Mahlmann Quits Chicago Board of Trade
The chairman of the Chicago Board of Trade resigned Wednesday only a day after federal regulators charged the brokerage firm he headed with defrauding investors and only hours after he said he wouldn’t quit.
Karsten Mahlmann, whose nickname is “Cash,” told directors of the board that he was stepping down “in the overwhelming interest of the Board of Trade and because of my deep love and respect for the institution,” according to a statement released late Wednesday by the futures exchange.
Earlier in the day, however, a letter with a very different message from Mahlmann was distributed to members on the floor of the exchange.
In it, the 52-year-old German immigrant said he was resigning as board chairman of Stotler Group Inc., the parent of a brokerage house sued for fraud on Tuesday by the Commodity Futures Trading Commission. However, Mahlmann denied any involvement in wrongdoing by Stotler and said he would finish out his term as chairman of the exchange.
Explaining the flip-flop, exchange spokesman Michael Oakes said Mahlmann’s fellow directors on the exchange board had urged him to stay on during a meeting earlier in the week. But Oakes said Mahlmann found “he could not distance himself from Stotler even though he had no day-to-day involvement in the firm’s operations.”
The developments come at a time when the integrity of the futures industry has been called into question by an FBI sting and exchange officials are resisting a Bush Administration proposal to transfer regulatory control of the futures industry to the Securities and Exchange Commission.
Dozens of indictments have been filed against traders at both the Board of Trade and the Chicago Mercantile Exchange, and several have pleaded guilty. However, in the first trial stemming from the undercover operation, two of three traders on trial were found guilty of only minor securities violations. Jurors either rejected or were unable to reach a verdict on the most serious charges.
Though unrelated to the undercover and regulatory controversies, Mahlmann’s resignation could further damage the industry’s tarnished reputation, Oakes acknowledged. “It certainly doesn’t help,” he said. “Its unfortunate timing. But it also says something for our regulators.”
In a civil suit filed in U.S. District Court in Chicago, the CFTC accused Stotler Funds Inc. of misusing nearly $5.6 million in investor funds that it was supposed to invest in commodity futures contracts. Instead, the agency alleged, the money was loaned to the parent Stotler Group to stem a serious cash shortage.
Stotler’s predicament began unfolding two weeks ago when the Board of Trade announced that the firm had failed to comply with its capital requirements. Last week, Stotler closed down its trading operations.
Mahlmann has served as chairman of the Board of Trade since 1987. In his initial letter to exchange members Wednesday, Mahlmann said that while he remained as Stotler’s chairman he had been effectively out of the loop of company operations ever since early 1988 when he was forced to relinquish his position as managing partner by other partners in the firm.
“While I am willing to stand up to my responsibilities, I simply was not a party to the financial decisions which are now being scrutinized by the Exchange and the regulators,” he declared in Wednesday’s first letter.
The exchange’s board voted unanimously to accept Mahlmann’s resignation, but said in a statement that it did so “regretfully” and praised his “dedication and commitment to the ideals we stand for.”
The directors then voted to replace Mahlmann with Board Vice Chairman William F. O’Connor.
