Move Makes Challenge of Evidence More Likely : Judge Won’t Rule on Surveillance at Exchanges

Calling it “an interesting and difficult question,” a federal judge Wednesday refused to rule immediately on the legality of electronic surveillance used by the FBI during its undercover investigation of alleged fraud at Chicago’s two major commodity exchanges.

The decision by John F. Grady, chief judge of the Northern District of Illinois, left the door open for lawyers eventually to contest the admissibility of evidence gathered by “human bugs”--electronically outfitted FBI agents working undercover in the trading pits of the Chicago Board of Trade and the Chicago Mercantile Exchange.

Civil liberties lawyer Burton Joseph said Grady’s language suggested that the judge believed “the argument is far from frivolous and merits serious consideration.”

Criminal lawyers representing many of the traders called before the special grand jury hearing the government’s case believe that the challenge to the recorded evidence could undermine the unprecedented government investigation of commodity futures trading.

Former federal prosecutors Susan Bogart and Stephen J. Senderowitz filed the novel challenge on behalf of three traders subpoenaed in the probe. They contend that this type of electronic monitoring, where ambient conversations are overheard, requires judicial authorization. Apparently, the government did not have that authorization when FBI agents recorded conversations on the trading floors.

If prior judicial approval was necessary before the wired agents went into the trading pits, Joseph and other lawyers said, much of the government’s evidence in this investigation could be tainted and unusable.

Grady did not address that question in his ruling. Instead, he said it was the wrong time to file the challenge because Bogart’s and Senderowitz’s clients, who were not identified by name, had not yet appeared before the grand jury. If they do appear and are cited for contempt for refusing to answer questions, Grady wrote, then the legality of the electronic surveillance can be challenged.

Bogart said an appeal of Grady’s Wednesday decision was being prepared.

While the challenge was heard in secret last week--and all the proceedings except Grady’s eight-page decision remain secret--the ruling provided additional insight into the government’s investigation.

The judge wrote that the three traders represented by Senderowitz and Bogart “have indicated that, should they appear before the grand jury, they intend to invoke their Fifth Amendment privilege against self-incrimination.”

Because of that, Grady wrote, “the court sees no reason to decide the electronic surveillance question as a mere academic exercise.”