Chicago Currency Traders Freed of Major Charges

The government’s attack on corruption in Chicago’s big commodities markets appeared to suffer a significant setback Monday when a jury in federal court here failed to convict three currency traders on any of the main racketeering or fraud charges against them.

Two of the three Swiss franc traders were found guilty on lesser charges of violating federal commodities trading regulations, mainly involving illegal commodities trades they made directly with an undercover FBI agent who posed as a crooked trader. The third trader was found not guilty on any charges.

But the jury of nine women and three men was unable to reach verdicts on most of the 117 counts brought against the three, and so a partial mistrial was declared on the remaining charges.

Federal prosecutors said after the verdict was announced that they plan to retry all three traders on the remaining counts involved in the mistrial--including the key racketeering charges.

But defense attorneys said they would move to have the remaining charges dismissed and argued that the verdict showed that the government had been heavy-handed in its attempt to wield the racketeering statute--originally designed to fight the Mob--as a weapon against white-collar crime in the pits of Chicago’s commodities exchanges.

“I think there is a lesson there for the government,” said defense attorney Alan Blumenthal.

The jury found Robert Mosky, a broker in the Swiss franc pit of the Chicago Mercantile Exchange, guilty on seven counts of commodities law violations, and acquitted him on 20 other counts. Mosky, the key figure in the trial, had been charged with a total of 97 counts.

Meanwhile, Daniel Scheck, an independent trader in Swiss francs, was found guilty on one count, while David Zatz, another trader, was found not guilty on two of the 14 counts with which he was charged; verdicts were not returned on the others. The convictions carry a maximum of five years in prison and a $100,000 fine for each count.

The partial verdict followed more than six weeks of testimony and 11 days of deliberations by the jury--the longest deliberations in recent memory in Chicago’s federal courts. The jurors apparently struggled not only with the complexities of the commodities trading business, but also with the prosecution’s attempts to prove that there was a broad conspiracy to defraud customers on the trading floor.

The trial of the three traders from the Swiss franc pit at the Merc was the first to result from the federal government’s undercover probe into fraud and corruption on Chicago’s two major commodities exchanges, which was first revealed in January, 1989.

With at least four FBI agents posing as traders on the floors of both the Chicago Board of Trade and the Merc, the investigation resulted in indictments against 47 brokers, traders and a clerk on charges of fraud, conspiracy and racketeering.

The trial before U.S. District Judge Ann C. Williams represented a major test of the ability of federal prosecutors to successfully use the Racketeer Influenced and Corrupt Organizations Act, or RICO, against defendants in white-collar criminal cases.

The government has already reached plea-bargain agreements with 18 of those indicted, including Mark Fuhrman and William Walsh, two traders from the Swiss franc pit who testified against Mosky, Scheck and Zatz.

After this case against the three currency traders, trials against traders from the Japanese yen pit at the Merc and the soybean pit at the Board of Trade are scheduled to open in September.

The key to the government’s case against Mosky, Scheck and Zatz was the testimony of FBI Agent Randall Jannett, who for 10 months in 1988 worked undercover in the Swiss franc pit, posing as a trader named Randy Jackson. Jannett, who was given a seat on the exchange that was worth more than $300,000 by the FBI in order to establish his cover as a “local trader,” traded with Mosky and others, often tape recording their conversations. Jannett told other traders on the floor that he was a newcomer to Chicago who was being bankrolled by a “rich uncle” in South America.

While Jannett testified in detail about trade after trade, jurors heard 130 tapes recorded by Jannett of conversations with Mosky, Scheck, Zatz and other traders on the floor of the exchange. On many of the tapes, the traders could be heard talking quietly among themselves about trades in the midst of the clamor in the trading pit.

Jannett testified that many of the conversations, dominated by the shorthand jargon of traders and nearly inaudible because of the background noise from the pit, represented the quiet talk of conspirators who were attempting to make non-competitive trades among themselves, bilking their customers by skimming their profits. Often, the traders used these illegal trades to cover their personal losses, Jannett said.

In the government’s opening arguments, Assistant U.S. Atty. Mark Pollack asked jurors to try to filter out the background noise from the Merc and “listen to the quieter, softer conversations that Jannett was listening to, in which the defendants were arranging secret, non-competitive trades.”

While the tapes were difficult to decipher, jurors were allowed to read written transcripts while they listened through headphones.

Many of the illegal trades documented on the tapes and by Jannett’s testimony were relatively small, however, and the profits were often only a few hundred dollars for each trade. But prosecutors argued that they were really just the tip of the iceberg and provided evidence that fraud was pervasive on Chicago’s exchanges.

In the government’s closing arguments, Assistant U.S. Atty. Daniel Gillogly charged that fraud was “very much entrenched” in the commodities markets and that the brokers and traders who schemed among themselves relied on the complex nature of their business to hide their crimes.

“There is a shadow world down there (on the floor of the exchange) of brokers and traders who for years have relied on the fact that people didn’t understand what was going on,” Gillogly said. “There was a scheme to defraud in place down there that was very much entrenched, and very much systemic.

“Everybody knew how it worked,” he added. “In prearranged trade after prearranged trade, there was a pattern of racketeering.”

But defense attorneys argued that Jannett simply didn’t understand the complexities of the trading activity going on around him, and so didn’t know that the quiet conversations taking place underneath the hum of activity in the pit really just represented traders double-checking with each other on earlier trades they had conducted. Blumenthal, who represented Zatz, charged that Jannett had been an inept trader and also had conducted an inept investigation.

The defense also sought to dismiss the testimony of Fuhrman and Walsh by arguing that the government’s case was built on witnesses who had already admitted their guilt.

The audio tapes of the trades recorded by Jannett don’t appear to clearly resolve the issue of whether the traders were double-checking earlier deals or were bilking their customers. In the midst of the fast-paced trading going on around them, the conversations are difficult to decipher, and much of what is on the tapes is left up to interpretation.

In a few instances, in fact, the defense and prosecution provided the jury with conflicting transcripts of the tapes, presenting very different versions of what was being said.