THE CHICAGO COMMODITIES SCANDAL : Maintaining Guise Took Toll on FBI Agents

“Have you ever been known,” commodities trader Peter Vogel was asked, “by any other name?”

Vogel lied.

But, after all, that was his job.

So, on his 1987 application for registration as a floor broker with the National Futures Assn., he marked “no.”

But Peter Vogel, of Dolphin Trading Co. on Chicago’s Wacker Drive, didn’t really exist--and neither did Dolphin Trading.

Vogel was instead just a phony identity for Dietrich Volk, an FBI

agent working undercover as part of a wide-ranging, four-year investigation of fraud by traders and brokers on Chicago’s frenetic commodity exchanges.

In a unique undercover operation aimed at ferreting out trading abuses in the complex and closed world of Chicago’s commodities traders, Volk and at least three other specially trained FBI agents posed as traders on the Chicago Board of Trade and the Chicago Mercantile Exchange for 18 months or more, providing the critical evidence that resulted in Wednesday’s dramatic indictments of 46 brokers and traders.

The agents, officially identified for the first time in the indictments handed down by a federal grand jury here Wednesday, received special training in commodities trading--reportedly in Archer Daniels Midland Co.’s Chicago trading office--before they were sent out onto the exchanges.

After immersing themselves in Chicago’s arcane commodities pits--and while wearing hidden microphones--they were able to uncover wrongdoing that government officials acknowledged could not have been detected by more traditional market-monitoring methods used by regulators.

“The charges . . . involve violations that could not be detected by commission oversight alone,” said Wendy L. Gramm, chairwoman of the Commodity Futures Trading Commission.

The lengthy undercover operation, however, presented unique problems for the FBI.

James McKenzie, special agent in charge of the FBI’s Chicago office, said in an interview Thursday that, after the bureau decided to investigate charges of illegal trading activity that it had received years ago from several sources, FBI officials decided that the only way to penetrate the exchanges was through undercover work.

Applied in 1987

But commodities was a new field for the FBI. Operations Sour Mash and Hedgeclipper--the code names for the undercover projects at the two exchanges--marked the FBI’s first probe of the commodities markets, and the bureau quickly realized that it had to take the time to train its people properly.

As a result, FBI officials say, one agent was trained first, and he later helped train the others.

Records from the National Futures Assn. and the grand jury indictments indicate that FBI agent Richard Ostrom, posing as trader Richard Carlson in the Board of Trade’s soybean pit, began his trading activity first--as early as the fall of 1986. The other three agents identified in the indictments--agents Volk; Michael Bassett, posing as bond trader Michael McLoughlin, and Randall Jannett, posing as Swiss franc trader Randy Jackson--applied for registration as floor brokers with the futures association in the summer of 1987.

Still, finding the right agents for the job took time. A search by the Chicago office found that none of the bureau’s 9,000 agents had ever worked on the commodities exchanges. So other agents were screened to see if they could pick up on the complicated subject matter; Volk, for instance, majored in accounting in college.

“They all had backgrounds that made it easier to train them in the commodities markets,” said Robert Long, an FBI spokesman.

At the same time, they had to be able to work well with a relatively large group of other undercover agents, as well as be able to deal with the stress of a double life for a long period. In the end, FBI officials indicated, the agents chosen came from bureau field offices all over the country.

McKenzie said the undercover work took a heavy physical toll on the agents, even though they were provided with posh downtown Chicago apartments to act the part of high-living commodities traders.

Fatigue Set In

Although none of the agents, McKenzie said, were ever in any physical danger, they were under tremendous workload pressures. Not only did they have to put in full workdays on the exchanges to keep up their covers, but each night they had to return to the FBI’s offices to go over that day’s tape-recorded conversations and to write memos on the evidence obtained.

Fatigue soon set in; the wife of one agent found him asleep on their bed late one night, with their new baby drinking a bottle in one arm and a Dictaphone in the other.

The agents also had to be willing to go along with crooked trades to gain the confidence of the traders and brokers they were investigating. McKenzie said Thursday that the FBI recorded every illegal trade that its agents were involved in and that the bureau plans to reimburse customers who lost money as a result of those trades.

“We’re prepared to rectify any customer losses,” McKenzie said. “I can’t have my people involved in illegal trading. They only have to appear to be involved.”

McKenzie also denied reports that the agents lost large sums in their trading activity. “I know we didn’t take any heavy losses,” McKenzie said.

In the end, the sting worked, and the agents never had their covers blown.

RELATED STORY Some traders and brokers cooperating, Page 4.