette (R-Mich.) 3,250 1,000 Arlan Stangeland (R-Minn.) 3,000 500 Charles Hatcher (D-Ga.) 2,000 500
California members Leon E. Panetta (D-Carmel Valley) 1,500 0 George E. Brown Jr. (D-Colton) 3,000 0 Wally Herger (R-Yuba City) 1,000 500
Sources: Federal Election Commission, Secretary of the Senate, Clerk of the House.
