Wilson Returned $7,400 From Leverage Firm He Aided

In the waning days of the 1986 congressional session, Pete Wilson stood on the Senate floor and vowed to “use whatever parliamentary procedures are available” to block a bill that would have effectively closed several precious metals dealers, including a controversial Newport Beach investment firm.

Ultimately, Wilson won the fight. Monex International, despite concerns of federal regulators and losses by thousands of investors, remains in business.

When questions were raised late last year about Wilson’s actions, he decided to return $6,000 in contributions from Monex and $1,400 the company spent on a weekend jaunt for Wilson and his wife near Palm Beach.

“That money is going back,” Wilson told The Times last December when questioned about the contribution. “I’m concerned about appearances.”

Monex engages in leverage trading--the buying and selling of precious metals contracts with little money down. The process is similar to the trading of commodities futures contracts, except that leverage contracts are not traded on an exchange, generally are of longer duration and involve smaller amounts of precious metals.

The Commodity Futures Trading Commission estimates that thousands of customers of four firms, including Monex, lost more than $100 million through leverage trades between 1986 and the third quarter of 1989, according to documents obtained through the Freedom of Information Act.

Dennis Bruggeman, an Illinois tractor dealer, said he lost nearly $50,000 in Monex investments. “I remember coming home at night and I had just lost 20 grand,” he said. “That was a shocker.”

Monex, which has faced some regulatory actions over the years, says its customers by and large are satisfied. The company, with annual sales of $610 million and 250 employees, reports handling more than $10 billion in investments for more than 100,000 customers.

In the late 1970s, Congress placed a moratorium on new firms entering the business because members believed it was too susceptible to fraud, but that action did not apply to Monex. By 1986, some legislators thought the remaining leverage firms, including Monex, should be shut down.

The fight that followed boiled down to two choices--banning the industry altogether or lifting the moratorium imposed in the late 1970s.

Scores of groups and individuals lined up against leverage trading, including Consumers Union, three commodity exchanges and even the commodity commission.

Those in favor of expanding leverage included the White House, the Justice Department and Wilson.

Wilson said he thought leverage trading should be expanded rather than outlawed, believing competition will bring down commissions and fees and force companies to do any necessary housekeeping.

On the Senate floor, he threatened to filibuster an important commodities regulation bill if a provision to outlaw leverage trading was included.

“We went to bat for them,” said Wilson. “If you’re asking me to say it’s not risky you’re wasting your time. . . . I wouldn’t urge anyone to go into it. There are disreputable used car salesman. Should we ban the sale of used cars?”

At first, the House of Representatives voted to require that leverage contracts be traded on an exchange. Later, the House reversed itself and voted to lift the ban. The Senate went along with the House’s final decision largely because of the efforts of Wilson, according to numerous members of Congress and lobbyists familiar with the issue.

Following his victory, Wilson was approached in a Senate corridor by the very grateful owner of Monex, Louis E. Carabini.

Wilson said he told Carabini he could not accept any donations because of how it would look. The men had met two or three times before to discuss the impending legislation, Carabini said.

But nearly two years later, Carabini and his wife were invited to a Wilson fund-raiser.

“I inquired through his staff in Washington whether he would still prefer that we not financially support his reelection efforts,” Carabini said. “I received an answer (from Wilson’s campaign staff). . . that our support would be welcome.”

Wilson said the green light given to Carabini to begin contributing was a staff oversight and that he first learned of the donations when he was contacted by The Times. “The senator’s first reaction was ‘What the hell happened?’ ” said Bill Livingstone, campaign press secretary.

Besides the $6,000 in contributions, Monex paid $1,426 in air fare and lodging for Wilson and his wife, Gayle, to spend a weekend in 1987 at the Boca Raton Resort and Club.

Wilson said he was unaware Monex was paying for the trip, which he reported was given so he could attend the annual meeting of the Futures Industry Assn. Wilson later said he was really there to visit his father.

After he returned the contributions--the majority in 1989 and the remainder earlier this year--Wilson wrote a letter to The Times in which he expressed concerns over how the Monex incident might be portrayed.

“A story alleging that leverage contract trading is inherently too risky to allow and that Congress allows this type of trading because of campaign contributions . . . would be factually incorrect, irresponsible and defamatory,” Wilson wrote.