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4 N.Y. Futures Exchanges Raided in Criminal Probe

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Times Staff Writers

Another criminal probe of the commodities industry surfaced Thursday when federal agents descended on New York’s major futures exchanges, issuing subpoenas to traders and executing search warrants to obtain documents.

The subpoenas sought information on at least 47 members of four of the city’s five futures exchanges as part of an investigation into the markets, where contracts worth hundreds of millions of dollars are traded daily in commodities ranging from heating oil and gasoline to gold and cotton.

Traders at the exchanges were stunned by the appearance of federal agents on Thursday morning. Several of the traders were summoned off the floors of the exchanges to receive subpoenas. One trader said he saw officials confiscating the trading badges of some brokers.

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The surprise raids marked the second major inquiry into the futures industry to come to light this year and seemed certain to further tarnish the public image of the nation’s securities and futures industries.

Wall Street has been undergoing a three-year investigation into illegal stock deals, and it was disclosed in January that FBI agents had been conducting a two-year undercover investigation of the Chicago Board of Trade and the Chicago Mercantile Exchange, the nation’s two biggest futures exchanges.

About 100 traders and employees have been subpoenaed to appear before a federal grand jury in the Chicago inquiry, but no one has been charged.

The two inquiries appear to be unrelated. But the New York investigation sent new shock waves through the investment community and seemed certain to fuel additional calls in Congress for stricter laws and tougher enforcement efforts in the securities industry.

“Obviously there is a big investigation going on,” said Thomas A. Russo, a New York securities and commodities lawyer and former high-ranking industry regulator. “I think it is going to lead to added pressures to reform (the industry).”

While few names of those subpoenaed were disclosed, gossip among the traders and securities businesses was rife with names of people who received the government’s invitations to testify before a grand jury.

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Key Traders Involved

Unlike Chicago, where the first subpoenas went to lower-level employees in an attempt to win their cooperation and move up to bigger players, the New York documents were served on some influential traders, according to people in the industry.

“These are very powerful people,” said Jack Barbanel, director of trading at Gruntal & Co., an investment firm in New York. “It’s not a situation (like Chicago) where you are looking at eager young kids. These are professionals.”

Bruce Baird, chief of the securities fraud unit of the U.S. attorney’s office in Manhattan, confirmed that subpoenas had been served and search warrants executed as part of a joint criminal investigation being conducted by his office and the Commodity Futures Trading Commission, which regulates the futures industry.

Baird and CFTC officials, however, declined to provide any details about the information being sought or the types of alleged abuses under investigation.

Officials acknowledged that subpoenas were issued for traders at the New York Mercantile Exchange, the Commodity Exchange, the Coffee, Sugar and Cocoa Exchange and the Cotton Exchange. Only the New York Futures Exchange appeared to have been spared.

Inspectors Take Records

George Fallon, a spokesman for the Postal Inspection Service in New York, confirmed that search warrants had been served on two private offices and that postal inspectors took records from those sites on Thursday.

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One of the locations was identified as MBF Clearing Corp., in the World Trade Center Tower, where the New York Mercantile Exchange and Commodity Exchange are situated. MBF is a trading operation, which also handles transactions for other brokers.

Registration records say the firm was founded Dec. 16, 1987, and its president is identified as Mark B. Fisher, 28, of Long Island. An official at the firm refused to answer questions from two reporters who visited the offices Thursday afternoon, and a woman at Fisher’s large home in an affluent suburb said Thursday night that he was not there.

Subpoenas are only requests for information or testimony and do not represent accusations, so it was impossible Thursday to determine the scope of the investigation.

Despite the large number of subpoenas issued in Chicago nearly four months ago, there have been few indications of how that inquiry is progressing. It has been disclosed, however, that the Chicago probe is examining several types of trading practices which could cheat investors out of substantial sums.

Traders and some defense lawyers in New York speculated that some of the same activities will be scrutinized in this latest investigation.

Daily trading on the futures markets in Chicago and New York has ballooned to hundreds of millions of contracts worth huge sums in recent years. The markets are used most heavily by investors and institutions around the world that want to protect themselves against severe future price fluctuations.

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In both cities, traders wearing brightly colored jackets and big identification badges jostle and shout in a daylong battle to trade futures contracts on a variety of commodities.

While the New York exchanges have been dwarfed by the markets in Chicago, where futures trading originated, customers at both places have sometimes suspected that brokers cheat them during the frenetic and arcane trading.

The new spotlight appears certain to reinforce that perception, despite efforts by industry officials in both cities to point out that no one has been charged and those subpoenaed represent only a small percentage of the total trading membership.

Word of the New York inquiry first became public Thursday morning.

Rosemary T. McFadden, president of the New York Mercantile Exchange, told reporters that she was telephoned at her home in New York at 8:45 a.m. by “a senior official” with the CFTC who told her that several exchange members would be receiving subpoenas.

She said three members were later served with the subpoenas in her World Trade Center office. She declined to identify any of the members, but she did say that MBF Clearing had been meeting with federal authorities.

In addition, the exchange received a subpoena for records concerning past and present members in a period extending back two years. In all, she said, about 20 members of the exchange were affected.

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Asked if the subpoenas sought information about specific trades, McFadden said: “It was more to membership records.”

McFadden said that the exchange itself was not under investigation and that it would provide the information requested by the mid-May deadline.

Robert McGrath, a spokesman at the Commodity Exchange, known as the Comex, said that six members of the exchange received subpoenas seeking their testimony. He said that the exchange also received a subpoena for its records on 27 former or present members.

Officials also acknowledged that subpoenas were served at the Coffee and Cotton exchanges, but the number of individuals involved there could not be determined.

Staff writers Robert E. Dallos and John Goldman and researcher Charles Hirshberg also contributed to this story. Frantz reported from Los Angeles and Tumulty from New York.

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