2nd Round of Futures Fraud Trials Begins

The second round of trials stemming from a massive federal sting operation at major commodities markets here began Tuesday with prosecutors charging widespread fraud in the trading of Japanese yen futures at the Chicago Mercantile Exchange.

“It’s a case about whispers and private deals meant to cheat the customers,” said Assistant U.S. Atty. Lisa Huestis in opening arguments in the trial of 14 traders.

The traders systematically “ripped off” their customers for “one reason, plain and simple: greed,” Huestis told jurors.

In total, the 14 defendants have been charged with more than 350 counts of mail and wire fraud, racketeering and violations of the Commodities Exchange Act. The complex trial, presided over by U.S. District Judge William T. Hart, is expected to last as long as four months.

Meanwhile, in a nearby courtroom, jury selection was completed Tuesday in yet another case tied to the same lengthy undercover operation conducted by FBI agents posing as traders. The case involves alleged improprieties of 10 soybean futures traders at the Chicago Board of Trade. Opening arguments are expected to begin early next week.

So far, the undercover stings, dubbed with such colorful code names as “Sour Mash” and “Hedgeclipper,” have resulted in more than 1,500 charges being filed against 48 workers at the two exchanges, the largest commodities exchanges in the world.

With the latest prosecutions, government attorneys will be attempting to rebound from the embarrassing outcome of the first trial in the series. That involved three Swiss franc futures traders at the Mercantile Exchange, charged with 117 counts of fraud and other crimes. Although prosecutors obtained guilty verdicts on some minor charges, the jury failed to reach a verdict on most of the counts. The three are expected to be tried again on the remaining counts early next year.

In the yen trial, the government’s case hinges on more than 250 hours of taped conversations recorded by Dietrich Volk, an FBI agent who went by the alias of Peter Vogel while posing as a yen trader for 11 months in 1988. At least three other agents have also posed as traders in various futures pits.

The government claims that Volk found evidence that traders were fixing deals to skim immediate, low-risk profits at the expense of their customers instead of bartering fairly with each other in the open. But attorneys for defendants in the yen case contend that Volk was ill-equipped to understand the complexities of the chaotic trading system and mistook common, above-board practices for illegal deals.

Volk “was seeing nothing more than a confirmation of a previous trade,” said Edward M. Genson, one of the defense attorneys during his opening argument. “There was no way it could have taken place the way Volk thought it did.”

Another defense lawyer, Joseph Duffy, said in his opening statement that what may have sounded like illegal trades on tape was merely the liquor-induced bragging of his client, who the lawyer said was an alcoholic who could be found by 10 a.m. every day in a saloon near the Mercantile.