At least three suspects in a far-reaching investigation of alleged fraud at Chicago`s commodity exchanges agreed this week to wear concealed tape recorders supplied by the FBI and have been recording conversations in which their employers and other traders might make incriminating statements, sources familiar with the inquiry said Friday.
More Top Picks Best Outdoor Buffet Stations
The sources said the three are among a number of suspects who have provided the government with fresh evidence of wrongdoing in the multibillion- dollar futures trading business.
As the inquiry has moved into an intense new phase, FBI agents have made late-night and early-morning visits to the homes of suspects, threatening them with criminal charges and demanding cooperation.
This phase will determine how many traders are eventually indicted and how far the investigation will reach in a business that has long been a cornerstone of Chicago`s economy.
The Tribune disclosed Thursday that FBI agents posing as commodity experts had uncovered evidence that scores of traders have cheated customers out of millions of dollars in executing their orders to buy and sell futures contracts for commodities ranging from soybeans to Treasury bonds.
Sources said the undercover agents secretly recorded hundreds of conversations over the last two years with commodities dealers in the trading pits and hallways at Chicago`s largest exchanges and at restaurants, bars and social events.
Law enforcement officials said they believe that tapes of the conversations contain solid evidence of wrongdoing by at least 50 of the traders.
But if investigators convince many of these individuals to wear hidden microphones or provide testimony against their associates, the total number of traders vulnerable to criminal charges could swell to 100 or more, the officials said. If the number of prosecutions reaches that figure, the inquiry would rank among the most sweeping in the annals of white-collar crime.
Such cooperation also would increase the chances for investigators to determine whether any of the biggest and most influential executives of commodities firms sanctioned the allegedly fraudulent schemes that the undercover agents allegedly encountered among traders in the pits.
FBI agents and prosecutors working for U.S. Atty. Anton Valukas began calling on the first round of suspects at their homes Tuesday night in approaches that veteran defense lawyers contend have been more hard-nosed than usual.
Law enforcement sources said the chief aim in ”wiring” the suspects and sending them out to call on their associates is to obtain recorded admissions of guilt from the associates about any fraudulent trading activities.
The sources said they also hope to obtain recorded evidence of any intent by the associates to obstruct justice. They said, for instance, that the unwitting associates might suggest to their ”wired” friends that they destroy any paperwork that might document fraudulent trading practices.
One law enforcement official said he would grade the amount of cooperation that investigators have obtained so far as a ”B” on a scale of
”A” to ”F.”
Noting that commodities traders can win and lose fortunes in a single day, he said that many of those being approached for cooperation ”are high-risk guys” who are used to taking the best deals possible.
In another development, sources familiar with the inquiry confirmed that while FBI agents Richard Carlson and Michael McLoughlin were infiltrating the Board of Trade`s soybean and Treasury bond pits, two other agents began trading currency at the Chicago Mercantile Exchange.
These agents-Peter Vogel and Randy Jackson-cleared their trades through a division of LIT America Inc., a company spokesman confirmed Friday. LIT, whose vice president, Patrick Arbor, is also vice chairman of the Board of Trade, did not know Vogel and Jackson were FBI agents, other sources familiar with the inquiry said.
Attempts to reach Arbor for comment were unsuccessful.
Another source familiar with the investigation said that Carlson spent $355,000 in 1987 for his seat on the Board of Trade.
Under Valukas, the U.S. attorney`s office has made it virtually mandatory for cooperating witnesses in any investigation to wear hidden tape-recorders. Valukas has routinely pushed for lengthy jail terms for those who do not cooperate.
Last Saturday, a team of prosecutors and FBI agents spent the day reviewing tapes and other evidence as they selected the targets most likely to give in to the government`s entreaties.
One defense lawyer, describing the government`s tactics, said his client was visited at his home by an assistant U.S. attorney just after 6 a.m.
”They told him they had extensive evidence that would warrant prosecuting him for the crimes of racketeering, wire and mail fraud,” the lawyer said.
”They told him he could serve much of the rest of his life in jail and could be divested of his worldly assets, and they said the only thing that could save him was to cooperate immediately and tell them everything about any crimes he had ever committed. He also had to tell them about any other frauds he knew about committed by any of colleagues.
”Needless to say, this is a very effective technique,” the lawyer said. McLoughlin, accompanied by a federal prosecutor, has made at least a dozen late-night visits to the homes of traders implicated in the undercover operation, according to defense attorneys.
More Top Picks Best Homework Desks For Kids
”They are playing hardball,” said one lawyer. ”They arrived at one trader`s home around midnight and told him, `Cooperate or we are going to charge you with racketeering, convict you, throw you in jail and take your home.` ”
The high-pressure tactics have added significance because of new federal sentencing guidelines that make lengthy jail terms more likely for those who refuse to cooperate with government investigations.
One defense lawyer said the recently approved guidelines allow white-collar criminals who provide important cooperation to investigators to escape jail terms and receive suspended sentences.
Another defense lawyer said the new guidelines call for minimum sentences of 30 to 39 months for people convicted of financial crimes who do not cooperate with the government. The lawyer said this has given many of the suspects approached this week added incentive to cooperate.
”The guys who have not gotten the subpoenas are the guys who should be worried,” another lawyer said. ”The ones who got the subpoenas are going to be okay, if they decide to cooperate.”
Sources familiar with the investigation said the government views this weekend-the first since dislosure of the undercover operation-as the most crucial for turning traders suspected of corruption into prosecution witnesses.
”You can bet your life that some of these guys are meeting in bars, over lunch counters, in their homes, deciding whether to hang tough, to lie, to destroy evidence or to cooperate,” said one source. ”This is the classic post-conspiratorial stage.”
The attorneys said the traders contacted so far have been ”locals,” who trade for their own accounts, rather than executives of larger companies.
”This is a classic first phase,” said one lawyer. ”The government will cut deals with the small fish and get their cooperation to go against the next level, and up, up it goes, and where it will end is anyone`s guess.”